Understanding Your Contract -- Part I

I thought it might be helpful to give a brief overview of that most intimidating of documents--the twenty-page book contract. It’s been ten years since I’ve worked with author contracts, so please take my info as guide and not gospel; that being said, the publishing industry is old and slow to change. Most of what I knew then should still be relevant today.

The first thing you need to know is that you will be given a standard contract with just a few variables thrown in. Ninety-five percent of the contract will apply to you as it applies to everyone else. This contract has been carefully hammered out over the years by attorneys, agents, and publishers alike, and is relatively fair to all involved. There are sections that protect the publisher and sections that protect the author. There is no reason to approach a contract from a reputable publishing house with undue paranoia. At the same time, it is imperative that you and your agent review the contract thoroughly. If there is something you don’t like in the there, negotiate a change. I’ve rarely encountered a contract that didn’t have a clause or two axed or amended.

Here’s a brief overview of the major clauses in an average contract:

Grant and Territory: This describes how long the contract will be in effect, where the publisher will publish the book, and in what language. Exclusive world rights, for example, means the publisher can print the book in any language and sell it anywhere in the world. If you live in the US and your contract says "exclusive publication in the English language in the United States", that means you will able to sell your book to any number of foreign publishers—which means more opportunities to make money.

Subsidiary Rights: Sub-rights cover a whole host of things from motion picture rights, to Braille editions, to e-books, etc. There is also something called “first serial rights” and “second serial rights”. First serial rights are when a magazine publishes a portion of your novel before its release; second serial rights are when it’s published after. Sub-rights are side deals made with other companies, and the advances paid out are often split between the author and the publisher, 50/50, though first serial rights are usually split 90% to the author and 10% to the publisher.

Advance: This is the amount of money the publisher has agreed to pay you for the manuscript. The advance is rarely paid out all at once, and is commonly paid out in thirds. For example, if your advance is $1,500, it will usually state that $500 is to be paid out upon signing of the contract, another $500 is to be paid out when you deliver the final manuscript to the publisher, and the final third will paid out upon publication of the work.

Royalties: Here is where you’ll find the details of what percentage you’ll be paid for each book sold. Usually there is an escalation, which means the royalty rate increases with the number of books sold. Here are some typical royalty rates and escalations:

Hardcover:

10% for the first 5,000 copies
12 ½% for the next 5,000 copies
15% on all copies sold thereafter

Trade Paperback (fancy, larger paperback)

7 ½ % for all copies sold

Mass-Market (cheaper, supermarket paperback)

8% for the first 150,000 copies sold
10% on all copies thereafter

Reserve For Returns: In order to understand the reserve for returns, you first have to know a little bit about how bookstores purchase books. Initially, they put in an order—for the sake of argument, let’s say 100 copies. On your royalty statement, these 100 books will show as sold. Unfortunately, the bookstore might only sell 50 copies. After some time has passed, the bookstore then has the option of returning the unsold books to the publisher for a refund. So even if your royalty statement shows 100 sold, in reality only 50 books were sold.

To plan for eventual returns, the publisher picks an arbitrary percentage called the reserve for returns. Twenty-percent is common. This means that if your royalty statement says you should be paid for 100 copies sold, they have the right to withhold 20% of the payment in reserve on the chance that some of them might be returned. After a pre-determined amount of time has passed, the publisher will then release the reserve, meaning that 20% may now be accounted for. (Note: The reserve for returns is a frequent sticking point for authors. A 20% return, in my opinion, is fair, but something in the range of 40-50% is excessive. Also, any author would do well to monitor their royalty statements, to make sure the reserve is released at the agreed time.)

On my next post, I’ll cover clauses related to production, as well as an author’s responsibility and rights.