Women! Read Your Royalty Statements!

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There’s an old joke: What’s the difference between a children’s author and a park bench?
Answer: A park bench can support a family.

Many of us in the world of children’s publishing (#KidLitWomen) are talking about pay equity and fair pay in our business. I’m going to address one small piece of the puzzle. I’m writing this to women who are authors and illustrators, but I think people of all genders and in many work situations can get something out of this discussion. Because the bottom line is…

If you want equality (as Malcolm X said) you have to take it. Because no one is going to give it to you. And in order to take equality for your own, you need to value yourself. And in order to value yourself, you need to arm yourself with the knowledge of your worth. And in order to arm yourself with the knowledge of your worth, you need to...(wait for it)…read your royalty statements!

Okay, calm down. Just calm down! I hear you screaming. I see you running for the door. I smell your fear.

I know you have a long and impressive list of reasons why you only glance at your royalty statements. (And some of you don’t even do that!) Let me list your Top Ten reasons:

  1.  All I need to know is the final number, and that’s printed on the check.
  2. Royalty statements are generated by computers and therefore cannot contain errors.
  3. My agent reviews all my royalty statements.
  4. I don’t understand my royalty statements, so looking at them will just make me feel insecure and bad about myself.
  5.  I don’t have time.
  6.  They’re so boring!
  7. The type is too small.
  8. I’m no good with numbers.
  9. The financial side of writing doesn’t matter to me—I write for art!
  10. If I look too closely at my royalty statement, I’ll just end up depressed.

Did I get them all? Maybe you have a few more in your pocket? Behold as I decapitate every one of those ten “reasons.” (Um, let’s be honest and call them excuses.)

1.   All I need to know is the final number, and that’s printed on the check.

Actually, the check tells you just one thing: how much you earned. The royalty statement, however, tells you how you earned your money, which is way more important. You can’t change how much you earn until you understand how you earn it. As an author or illustrator, you are running a business, and the details of your royalty statement give you vital information about the way your business functions.

2.   Royalty statements are generated by computers and therefore cannot contain errors.

Computers rely on human data entry. Mistakes are made on royalty statements all the time. All. The. Time. I recently discovered an error in which my publisher (truly by accident!) failed to report 125,716 copies sold over a three-year period. Those sales had been mis-categorized by a person in their royalty department who interpreted contract language incorrectly. It was an honest mistake (and an understandable one—don’t get me started on the ambiguous language of book contracts!), but I’m glad I caught it by reading my royalty statements carefully.

3.   My agent reviews all my royalty statements.

Uh, no. Your agent probably has 50–100 clients. She doesn’t have time to review your individual royalty statements.

4.   I don’t understand my royalty statements, so looking at them will just make me feel insecure and bad about myself.

Listen to me. They’re not that complicated. Trust me, you can understand them, and I’m here to help you. And once you do look at your royalty statements, you’ll feel extra good about yourself!

5.   I don’t have time.

If you don’t have time to look at your royalty statements (i.e., run a business), then you can’t complain about anything related to your career. Anything. Because it’s all related: royalties and advances and future book contracts and marketing dollars and whether your house picks up your next book and who you get to work with and whether your editor (or agent) prioritizes your career…It’s all part of the same thing: your business. So here's my advice in terms of time: skip the latest episode of Game of Thrones and read your latest royalty statement instead. (And then go back and catch up on Game of Thrones.)

6.   They’re so boring!

Royalty statements are NOT boring. They’re fascinating. They reveal secrets about your sales that you wouldn’t believe. Who doesn’t love a secret?

7.   The type is too small.

Get a magnifying glass. And a good light.

8.   I’m no good with numbers.

Get a calculator. You don’t have to do anything more complicated than addition, subtraction, multiplication, and division. And I’ll explain the (simple) math each step of the way.

9.  The financial side of writing doesn’t matter to me—I write for art!

Well, that’s great. It must be nice not to care about the money you earn from your work. I mean that! Truly! BUT do you care about being treated fairly? Do you care about gaining respect? Do you care about having some power over the work you do? Do you care about the marketing dollars allocated to your books and whether your next book will be picked up? If so, you need to understand how you’re paid, because money = power in business, and YOU, dear artist, are running a business.

10. If I look too closely at my royalty statement, I’ll just end up depressed.

This is a very real concern. Yes, looking at one’s royalty statement (and truly understanding it) can lead to depression. I’ve felt it many times myself. But depression can lead to (righteous!) anger, which can lead to an awakened sense of injustice, which can cause you to act, which can lead to positive change. And even if you decide not to pursue change, it’s always better to know. Because knowledge = power, even if the power is simply the power of being well informed.

 

So enough! Basta! No more excuses. Take out a recent royalty statement and sit down with me. This won’t take more than ten minutes, and you know you’re a little curious…

Okay, first things first. Every publishing house’s royalty statement looks different from every other house’s statement. But they all share some commonalities. What makes them the same is more important than what makes them different.

