Advance and Royalties
Sales and Marketing
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Advance and Royalties – How do advances and royalties work?
An advance is a non-refundable sum paid in expectation of the royalties your book will earn, royalties being your percentage payment from each book sale. As you have already been paid ‘in advance’, the royalties from your book sales will need to exceed the amount of your advance before you are due further monies, ie the advance needs to have been ‘earned out’.
Advances or alternatively one-off payments are also payable on rights sales; your contract will specify the author/publisher splits (if subagents are involved there may be deductions at source). Your contract will also specify whether any rights advances are to be offset against your main advance, or whether there is ‘flow-through’.
Royalty rates vary according to the publisher involved, and the type of book. (For example, integrated illustrated books will typically have lower royalties due to the higher production costs.) Two key concepts in calculating royalties are ‘escalators’ – when a royalty rate rises after an agreed sales threshold has been reached – and the basis on which royalties are calculated, ie whether on the cover price of the book – ‘the published price’ – or on the price it is sold to the bookshop or other sales outlet at – ‘the price received’.
Although literary agents in particular are vocal defenders of royalties being based on published price, this is in many way a system more suited to the days of the now-defunct Net Book Agreement, when prices were fixed, and discounts to booksellers significantly lower. The way to square the circle, of course, is to move to price received for all royalties, but to have a higher starting rate.
The acknowledged reference source for publisher-author contracts is Clark’s Publishing Agreements (sixth edition) edited by Lynette Owen and published by Butterworths. See also the next FAQ on ‘PP’ versus ‘PR’.
Do you think this area is nothing to do with you? If so, you are not alone. I am continually surprised at the many authors who do not understand the financial implications of their contractual terms and rely entirely on a third party to explain it to them. Royalties are not rocket science and if you are familiar with simple spreadsheets, you will be able to experiment with costings yourself. Just box your assumptions separately (so you can change them as necessary) before typing in the formulae for your royalty calculations. Here are the assumptions you will need as an author.
Your book’s estimated price and its expected sales.
Your book’s estimated average discount to booksellers.
Your advance and royalty rates.
Any additional income (eg from rights sales).
Rope your publisher or agent in on this exercise and it will help you a) ascertain their expertise and b) focus on the main areas to generate income. (Eg, no point having a major battle with a publisher over foreign rights splits if your book appeals mainly to a UK market.)
What are pp and pr and why are they important?
PP and PR refer to the ways royalties are calculated. PP stands for ‘published price’ , ie the price listed on a book’s cover. PR stands for ‘price received’, the price the publisher receives from the bookchain, wholesaler or other book retailer after their discount has been deducted. Currently, author contracts include royalties based on both PP and PR, the latter conventionally used for export and ‘high-discount’ sales.
The PP v PR debate is the Emperor’s New Clothes of publishing. As Victoria Barnsley, CEO of HarperCollins UK, commented to Publishing News (29 August 2003), royalty payments are based on a system ‘that doesn’t reflect today’s business reality. Once the NBA [Net Book Agreement] went, royalties based on RRP [Recommended Retail Price] should have gone with it…It is ludicrous to have everything set in stone when the business is fundamentally different than it was twenty years ago.’
To put the debate in context, the PP v PR formula was developed well before the collapse of the Net Book Agreement. In those days, bcause books’ retail prices were maintained (ie bookshops were not allowed to price promote), discounts given to bookshops tended to be much lower, so the PP royalty system made more sense.
In today’s publishing environment of central deals, huge discounting and promotions such as Waterstones’ ‘3 for 2’, this is no longer the case.
Publishers, distributors and salesforces all derive their income from the price received. Agents argue that their authors (and by extension themselves) alone in the publishing chain should derive their income from royalties calculated on a theoretical published price. This is patently nonsense – turnover equals turnover equals turnover. It also breaks the cardinal business rule – that all parties’ interests should be aligned. (As an aside I should add that in a recent contract I helped negotiate with one of the conglomerates on behalf of a self-published author, I stuck to the price received formula.)
And finally, having the ridiculous formula of switching direct from pp to pr on some sales (eg export), and on others (eg UK high-discount sales) having royalties based on a sliding percentage of the pp rate – makes for less-than-transparent royalty statements.
As mentioned in the previous FAQ, the logical approach would be to base all royalty rates on price received, but with a higher starting rate. The usual escalators would then apply, at a threshold where the publisher’s fixed costs have been absorbed. This would remove at one stroke the current adversarial set-up, and encourage all to be on the same side. It would also enable publishers, agents and authors to examine the current proposal of whether cover price should be removed from books on its own merits.
This change is long overdue.
Agents – Should I get an agent?
Continuity, nurturing, campaign management, troubleshooting – and of course high advances and beneficial contractual terms – are all potential benefits of having an agent.
