Tuesday, July 29, 2008

More on Advances, Expenses, and Reserves


Another reality about advances is that they are often split up into two or three installments payable upon contract signing, manuscript submission or acceptance, and/or some future date tied to printing or publication. Often books are contracted 12-18 months or more before they are released so advances can be spread over two or even three years.

An advance is taxable royalty income so spreading it across a couple years can offer some tax relief. Be sure to keep copies of all your receipts and expenses (mileage, etc.) that you spend to promote book sales. The expenses may be deductible, but please consult with a tax professional as I am not qualified to offer tax advice. Generally, CHP will only reimburse travel expenses with prior approval from the publisher. As a rule, ask first. Don’t assume you will get reimbursed. Our expectation is that authors will pay their own expenses (gas, meals, hotel, etc.) for any promotional activities within a day’s driving distance from their home, or anywhere that the author travels for other business, vacation, or other engagements.

Also, do you know that standard terms in the publishing business allow retailers to return books that don’t sell and get FULL CREDIT? Crazy isn’t it? In fact, publishers count on an average return rate of about 30% or more of the books they "sell." And that is for traditional book selling channels. A 50% return rate in mass market accounts like Wal-Mart, Target, or Sam’s Club is considered successful. Yes, those accounts purchase large quantities, but if the placement is not successful, the publisher can get back 70%, 80%, 90% of the books.

Because of the returns factor, your publisher will keep a returns reserve. Suppose your book ships a large quantity to Wal-Mart in April and royalty checks are issued in May. First, it will be several months before Wal-Mart or its distributors ever pay for the books, often not until a promotion is over and unsold books are shipped back to the publisher and deducted from the amount owed. The publisher must keep a returns reserve on the royalty until he knows how many books sold, how many are returned, and when the customer actually pays the bill. The reality is that most books never "earn out." That is, most books never sell enough copies to cover the advance and start paying royalties, but when they do you need to be aware that a returns reserve is standard practice and addressed in your contract.

2 comments:

Terry Whalin said...

Paul,

What terrific inside information you are providing here about advances and the details of how it works from the publisher perspective. Thank you for putting the time and energy into this post.

Keep up the good work.

Terry
Author of Book Proposals That Sell

The Writing Life

Bill Hammond said...

Just a general comment, Paul, to thank you and your publishing colleagues for making the effort to post these blogs. They are all interesting and immensely useful. Every one of your authors, myself most definitely included, is fortunate to have Cumberland House as his/her publisher.