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  Royalties
by Vicki Hinze

Would you please discuss "net" as it relates to the amount that a writer eventually receives as royalties? 

Let's compare gross and net.

Gross: the total amount of cumulative sales on a book. (Cumulative, because it can come in the form of book sales, foreign, audio, film, or other media options, as well as games, products, etc. This is the sum before anything is deducted.

Net: Net on a book is what's left from the gross after all expenses are deducted. (This can include marketing, advertising, a prorated share of overhead, as well as the usual advance reading copies of the book and such.)

Does a writer have any negotiating space at all on how net is calculated?

No, none whatsoever. Net is calculated by the company according to its criteria. The author can't tell the company how to run its business or how to assign costs to a specific project.

That does NOT leave the author at anyone's mercy, or it shouldn't.

A friend of mine signed a contract that specifies only that she gets a net amount, and her first royalty check was for less than $20.00.  She understood that her gross on the books were to be in $4.00 to $5.00 range, and she knows a lot of books were sold.  She knew she was getting only the net, but had no idea the net would be such a tiny amount.

Herein lies the problem. Your friend signed a contract specifying only that she gets royalties based on net. That means the publisher can deduct any and everything--and will, because it's the publisher's business to make money--and that leaves very little to be considered as "net." That is the object. To show as little profit as possible.

In a situation such as this, the author should request a Reconciliation to Print. She might not get it because she didn't put it in the contract. This is a full disclosure of the book. How many copies were printed, shipped, sold, returned. All expenses assigned to this book are included on this form. This would at least give the author the insight on what this publisher charged against her book.

Mind you, there's nothing to be done about it, because the author agreed to royalties based on net and didn't narrowly define net, or issue limits. This is why an author ties royalties to the retail price of the book.

Tied to retail, the author doesn't sign on to pay costs in which s/he has no control.

Tied to net, every dime earned by a book--or more--could be spent and the author would have nothing to say about it. If the book is in the red due to costs, technically, the author is liable for his/her share of that money, though frankly, I've never seen a reputable publisher do that.

Bottom line: tie royalties to retail price of the book, not net. Never net.

She did sign this contract without an agent. 

Herein is the hazard. Literary contracts are extremely complex and unless you're a literary attorney--not a normal attorney, but a literary attorney--or an agent with access to a literary attorney (reputable agents always do)--you don't need to be negotiating contracts. In this, what you don't know can hurt you on this book and for many or all books to come.

Without realizing it--one "s"--you can give that publisher an option on all future works rather than the next work of the specific type you've written. You can, without realizing, sell your pseudonym, give away a lot of your rights. Or--as in the case of your friend--tie your royalties to net without net being defined and limited which leaves you with no money and potential liability.

My best advice: I've sold about fourteen or so books now, I have a legal background, a corporate background, and a degree in Business Ethics and I'm telling you there is no way I'd negotiate a literary contract. Every word on those twenty-odd pages is there for a specific reason. I don't know them all.

If you get an offer on a book without an agent, you have options.

1. Call your dream agent and ask him/her to negotiate for a 10% fee.

2. Call a literary attorney (you can find a good one through Author's Guild) and ask for a contract review. It'll cost you about $250 and it's money well spent.

She's in the process now of acquiring an agent, as this same publisher will soon be offering a contract on her second book. 

Okay, here your friend has an opportunity. She can amend the first contract in the second contract. An agent can negotiate this on her behalf. Change the first contract to tie the royalties to retail and base the second contract on retail, limiting rights and liability.

Neither of us knows just what she should expect from an agent.  Should the writer spell out ahead of time what she expects to be deducted from her gross?

No. As I said, you can't tell a publisher how to do their accounting. What you can do is tie your royalties to the retail sales price of the book. Now some of the books will be discounted to sell wholesale. That, the agent will allot for in the contract. S/he will likely limit the ratio of books that can sold at a discount versus at retail price, which protects the author's interest.

How does a writer even find out what all items can be potentially be deducted?

If the writer were to go against industry standards and sign a contract structured this way, then potential deductions and limits should be spelled out in the contract. However, this tying to net isn't typical industry procedure and frankly I wouldn't sign it.

How much responsibility does the agent have for understanding the financial end of it well enough that the writer gets more than pennies per book sold?

A reputable agent understands all aspects of the business, including the financial end of it. A main portion of his/her job is to "wed" the right author to the right editor at the right publisher with the right projects. That includes handling the contracts. The agent has a vested interest in getting her/his clients the best deal possible. That agent receives 10-15% of what the author makes. If the author makes pennies, the agent makes less. Not apt to hold much appeal to the agent or the author.

Good agents are sharp as tacks on finances, contract terms, and the art of negotiating. The key is in making sure you've got a good agent. AAR--Association of Authors Representatives--is a good place to start. Its agents are all selling works and have agreed to abide by a code of ethics. That's important because being an agent doesn't require a license and there's no body governing them.

Or does the agent just negotiate the total contract, advance, etc.?  I have several reference books, but none of them get into the specifics of what all can be charged against a writer's gross and/or how a writer might protect him/herself. 

The agent does far more than negotiate. S/he manages the writer's career, develops a strategy, works with publishers, editors, the author, to enact it.

The reason the reference books don't get into specifics of what can be charged against a writer's gross is because the practice of charging against a writer's gross has surfaced with e-publishing and print-on-demand publishers. It isn't customary to typical publishing, which has traditionally tied royalties to retail sales price.

It's a new world we're in now, and we've got to get smart fast to keep from getting burned. I'm sure your friend expected that her royalties would be at least $2 per book if the gross was $4. That's really not an unreasonable expectation. But when you don't limit liabilities--what may be deducted from your royalties--you often are disappointed.

Copyright 2003 Dr. Vicki Hinze. All Rights Reserved

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Dr. Vicki Hinze is an award-winning, best-selling author who routinely shares her expertise at national writers' conferences, online, and through her writing guides. Her latest non-fiction book is ALL ABOUT WRITING TO SELL, from Spilled Candy Books for Writers. This 589-page ebook covers everything you need to know about the craft of writing, the publishing business, and the secrets to getting published. ALL ABOUT WRITING TO SELL is available at www.SpilledCandy.com as a download or disk.

Or you can visit Vicki's author site at
www.vickihinze.com

 



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