Ask the Agent: How do I read a royalty report?

Someone wrote and said, “I get a royalty report twice a year from my publisher, but I don’t really understand it. What tips can you give me for reading a royalty report?”

I swear some companies hire Obfuscation Technicians, just to try and make royalty reports hard to decipher. And remember, each company has their own format for royalty statements, so it doesn’t always pay to compare, say, a Hachette royalty report to a HarperCollins royalty report. Many authors simply get confused when trying to dig into the details of the thing. Even an experienced author will complain that the Random House statements don’t look anything like the Macmillan statements, which are different from the Simon & Schuster statements. And, unfortunately, some of the smaller companies seem to be purposefully trying to make them impossible to read. (One mid-sized publisher just revised theirs — and they are now worse than ever.)

In addition, there are some companies that do a good job of breaking things down (like Harlequin), but may not do a good job of aggravating the numbers — so you can see a book did great in large print, but you can’t actually see how many copies it has sold overall. Some companies do a wonderful job of telling you how your book did this quarter, but they fail to include life-to-date information. Ugh.

With all that crud in mind, there are about ten questions I need to keep whenever I approach any royalty statement…
1. Who is the author?

2. What is the project?
3. How many copies sold?
4. In what formats?
5. What was the royalty rate(s)?
6. How much money did it earn this period?
7. What was the opening balance?
8. How much is being paid now?
9. Is any being held back? (a provision allows the publisher to retain some of the earned money in case of future returns)
10. Is any money yet to earned out on this title?

Of course, there are some other questions you’ll want to consider:
-Is there sub-rights income or other format income?
-What was the retail price of the book in this format?
-Are there sales descriptions that are helpful?
-What are the life-to-date (LTD) sales of the book?
-Are the trends for this title going up or down?
-Is there some aspect we should be aware of? (For example, it’s exploding as an e-book, or an organization bought 5000 copies.)

Again, each company has its own format for royalty reports. And until very recently, they were all sending them by hard copy (it’s only been the last three or four years when several of the publishers have gone to digital royalty reports, which should be faster and more searchable, as well as being more eco-friendly). So there’s no “one right way” to approach a royalty report. Still, if you go into your royalty statement with those questions, it’ll start to make sense, no matter who sent it. You’ll be able to figure out how many copies sold, how much money it made, how much is being paid to you, and if it’s earned out. (Historically only about one quarter of all books earn out their advances, though that’s changing in the new publishing economy of smaller advances.)

Of course, that’s just the start… because once you have those basic questions, you NOW have to look carefully at the statement, make sure it accurately reflects the royalties promised in the contract, and do the math. Does it add up? They sometimes don’t, and you have to figure out why. And yes, for those who are new to the industry, you need to know that agents frequently find errors in royalty statements. The rates are wrong, the math has errors, or payments are missing or credited incorrectly. Remember, the people plugging in the numbers are human, and handling thousands of titles, so errors are going to occur.

So, yes, royalty statements have problems. And yes, that’s why someone needs to be in charge of reviewing all your royalty statements — if not your agent, then you need to do it yourself. There is software that can track it carefully, but it’s generally expensive and, in my view, redundant to what most agents can do quickly.

Hope this helps us have a discussion… You’re welcome to ask follow-up questions!