Whether you should get one or not will depend on a number of factors. First is the type of book you are writing (eg illustrated or mainly text?, for the trade or for the academic/educational/technical/professional sector?). Then there are factors such as your publisher, what stage of your career you are at, and what level of agent you might attract.
It is certainly not true that all authors are better off with any agent. This is because, in agenting, as with every professional service, it is the quality of the individual that makes the difference. A bad or mediocre agent is worse than no agent. Publishers – unless they are new to commissioning – are fully aware of the pecking order amongst agents, and this will affect the way they view submissions.
So never simply take what is on offer, but ask yourself whether there is merit in waiting until your stock has grown, and you can get taken up by one of the A-team.
Finally, if you do not have an agent, you will need to build up your knowledge about publishing contracts. The FAQ in the Contracts section gives detailed advice.
Your relationship with your agent (- and this applies to publishers as well – ) will include both social and commercial elements. The social/emotional side is usually be the one emphasised. Publishing is more relationship-based than most other industries (you don’t need to take your widgets out to lunch). But there is also the odd bit of spin.
Best to recognise from the outset that your worth to an agent or publisher is linked to financial return. Enjoy each other’s company, have lunch and long phonecalls but don’t lose sight of this driving principle
Agents – How do I go about finding an agent?
The short answer to the question is to go through the listings in the Writers’ & Artists’ Yearbook and The Writer’s Handbook. There are also free website listings on various publishing sites (see We Recommend), and if you are a published author, The Society of Authors may be able to advise you. NB Anyone can set up as an agent, though they need to fulfil certain criteria before they can become accredited members of the Agents’ Association.
Listings in themselves will not be that much use, unless you want to take the ‘Dear Agent, I am desperate, please take me on.’ approach.
Before approaching agents look at the position from their perspective. Agents make their money by retaining a percentage of their clients’ income, say 10-15 per cent on UK deals, sometimes more on foreign rights. This percentage will be deducted from your advance, from any rights deals, and from subsequent royalty payments.
As it takes more effort in establishing an author at the start of his or her career, agents will want to know that you have several books in you, not just one.
Here are some guidelines to help you make an informed choice.
Client List. All agents have client lists, in the same way that all publishers have catalogues. This gives an idea of the company you will keeping and the type of publisher the agent places books with. So ask to see one. NB The client list doesn’t always point to the brilliance of an agent, as a new agent in a large agency might well have inherited authors from a retiring agent; conversely independent agents starting out may still be building their list.
It is important that your prospective agent understands your genre, and has established contacts with the relevant target publishers. If you are a literary biographer, for example, an agent specialising in historical fiction may not be the best choice for you.
Then there is the ‘big fish’ versus ‘small fish’ point. Having an agent who already represents high-profile authors in your field will not necessarily be to your advantage. If an agent considers you to be a potential successor to one of these authors, you might be able to piggyback off their reputation. But if the choice to take you on was borderline, you may be better off going to an agent who boasts less stars in your field but is enthusiastic about you. Enthusiasm can paper over a lot of cracks.
Comparison. Talk to more than one agent. Compare answers and build up your knowledge.
Compatibility. Do you feel at ease with your agent? Can you agree on your ideal level of contact – eg whether you want to be left alone to finish your book or have regular meetings and phonecalls? Make sure you both feel the same way.
Contact. Will your agent be your day-to-day contact, or will this be delegated to someone else? Delegation is not necessarily bad but you need to understand from the outset who you will be dealing with.
Strengths and Weaknesses. Like publishers, agents have strengths and weaknesses. Some will be good at the killer contract; others at nurturing you through a difficult editorial process; yet others at hustling in rights deals. Make sure you identify what you want.
Reputation. While there are a few agents whose strengths everyone agrees on (eg Ed Victor for the killer deal, Carol Blake for her direct rights dealings) this area in general is highly subjective. Publishers and agents all have their favourite contacts; conversely there are always some feuds or other going on. That said, here are some pointers:
Think of some probing questions to ask your prospective agent. Confident agents will have no qualms in confessing ignorance and showing interest in finding out more. Be wary of those who appear dismissive of your questions.
Ask your prospective agent if you might speak to a couple of his or her clients. You will obviously not be put in touch with any disgruntled clients, so be sure to be make your questions specific: ‘Is x good at y?’ (ie rights selling, editorial nurturing, negotiating a huge advance…) rather than ‘Is x a good agent?’
Assuming you have been offered a publishing contract, ask Mark Lefanu at the Society of Authors the same type of question ‘Is x particularly noted for y?’ A more general question is something on the lines of ‘Is x respected in the trade?’ Reputable agents and publishers do not tend to speak disparagingly about their colleagues, but you should be able to pick up any lack of wholehearted enthusiasm. Finally, a direct ‘What is x’s least strong point?’ may also produce results.
If you do not have an agent ask your potential publisher similar questions.
Finally, remember that no one source is infallible. In the end, you will have to trust your instinct
Agents – How do your services differ from those provided by literary agents?