Most statements begin with a summary and then move on to a detailed accounting of each sale. I’ve posted an example of a royalty statement for a picture book of mine. Here’s the link. This royalty statement is actually four pages long, but I cut-and-pasted it onto a single page for ease of reference. So follow along with this example, and then try to find the same elements on your royalty statement.

First, you’ll see that I drew a thick black line and divided the statement into SUMMARY and DETAIL. The summary (overview) shows me that there are two categories of editions for this statement: Hardcover and eBook. There are also Subsidiary Rights earnings reported on this statement. (I’ve gone ahead and highlighted/color-coded the detailed information for each of these three areas of information: Hardcover is orange; eBook is blue, and Subsidiary Rights is pink.)

You might have many more categories on the summary page of your royalty statement. (Some of my statements have up to eight.) That’s okay. The process is the same; you’ll just need more colored highlighters.

The summary on my royalty statement shows that I earned $2,326.56 from Hardcover sales; $103.62 from eBook sales; and $343.40 from Subsidiary Rights sales, for a total of $2,773.58.

Right off the bat, I can see that I earned 84% of all my money from hardcover sales:

hardcover earnings ÷ total earnings
$2,326.56 ÷ 2,773.58 = 0.838 or 84%

That doesn’t surprise me for a picture book. However, I have other books where my eBook earnings are the lion's share of my earnings. It’s always good to understand the sales profile of each book and to understand that each book is unique in its sales profile.

Remember! Each royalty statement provides a snapshot of a moment in time: a mere six months’ of sales. What you see on one statement for a book may be very different from the previous statement or the next statement for the same book. Hopefully your books will stay in print a long time and you can build a long-term profile of each book’s sales.

Now let’s look at the details. Let’s start with the Hardcover sales. That’s the portion of the statement boxed in orange. Notice there are two editions of the hardcover book: one costs $17.99 (the trade edition) and the other costs $20.99 (the library binding edition). Only 14% of my hardcover sales went to libraries.

library binding sales ÷ total hardcover sales
376 ÷ 2630 = 0.1429 or 14%

It’s good for me to understand that this book has a much stronger presence in the trade market than in the school and library market.

[TRUE STORY: I prepared this blogpost at the beginning of March, and about a week later, I received the dreaded Remainder Letter from my publisher. I freaked out! How was it possible this particular title (which was selling steadily and was less than two years old) was being remaindered? Then I noticed that it was only the library binding edition that was being remaindered. Oh, of course! I thought. I already knew from my royalty statement that the library binding edition was underperforming. It made perfect sense that the publisher was remaindering that stock. But without that knowledge from my royalty statement, I would have been confused and depressed. Side note: I bought every last remaindered copy from the publisher at the cost of manufacture; I will easily sell those books at school visits. (This title is a bestseller for me at school visits.) Conservatively, I'll earn $10,000–$14,000 from the sale of those books. Good business.]

Okay, back to the royalty statement.

Let’s look more closely at the trade edition. Ignoring external sales to Australia, this book sold into six categories/territories. The first category is “U.S. First 25000”. What does that 25000 mean? It means that I have an escalation clause in my contract, and so I’m paid a lower initial royalty on the first 25,000 copies of the book that sell, and then after 25,000 copies have sold, my royalty rate will go up a little. (Questions to ask yourself: Do you have an escalation clause in your contract? Is it reflected properly on the royalty statement?)

The second category is Canada, and clearly they hate my book because they returned 99 copies of it. That’s what the parentheses around the number mean: it’s a negative number. You’ll see that these returns translated into a loss for me of $59.37. Feh on Canada.

For the sales to the US and Canada, I receive my straight royalty of 5%. (The illustrator receives 5%, too; together, we earn the standard 10% royalty.) Let’s multiply the royalty rate by the list price of the book: 0.05 x $17.99 = $0.89950. You’ll see that number listed under “Royalty Per Unit or Net Receipts.” It means that I earned approximately 90¢ every time a book sold in that first category (US First 25000). Because 2,054 books sold in that category, I earned $1,847.57 ($0.8995 x 2,054 = $1,847.57). So far, so good.

You can do the same calculations across to see that I “lost” $59.37 on my Canadian sales. (A pox upon the Canadians!) Notice that my royalty rate for Canadian sales is lower than for sales in the US. I earn only 3.3333% on each sale, or approximately 60¢. (This means I “lost” less money than I would have at my full 5% royalty. Ha ha, Canadians!)

But what happens in the next four categories: Export; Spcl disct; Spcl Sales; and Premium? The number in the “Royalty Per Unit or Net Receipts” column suddenly jumps! Instead of 90¢ per copy or 60¢ per copy, we’re suddenly seeing $175.43; $5.40; $62.97; and $557.68. What does this mean?

