Wednesday, September 19, 2018

How to Read Royalty Statements (Without Losing Your Mind)

Royalty statements can be quite cryptic if you don't know what you're looking at!

Unfortunately, no two publishers report royalties the same way. However, there are a few* key things I can share to help you understand and interpret these statements.

The first thing to know is that you can't read your statement without reading your publishing contract. Everything in the report is tailored to how YOUR contract outlines the publisher will pay you. 

Second, you need to understand what time period the statement is reporting (G). Your contract should state when your publisher will remit statements to you, and what time periods it will cover in those statements.

  •  The most common reporting structure is bi-annually: publishers will send you a report covering sales and returns from Jan-June, and July-Dec.
  • Publishers need time, at the close of a "period," to put all of these statements together and send them out with corresponding payments. That is why you will see the statement covering Jan-June a few months after the close of the period (i.e., in September or October).
Third, numbers in () will signal a NEGATIVE balance

Let's begin!

Here is an example statement; I put random numbers in so sorry, this isn't supposed to make sense - it's for identifying pieces of the statement!

  • (A) Books (editions) are (typically) broken out by ISBN 
    • Hopefully, your publisher has listed the format next to the ISBN as well, so you can tell what edition that page is reporting numbers for (i.e., the hardcover ISBN, the ebook ISBN, the paperback ISBN). If not, you can plug the ISBN into Amazon to look up what edition it goes to.
    • If you have multiple books with a publisher, they will report numbers on all ISBNs for one book before moving on to the next book you have with them (i.e., you'll see numbers for the hardcover and ebook and paperback for book A before you move on to those numbers for book B). 
  •  (B) Editions produced by third parties, or subsidiary licenses (i.e., translation, audio, permissions, book club, paperback reprints, etc) likely won't be broken down in as much detail as the other editions, simply because these are not products the publisher has directly produced, and thus not products they have as much information on. 
    • However, these licenses should be reported on the statement, and may be at the end of each title or on a summary page of subsidiary rights for that period. 
    • They may be reported ONLY in the statement in which the money was received. Meaning, if your publisher licensed French translation rights, that may only appear in the statement for the period that the publisher actually gets the advance money in - NOT the period in which the contract for the license was signed. 
  • (C) Some publishers include a "summary page" at the front, or end, of each statement, to roll all of these numbers up together per book or per author so you know in a glance what it means for you regarding any money due (or not due). <--eh, see what I did there?!
  • Some publishers will report a current period and cumulative period side-by-side in the breakdown. They likely won't be separated out by nice little divider columns. So you have to look for headings above the numbers to determine what goes with what.

You'll (likely) see an "X" and "Y" axis format to your statement. Let's begin with the "Y" axis. 

  • DIRECT: this refers to books sold directly to the consumer (and thus likely not discounted)
  • DOMESTIC: this refers to the number of books sold in the US
  • HIGH DISCOUNT: this refers to the number of books sold at a discount outside of the normal range vendors usually receive. 
  • EXPORT: this refers to the number of books the publisher sold and shipped outside of the US
  • Each of the Y axis categories will have a royalty rate outlined in your contract. 
    • For example, X% for books sold at export, X% for books sold at high discount, etc.

The Y axis of a report is interpreted in the context of the X axis:

  • LIST price: this refers to the suggested retail price 
    • Vendors don't have to sell it at this price, and publishers don't have to sell it to vendors at this price. However, if your contract says that you will be paid royalties based on LIST price, you will be paid a % of list regardless of what the publisher or vendor sells the book for. So if your book is priced at $17.99 list, you are paid a % of $17.99 list. 
  • Units sold: this is the total number of books sold (and can include books shipped - more on that in a second).
  • Returns: this is the number of books returned to the publisher. Usually in ()
  • NET units/Gross: this refers to the total number of sales, including returns. Typically followed by NET SALES, which shows the NET amount the publisher received for those NET sales. 
  • NET sales/proceeds/earnings: this refers to the actual amount of money your publisher gets for sales of the book. 
    • Vendors buy books at various discounts (commonly 40-50%) off of list price, so vendors can sell to customers at list price and make a profit. So, if your book is $17.99, and your publisher sells to B&N at 50% off list, the publisher is only actually getting $8.995 per book sold. If your contract states you are paid based on NET sales, you are being paid based on what the publisher actually receives ($8.995).
  • Royalty TIER/RATE/AUTHOR'S SHARE: this is the rate at which your contract outlines you are to be paid.
    • A tier could also refer to escalating rates; i.e., your contract states you will be paid X% for 1-5,000 copies, and X% thereafter. Not all contracts have escalating rates.
  • Royalty due: this is the amount due to you. It will be the calculation of #of books x royalty % x (NET/LIST) sales**.