The main differences are:
We take on publishers as retainer clients (ie not for ad-hoc books), while the opposite is true in the case of authors where we take on individual books. Agents, in contrast, take on authors and not individual books.
We work on a fixed-fee basis, coupled with a success-fee above an agreed performance threshold. In contrast, agents take commission on an author’s advance and all subsequent earnings. The relevance of our formula of combining a fixed fee slightly below the going rate with a sales-based success fee over an agreed threshold means that our emphasis is always on achieving improved sales. In contrast, if an agent has negotiated an advance in excess of potential royalties, there is little incentive to take an interest in the sales side.
We act as an incubator for authors and smaller publishers, and are able to carry out all the services that a publisher does – from distribution & sales to the production side. In areas where we have no expertise, such as export, we direct authors or publishers to third-party consultants (nb we do not take fees for this). The Hike – a self-published book we helped bring out in September 2004 is a good example of how we work. We helped launch the book; it sold 2,500 copies in three weeks and reprinted another 2,500 copies (retail price £9.99). The author broke even on his first edition and made a profit on the second. Since then we have been approached by various parties and sold the rights to Ebury for a five-figure sum plus serious sales & marketing commitment. The book has also been called in for television rights. In this case both parties – the author Don Shaw and Publishing Services – took risks: Don in paying for his book to be published, and Publishing Services in taking a reduced initial fee. As things have turned out, both parties have benefited from the ‘reward’ part of the risk-reward equation. But this will not always be the case. There are no guarantees in publishing.
To sum up, the author or publisher pays for the production of a book, and retains all profits, less the agreed success-fee component.
The services agents offer are typically centred around editorial support, deal-making, contract negotiation and rights selling (if their agency controls the rights). They will also troubleshoot and act as intermediaries.
The degree to which this latter point is helpful depends on the clout of the agent and on their common-sense. It can be counterproductive if an agent backs up a author’s stance which is unreasonable.
Agents have clear demarcations between their work and that of the publisher, so will usually leave a publisher to get on with marketing and selling the book. If you want additional support in an area already provided by a publisher, that will not usually be considered part of the package.
Check out Writer Beware for pointers as to the agent equivalent of vanity publishers.
Contracts – What do I do when I am offered a contract?
Never sign a contact before understanding in detail what the contract is offering and what the implications are. This applies to all contracts – whether with your publisher, agent, television production company etc.
Most publicly available information seems to focus on publishers rather than agents, so this is the reason for my focus in this FAQ.
First, go to the Publishers’ Association site for their guidelines as to how publishers should deal with authors. The standard book on contracts is Clark’s Publishing Agreements: A Book of Precedents (Sixth Edition) by Lynette Owen – the acknowledged expert in the field. It is published by Butterworths at £70.85. Although expensive, it deals with every type of right likely to be featured in a book contract, and covers book and journal publishing and both the general and educational sectors (see We Recommend for our review). After you have been through this process you should be in a position to get the most out of the Society of Authors’ free vetting service for members
The combination of the above will equip you with an understanding of industry standards and precedents. This should help steer you away from obvious pitfalls – you will not be in danger of signing away copyright, for example.
However, a more advanced step is knowing when to depart from contractual precedents, either because they are not relevant, or because you have identified circumstances that standard contracts do not deal with. Contracts are continuously evolving and will often lag behind industry developments.The current debate about published price versus price-received royalties are one such example (see the earlier FAQ on the subject). The ability to start thinking about what is appropriate rather than what is standard develops with time and confidence.
A final point is to consider your negotiating strength. Don’t be afraid to ask for changes, but equally don’t box yourself into a corner.
All commercial publishers should be in the business of paying you – not the other way around. If you are ever asked for money – however the request is phrased, get advice immediately. The self-publishing route (where you pay for your book to be published but control the process) is an increasingly accepted part of the publishing mix, particularly with the advent of digital printing. But no commercial publisher should be asking you for money. NB For detailed advice on UK vanity publishers check out Johnathan Clifford’s site – he is a dedicated campaigner and responds to all emails. His website address is: Vanity Publishing
Copyright – How can I protect my material?
The huge technological changes of the last fifteen years – the growth of the internet and the development of the digital environment – have radically changed the way content is delivered. Copyright protection is now more important than ever before. As Lynette Owen writes in her seminal book Selling Rights: ‘The publishing industry …is inextricably linked to the existence and recognition of copyright. Without copyright it is doubtful whether the majority of authors would have the incentive to be creative.’
Although there is no copyright in an idea, the copyright in your written books is yours automatically, and remains so for a period of seventy years after your death. This also applies to other forms of written material, such as material stored on a computer disk or cassette.
Do not confuse granting a publisher a licence to publish with giving away copyright, unless there are special circumstances.
For the avoidance of doubt, include a copyright line when submitting material. This should be in the form of © [your name] + [year]. The Society of Authors also suggests the following:
Establish proof of when your work was