Literary Contracts: Author Compensation

It's time to cover the fun part of a book contract: the royalty clauses.

The standard author/publisher relationship involves a transfer of rights (by grant or possibly other means) from the former to the latter. The publishing house gets the right to exploit the work in a number of ways, and the writer receives some form of compensation in exchange. The most common form of author compensation is the royalty payment.

The frequency and size of royalties can vary, but every royalty is a payment made to the author of a work derived from a percentage of the book's price. A common practice is for the author to receive 10% of the cover price (or more accurately, the publisher's invoice price) for the first 5000 copies sold, 12% on the next 5000, and 15% for every sale over 10,000 copies.

Now we come to the topic of advances. Contrary to a popular misconception, an advance isn't like a signing bonus. It is instead exactly what the name implies: an advance payment against future royalties. Publishers calculate advances based on projections of initial sales. For example, a publisher might offer an advance on the first 1000 copies sold. At the standard royalty rate of 10% and an invoice price of $20.00, the advance comes out to $2000.

The amount of the advance is important because the publisher doesn't have to start making royalty payments until the advance has been recouped in sales. The way it's done is that the publisher keeps the 10% royalty for every copy until royalties on actual sales exceed the advance amount. Therefore, an advance is more like a lump sum court settlement or lottery payout than a bonus (although you can and should get them in installments).

Although royalty payments technically begin after the advance has been paid back, very few books ever manage sufficient sales to do so. Therefore, the advance is likely the only compensation a writer will receive. The good news is that authors aren't obliged to issue refunds on advances to publishers if their books don't sell.

Alternate methods of compensation do exist. For instance, a publisher might offer a writer a percentage of net retail sales. However, as we all know, "...the net is fantasy." (1:18)