(D) Each reported category of sales in this Y axis is then added up, to show the total royalty due to the author for that book. This is NOT the amount PAID.

To figure out the amount to be paid, you have to look at:
  • Balance carried forward/prior period balance: this is the amount PAID (or remaining unearned) from the last statement. Your first statement will show the advance as the last amount paid.
  • Reserve held: this is the amount of money (they may also calculate a number of copies this correlates to) your publisher is holding on to in case returns are made. Publishers do this so that they don't pay you for all of the copies shipped out, and then have to recoup fees later when a bunch of those copies are returned. The reserve is a % of total sales. Your contract may state a % of sales cap the publisher can hold a reserve on.
  • Reserve released: this is the amount of money your publisher is releasing that they previously held on to

(E) These numbers are added together to show the total amount actually due to you in this statement period (previous balance + total all ISBNs + reserve held + reserve released). This is the amount PAID.

Your FIRST STATEMENT will (likely) include copies SHIPPED out to booksellers (the number of copies sold to booksellers as inventory); that means, the first statement isn't usually a reliable report of copies sold to customers. Your publisher tracks the number of copies in circulation that go on to sell to customers (typically) per week; you can ask your editor (or look in your author portal, if the publisher has one) for point-of-sale (POS) numbers - that is the number of reported sales to actual customers as reported by booksellers**.

The biggest period of returns you will see is usually 6-8 months after publication; this means that your SECOND STATEMENT is (likely) to show lots of returns. It does not mean your book suddenly flopped. Don't freak out. Publishers will use copies returned to meet future demand**.

Hopefully your publisher lists CUMULATIVE or LIFE-TO-DATE units sold (F). This is how you can see, each statement, how many copies of your book have sold since it published. If these words do not appear anywhere on the statement, unfortunately, the only way to get this number is to ask your editor, or keep a running tally statement to statement.

How do you know if your book is "doing good"? 

Well, that's sort of one of those "it depends" kind of answers. There is no magic number that = your book sold well! Publishers consider numbers in the context of multiple factors, including author history, advance paid, similar titles, sell-through, time, the angle of Jupiter's fifth moon, among other things. I.e.: you have to ask.

A common misconception is that your book going to reprint means you've sold a gazillion copies. While it's fabulous to go into reprint (it means that your publisher sold more than they expected), if your first printing was 5,000 copies, well then, you sold 5,000 copies**.

Your publisher will have an idea of what kind of numbers they're hoping to hit long before publication. It might be squirrelly trying to get this out of them, but you can always ask, if you want to keep this in mind! However, HUGE caution on can lead to a rabbit hole of disappointment and obsession when you should be focusing on OTHER things, like promotion and WRITING YOUR NEXT BOOK!

So you sort of promised I WOULDN'T lose my mind?!

Did I?!

In reality, knowing what you're looking at and practice are the best ways to understand your statement. Not everything is always spelled out in a statement; reserves held or released, a summary page, etc.

I recommend setting yourself up with an excel template (because lord do I love templates) that looks like the example I prepared. Review your contract to plug in your X axis categories and the rates they should be reported at in the Y axis. Keep record of any sub rights (book club, translation, audio) your publisher has sold, and the statement that you saw it reported on, so you can keep track of those.

You can get fancy and create formulas for yourself that will calculate royalty output, but keep in mind, this is only going to be an accurate number if your publisher is reporting based on LIST price, because you won't have all the details (such as discounts to vendors, or agent/foreign transaction fees for translation deals) to calculate NET. But you should be able to get within the ballpark; for example, in the example report above, you can get a rough idea of what the publisher received per book for export sales by dividing Net Sales by Net Units.

Each statement, review these key items:

1. Everything is calculated correctly (as best you can estimate, when you're dealing with Net)
2. Your royalties are being reported at the correct rates
3. Any subrights earnings are accounted for
4. Help keep tally (if the statement does not) of sales and returns

If you find an issue, or think something looks off, ask your agent - or, the royalty department!

I hope you have enjoyed this novel on reading royalty statements.

*I really meant it to just be a few when I started. Promise.

**there are qualifiers and extended things to discuss here that I'm not getting into

1 comment:

  1. Usually, I never comment on blogs but your article is so convincing that I never stop myself to say something about it. You’re doing a great job Man. Best article I have ever read

    Keep it up!