The change is due to the fact that for these sales (Export, Special Discount, Special Sales, and Premium) the payment structure completely changes. Before, each sale earned me a percentage of the list price of the book. Now, in these new categories, I am earning a percentage of “net,” which is defined as what the publisher sold the book for. You'll see that it’s significantly less than the list price.

Let’s look at a simple example from this royalty statement: “Special Discount”. Do you see it on my sample royalty statement? Only 1 book sold in this category. But it sold for $5.40. What? you say. The list price for that book is $17.99. How could it sell for $5.40? That would be a discount of 70% off the list price! To which I would answer, Yep.

Sales of our books at discounts of 70%–84% off list price are common, and it’s important that we understand the impact of these deep-discount sales on our earnings.

So let’s quickly do the math for each category (net receipts ÷ copies sold = price per copy). I’ve highlighted the price per copy in bold, as well as the amount of the discount.

Export ($175.43 ÷ 29 = $6.05) That’s a discount of 66% off the list price.

Special Discount ($5.40 ÷ 1 = $5.40) That’s a discount of 70% off the list price.

Special Sales ($62.97 ÷ 10 = $6.30) That’s a discount of 65% off the list price.

Premium ($557.68 ÷ 62 = $8.99) That’s a discount of 50% off the list price.

So how much am I earning per book for those sales? Export, Special Discount, and Special Sales all earn me 5% of the net amount. (Look under the column titled “Royalty Rate or External Market.”) But Premium sales on this book earn me only 2.5% of the net amount. That’s half! So here’s what I’m earning per book in each of these different categories (highlighted in bold).

Export (0.05 x $6.05 = 30¢)

Special Discount (0.05 x $5.40 = 27¢)

Special Sales (0.05 x $6.30 = 31.5¢)

Premium (0.025 x $8.99 = 22¢)

Ouch. That last one hurts. From a full royalty of 90¢ per book to a drop of 22¢ per book. I’d have to sell four copies of Premium sales books to equal just one copy of a regular sale book. The reason is that both the price of the book drops and the percentage I receive of that lower price drops. It’s a double whammy.  (Questions to ask yourself: Are there "Premium" sales on your royalty statement? Does your contract require your Publisher to get your approval for Premium sales? Was your approval secured?)

These are the economics of being an author or illustrator. And it’s vital that we understand how we make (or don’t make) our money.

For this royalty statement for this book, the vast majority of my sales earned their full royalty of 90¢ per book. Here’s the breakdown by percentage, adjusted for those pesky returns from Canada:

US First 25000 95%

Export  1%

Special Discount < 1%

Special Sales < 1%

Premium 3%

I feel good about the fact that this particular book is selling mostly in the trade market and into sales channels from which I earn my full royalty. However, I have other books where the numbers are reversed: the vast majority of sales fall into the “Premium” or “Deep Discount” category. That isn’t necessarily bad, but it’s something I need to know about my business, and it’s knowledge that will help me make future decisions about how I run my business.

That’s most of what I want to say on royalty statements in this one blogpost. I might tackle further topics related to royalty statements in the future, if readers are interested. But let me quickly address the information in the blue and pink boxes.

First, the blue box. This is information about eBook sales. The first thing you should notice is that there are four editions at four different prices: $53.97; $17.99; $11.00; and $10.99. Did you know that eBooks are sold in so many different formats? This is an area I’m continuing to learn about. I know that the most expensive category is Audio CDs, and those are sold mostly to the school and library market. I know that the least expensive category is Kindle. I don’t know what those two middle categories are. As I continue to learn about audio (which, by the way, is potentially the hottest, about-to-explode segment of sales in children’s books, thanks to the advent of Smart Speakers), I plan to learn more about these different formats.

And finally, the pink box: Subsidiary Rights sales. One sale here: the publisher sold Book Club rights to the Junior Library Guild for $1,373.60. The publisher kept 50% of that amount, and both the illustrator and I received 25%, or $343.40. Pretty standard stuff, but I’ve had some books where the subsidiary rights earnings over the lifetime of the book were more than ten times the amount I earned through royalties. Some books do great in subrights, and others not so much.

So that’s a quick intro to royalty statements. The more you review them, the easier it becomes to understand them. You’ll notice that the painful figure (22¢) for the “Premium” earning per book doesn’t appear anywhere on the statement. My guess is the publishers don’t want us to know some of these numbers. Or think about them. Or maybe get a little irritated by them.

And maybe you don’t want to get irritated either. But knowledge is power. Without knowing our business—what we make and how we make it—we have nothing. We can’t even begin to fight for pay equity and pay fairness if we don’t understand what we’re being paid and why. So…unless you want to be a park bench your whole life…

Women! Read your royalty statements!