Contract Basics: Finances (part 2)

In part one, I discussed advances and royalties, but the financial aspects of your contract do not end there. Here goes part two!

Bonuses:

Bonuses may be set to commemorate certain achievements, such as 5000 copies sold in the first month or making it onto the NYT Bestseller List within 60 days of publication, etc.
This money is not paid as an advance, so it does not have to be earned out. It is paid in addition to royalties earned from the sales that help you reach that goal.
Personally, I wouldn't recommend negotiating this part of your contract (for your first book). It's lovely to think of the possibilities of selling that many copies that quickly or making bestseller lists that quickly, but it's unlikely (in which case the offered bonus amounts wouldn't matter), and if it does happen, the money offered should be only icing on the cake of your achievement.

If your first book does well enough that your second book can be expected to earn a bonus, however, reasonably negotiating the amounts is certainly fair.

Author Copies

As the author, you can expect to receive free copies in various formats (.mobi, .epub, softcover, hardback).

The number of free physical copies will depend on the size of the publisher, your negotiating power, etc. Keep in mind that your publisher should also be the one supplying review copies and the like, at no cost to you, so my suggestion would be not to take advantage of your publisher by pushing for too many free copies (but don't settle for only one or two, either!).

There will also be a specified cost for any additional copies you would like to buy, most likely as a discounted percentage of the cover price for that format.
You will not receive a royalty payment for any of the books provided to you, either for free or at a discount, or provided to reviewers and for other marketing purposes.

Subsidiary Rights Sales

I discussed subsidiary rights themselves in a previous post, but now it's time discuss the financial part of this. Basically, when you sign over subsidiary rights, you also agree to a specific split of any income from those rights. The idea is that the publisher will do the work of selling those rights, and in return earns a percentage of your income (your part of the work is already done).

Anything less than 50% to you, the author, is non-standard from everything I've seen. However, the split can go as high as 80% — Author/20% — Publisher and in very rare cases 90/10.
You may also be offered different splits for different rights, so for instance 50/50 for Film/TV but 70/30 for merchandising.

Here as well it's important to know whether you'll be receiving a split of gross or net income, as there may be legal fees, sub-contract agent fees, etc. involved in putting together the deal. The publisher will almost certainly want for those expenses to be deducted before the split.

If that is the case, I would suggest making sure the publisher must give you a list of all the costs deducted before your share is paid.

Subsidiary rights are part of your negotiating power. You can agree to a lower split in exchange for a higher advance, or ask for a higher royalty escalation if the publisher won't agree to a higher subsidiary split, etc.

The Paperwork

Your contract will specify whether you will be paid quarterly or semiannually, and how soon after your book is published you will begin receiving both statements and payments.

Each publisher could set the dates of quarters or accounting periods differently (e.g. April 1st and October 1st, or January 1st and July 1st, etc.)
Your payments likely won't start until a full accounting period (or two) will pass after publication. For instance, if the publisher's quarters are January 1st, April 1st, July 1st, and October 1st, and your book is published in September, you will not be getting a statement on October 1st because a full (in this case 3-month) period wouldn't have elapsed. Your first statement will come January 1st or April 1st.

Your statements should include details on various numbers, such as sales (in every territory where they are happening), returns, books you've received / purchased, books provided for marketing purposes, books destroyed, and anything else that may happen with your book.

Statements should also include the current "reserve" which is a withholding of your royalties, limited to 15-20% of those due to you, for the sake of covering any returns which may be necessary.

There will almost certainly be language saying that if the publisher accidentally overpays you, you will have to return the overpaid money, or it will be withheld from future payments due.

You should ensure that the term "overpayment" is defined, so that it cannot be applied to things like your advance or any bonuses.

You also want the contract to include language protecting you, in case your publisher fails to pay you royalties due.

Your contract should include a Verification of Accounts clause that states explicitly that you have the right to audit the publisher's accounts, as they pertain to your book. So, if you feel something shady is happening with your payments, you can check.

This clause will have a catch-22, however, that you will do so at your own expense, unless it turns out the publisher owes you money. There will likely be a percentage listed of a minimum discrepancy, in your favor, that has to be found for the publisher to take on the cost of the audit.

Okay, I'm fairly certain that these posts have covered every aspect to finances that may come up within your contract, but if I learn otherwise, I will of course update you all. Next up: the Option Clause.

Questions? Thoughts? Corrections? Please leave them in the comments!

This post is a part of my Publishing Contracts sequence. Please click here to learn more about it and view the very important disclaimer.