How To Read a Royalty Statement
... and understand it!!
Hi all,
Since we’ve wrapped up a royalty period, I thought I’d follow up my posts on how the money works in (traditional) publishing with a post on royalties.
If you’ve missed the Money posts, Part 1 is pre-publication and part 2 is after publication. Here are the links:
If you are being published within traditional publishing and/or have a contract where the financial terms are an advance against royalties (or an advance against all earnings) or no advance/fee but royalties only, then you are entitled to receive a royalty statement that will show sales and your share of the earnings.
If you’re agented, you may want to ask your agent if they send all statements or only when you have earned out your advance as each agency does differently.
I check all royalty statements for my clients and here are a few tips on how to read them and also check that all is accounted correctly.
First statement checks
When you get your first statement, there are a few things to check relating to you, your book, the publisher and the editions the publisher is selling. I used to input all new books in our royalty system way back when so I’ll explain how the process works.
Usually, you will have the royalty information added to the system when the head contract (what we call a main contract done with a publisher, as opposed to a sublicense) is signed, way ahead of publication. All changes to contracts in the form of addenda get added/amended too after signature. Some changes don’t get an addendum and mistakes do happen so it’s always worth checking the below things are correct and as per the contract you signed (if not, ask for them to be corrected for next time and potentially re-issued if inaccurate):
Your name
Your agent / agency name if you have one
Your book title
The publisher and their address (obviously, for big publishers, you sometimes sign with an imprint and the accounting is done by the group)
Advance(s) paid and overall advance and the way it is split is recorded accurately.
If you have done a deal for more than one book, the titles may appear on the same statement. But they should be accounted separately. Only if you have a contract where those titles are “jointly accounted” will it mean that you will need to take into account both titles when checking. Jointly accounted books usually are for series, and while separate advances may nominally be set against specific titles, you will need to earn out the whole advance before seeing royalties for any individual title.
Royalty periods
The most common royalty period is every six months where the statement for the first half of the year come in October/November and the statement for the second half comes in March/April. You also have publishers accounting once a year or in a different way so check the “Accounting” section of your contract to know when you are likely to receive the statement (and therefore when to start chasing if you haven’t).
The royalty period date should be clearly marked. You should get a statement from the first royalty period your book is published in, though it happens some publishers send statements for previous periods with 0 sales/earnings when they have paid an advance. If your book records no movement whatsoever, your publisher may also not issue a statement but I would always check that.
Editions
Regardless of the system used by the publisher, books will be accounted for individually by edition through their ISBNs (this is how they are stored in the warehouse and sent to retailers — shops order a book by their ISBN which is a unique number and helps differentiate the different formats of each book).
The way the system I worked on functioned is that the main edition (the hardback if there is one, otherwise the first physical/paperback edition published) is the anchor edition, and then all other and secondary formats (audio, ebook, paperback, trade paperback, sometimes Large Print or library editions) are linked to it. That means it is easy for an edition to “fall off” so to speak and not be linked to the main edition. So when you get your first statement, check that all editions your publisher is publishing are accounted for. If not, they will link them and re-issue the statement and correct for next time.
Please note: sales for digital editions — like ebooks and audiobooks / audio digital downloads (ADD) — are accounted a month after they are made, therefore if your book is published the last month of a royalty period cut off, the editions may not appear as sales would be recorded the month after which falls in the next royalty period. But it is always worth asking to make sure.
Statement check
Once you’ve done all these checks, you can start looking at the book sales. When I have a new statement, I will always have open the head contract on my screen and the last royalty statement to check that unearned advance is the same at the end of the last period and at the start of the new one. Same for the reserve against returns.
What does it mean if you see number in parenthesis (5,000) or with a minus in front -5,000? This means that it’s a negative amount / unearned if money or returns if physical copies.
You will have many columns and they can be confusing to read so let me break down the sections you are most likely to find on statements:
Life sales / period sales:
Some of the publishers who account for the sales done in the period also add columns (or separate boxes) with ‘life sales’. The numbers will be the same in the first statement, but in all future statements, you will get a snapshot of your total book sales in comparison with the current period. Do bear in mind that some of these life sales may be split by formats, or favour physical books, so check which it is in yours and add up formats if it’s not for all editions.
Gross/net:
You will usually have a ‘gross’ column and a ‘net’ column for both copies and earnings. The numbers tend to be the same for digital formats but you will see a difference in physical formats like paperback and hardbacks where the net column amount is smaller. The gross total is all sales in that period and the net total is all sales in that period minus all returns.
Price basis:
Individual formats will be accounted using different prices:
Published Price or RRP: this is the price that is on the book or is the original price of the edition you can see online (not taking into account any discounts from the retailer). If this price isn’t on the statement, go and look it up online as we’ll need it. This is usually for sales of books in the UK (Home Market) in physical format. That means that to get the gross income, you should multiply the price of the book with the number of copies sold. The total gross income amount for that line should match what you do on your calculator.
Net receipts: this is the money the publisher has received from the retailer (minus all discounts, taxes if any etc) and you just see it as a total ‘net income’ or ‘amount received’. It may be shown as a different column to the total income from price received editions. Net receipts are usually for export and digital editions and you only get to see the total as individual sales in these lines will vary. Ebooks used to be taxed at 20% but this was changed in May 2020. Audiobooks sadly still have 20% VAT.
