Part I: Publisher-to-Author Payment

Part I: About Royalties

Part II (coming July 30): Payment Pitfalls and Experiences

Royalties and advances for children’s books can be lucrative down the road, if you make the right decisions up front.

What are royalties and advances?

A royalty is a percentage of earnings from a published book that are paid to the author (and illustrator, if there is one) by the book publisher. Since editing, printing, binding, and distributing a book takes time, traditional publishers advance their authors a portion of those royalties up front, usually half when the contract is signed and half after all editing and author’s and/or illustrator’s changes have been done. The book earns royalties for the entire time it is being sold. Once the book has earned back the advance, the author receives a check every six months for any additional royalty amounts earned.

How are royalties calculated?

Traditionally, a set percentage of the retail price of each book sold, meaning the price printed on book cover, goes to the author. Some contracts have separate royalty percentages for hardcover books, paperbacks, and special sales. Each of these percentages are clearly stated in the contract and are calculated for every book sold.

Are royalties and advances the same at every publishing house?

There is an expanding range of publisher to author payment paradigms in use now. Before you submit your manuscript or agree to a contract for your book, you should know whether the deal you can expect from the publisher is fair. Be aware of the significant choices you should consider before you sign that dotted line.

Traditional publishers in the past offered fairly “boiler plate” contracts and some still do. But now there are other publisher to author payment structures in use, especially with smaller companies. Some of these are reasonable, while others are red flags. Some publishers do not offer advances. Some offer only flat fees. This is called Work for Hire. There are things you as an author should be aware of so that you don’t sign away the earnings you deserve. Once a contract is signed, it is difficult to change, so think before you lift that pen!

Since it is useful to know what kinds of agreements recently published authors have with their publishing houses, I put together a brief, anonymous survey through surveymonkey.com and will include the results in Part II on July 30.

The Standard Royalty paradigm

A traditional contract offers the author a specific royalty that is a percentage of the retail price (meaning the list or cover price printed on the book), and an advance that reflects their best guess of what your book will earn in its first year of availability. The advance is a portion of your royalties given to you up front. After the book has earned back its advance, you the author will receive royalty payments twice each year for the life of the book. Many books go out of print within the first two years, especially a first book. If the advance is not earned back, the author does not have to return the difference.

The SCBWI suggests that the standard advance for a 32 page picture book is $8,000-$12,000 and a 3.5%-6% royalty based on the retail price of each book, split between the author and illustrator. For a novel the royalty is 7%-10% with a $5,000 to $10,000 advance. For instance, if the cover price of your book is $20 and your royalty is 10%, you will receive $2.00 per book. Traditionally books are published in hardcover first. That affects the royalty too because the price of each book is higher than for paperbacks. Some traditional publishers also specify discounts to wholesalers in the contract since these entities buy many copies at once. Although you earn less per book, many more are sold.

Standard contracts also cover many subsidiary rights. These itemize your profit if the book is produced for export, serialized for a periodical, translated, bought by a book club, included in an anthology, reproduced electronically, made into a movie or performance, or licensed for commercial merchandising or computer games, for example.

For more specifics see: http://www.scbwi.org/Pages.aspx/Top-10-FAQs#10

Any Higher Royalty Options?

It is easy to think that these royalty amounts seem small in comparison to higher percentages per book garnered by self-publishing or through other formats. But when you factor in that the traditional publisher pays all expenses for editing, design, printing, binding, warehousing, registering copyright in the author’s name, marketing, and promoting your book and often gains you additional profit through subsidiary rights (often much more than your royalties), the bottom line is that your earnings are likely to be higher with a traditional contract, if you can get one.

Real life examples

My first book was in print for nine years, earning traditional royalties long after the initial advance, which paid for my time spent writing and illustrating the book, yet later I was free to work on other books rather than only marketing my own first book. Another book has been in print for 21 years, was translated into Spanish, is included in an anthology and audio CD and for each of these subsidiary rights there are separate, handsome profits itemized in the contract. The book is narrative non-fiction and is also used by many school districts through an agreement the publisher arranged. I would not have been capable of finding these extra markets myself. Because my contracts are traditional ones, the books have earned well for me.

Net Income Royalty

If your book is chosen for publication by a smaller house, you may be offered a royalty based on the net income or net sales. This means that discounts charged by retailers or wholesalers are deducted before royalties are calculated. The percentages and deductions should be specifically and transparently listed in the contract. Your royalties will vary depending on who sells the books. For instance, if you have a 10 % royalty, a $20 cover price will earn $2 if it is sold through the publisher’s website for full price. However, if sold through a bookstore at a discount of 40%, it would generate a royalty of $1.20. Through a wholesaler at a 50% discount, it would earn you $1 per book. In the traditional format, the royalty remained at the full percentage when books were sold through bookstores and retail outlets. Smaller companies don’t have the clout of the so-called “big six” publishers, but small houses can give your book much needed personal attention. The trick is to find a good, honest publisher structured to treat your rights fairly.

The net income payment format is common in the small press world and though not as desirable as a standard royalty, it is a normal business practice. You simply need to understand what the parameters are.

For a look at the riskier Net Profit option, check out Part II: Payment Pitfalls and Experiences, coming next week.