Hardback / Trade Paperback / Paperback / Mass Market Paperback formats
This is the category that will require the most amount of brain work and checking from you, but don’t despair!
Home Sales:
These are sales in the Home market which is usually UK but can include Eire/Ireland (I know, but I don’t make the rules, it’s a geographical/ distribution thing) and can sometimes encompass sales in Europe (though not often as it is in the Author’s interest, not the Publisher’s because of currency conversion, taxes, transport).
These home sales in the physical editions will be split by format:
hardback: the usual first edition in the UK, if the publisher has rights to sell export/airport copies (do bear in mind that hardbacks come on different sizes but the hard cover makes it a hardback)
trade paperback: a publisher may also do in addition to or instead of a hardback a trade paperback. It is a book which is a hardback size but with paperback cover,
paperback / mass market paperback: these are the small paperback formats that are cheaper to produce. In the UK we favour a B format but Europe/export favour a smaller A format.
All these formats don’t usually co-exist at the same retailer so they will choose their favoured format. Each physical format will have different rates.
Escalators:
You sometimes have escalators on your editions, meaning the more a book is successful (sells copies), the more money you get from it with a higher royalty share. Usually, the escalator kicks in after a certain amount of copies sold. Keep track of those copies per format across your different statements (regardless of discount)! It’s the part that is the most annoying to do and check (believe me, I check this for all my clients!) but it makes a HUGE difference to your earnings if this isn’t caught.
High Discounts:
The way this looks in your statement is that you will see a quantity of books sold (and earnings) against something labeled ‘regular’ or ‘normal’ sales or ‘low discount’ next to the full royalty rate for that format. To check the statement adds up, just see what the rate (your percentage) of the gross income would be.
Then you will have sales recorded against a ‘High Discount’ or ‘mid discount’ rate or the actual percentage of discount (the layout changes per publisher) with the rate being 4/5th of the full royalty rate above (so if your rate was 10%, it would be 8%).
Then you will have a ‘Higher Discount’ or another term with the rate as 3/5th of the full royalty rate (so if your rate was 10%, it would be 6%). To check the statement adds up, just see what the rate (your percentage) of the gross income would be.
I have talked about these in my How Does The Money Work? posts so have a look there but this is why where your book sales come from matters.
Export:
These will likely be accounted as a flat rate (so no escalator) as net receipts so a very easy one to check.
Ebook and audio:
Digital formats tend to be easier to check as they’re usually based on net receipts, rarely have escalators or returns. You just have to check that your share of the amount received is correct and add up the totals.
Other territories/format
You may have separate lines for Book club editions, special sales or specific territories, these will all have rules assigned to them in your contract. Sometimes it takes some deciphering to figure out which contract term matches which system shorthand.
Subsidiary rights
If your publisher handles subrights / subsidiary rights / rights, you will also see any income from them under a separate category in the statement. It will usually say what it is “Audio Signature advance” or “Germany publication advance”. Do keep track of the rights deals you are sent by the publisher and what the total advance and advance payment split is and make sure to chase publishers after each statement if a payment that should have come in the royalty statement isn’t present. (For example, you received copies of a foreign edition of your book which means the publication advance would be due so chase for it if it isn’t in the statement).
Reserves against returns
This is when a publisher has negotiated in the head contract that a certain percentage of sales on a physical format may be held as a reserve against any possible returns so that the author doesn’t see mass sales and mass returns on each statement. It is usually split over hardback and paperback, and should be added back into your royalty after two to four royalty periods minus returns. The way it is calculated is that the publisher will add all the sales of physical format and apply the percentage agreed and keeps hold of it.
Always check back what the amount was in the previous statement and whether it tallies.
Add it up!
Then it’s a case of adding the total earnings and your total share of each edition up. You will almost always have the total out by a penny or so because you only see two digits after zero but the system has the whole amount not rounded up.
To give you an idea, I have queries on royalty statements on a fair chunk of the ones I receive and there is always one where the author is due more money, even when the advance is unearned. Understanding your statements and advocating for yourself is a good thing to do.
Unearned advance
Once all your totals are done, deduct them from your advance, or unearned/ remaining advance if this isn’t your first statement. The amount you get is your new unearned advance, meaning you will need to earn that amount in royalties before you can start receiving royalties from your publisher when this advance is all earned out / paid back in sales.
I know publishing is all about big deals, but these are near impossible to earn out, so don’t feel bad about having a smaller advance with steady sales! It means you are seen as profitable and your publisher may want to contract you again. There is no deadline for when you can get a boost in sales, so always keep telling people about your books, have links to independent bookshops available and encourage sales in any formats. Every little counts.
Publishers will take into account how big the unearned is of a previous book before committing to a new one (and bear in mind all these big groups may be separate imprints, but they will likely share this type of information). Agents will also use the fact that a book has earned out as ammunition to get a higher advance for the next contract.
I hope this all makes sense but do flag if anything needs to be broken down a bit more!
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Thank you for your generous sharing of this information. Have not been published by a publishing house yet, but I am tucking this away for future reference.