Confused by Your Book Royalty Reports?

 by Chip MacGregor

Over the past year I’ve had a number of authors ask me about their royalty reports. I think there are several things to know… 

First, most publishers state in the contract they will send you a royalty report either quarterly or semi-annually. 
That report is supposed to be sent to you, and a copy to your agent. They are printed on paper and will come in the mail, but over the next couple of years everyone will be switching to online royalty reports, with automatic bank deposits to your account, rather than a paper check. (Random House is the only company doing this, but soon everyone will follow suit.) 
Second, each publishing house uses a different format, so if you’ve been doing books at, say, Thomas Nelson, then suddenly move to Simon & Schuster, you’ll find the two reports don’t look much alike. They key thing is to know what descriptions and numbers to look for. 
Those will include:
your book’s title (if you have multiple books, the report will break down sales for each title), 
the number of units sold, 
they type of royalty being paid (it can be “regular” or “high discount” or something else),
the royalty rate, in terms of a percentage,
the amount of royalty money due you in dollars and cents,
the number of copies returned (since they will deduct those from the copies sold),
any subrights money earned (if the publisher has sold rights to another company, for example a Spanish translation of your book), 
the amount of unearned advance,
the amount of the reserve being kept (the publisher is legally allowed to keep a portion back against future returns),
and the final amount owed you as the author. 
Third, understand that some publishers clutter up their reports with all sorts of extraneous information, while others seem to offer as little as possible. Some houses will include “life to date” information (usually marked “LTD”), while others only report the current selling season. Some houses will use a contract number or ISBN to track each book, others don’t. But you can cut through the red tape if you can basically answer these questions:
How much have they already paid me in advance and royalties? (You may need to go back to your contract and your previous royalty reports to figure out that number.) 
How many copies have I sold? (You should be able to find a number that tells you.)
What royalty rate was I paid for those copies? (Again, that should be clear on the statement.)
How much money did I earn this period? 
There are other questions you can ask that include more detail, but those are the basics. 
Remember that most books have escalators, so you might be paid 15% on the first ten thousand copies, then the royalty rate jumps to 17%. Each of those will usually have a separate line on the report. Also remember that retailers can return most books, which is why one report can say you sold 20,000 copies, and three months later the next report says you’ve only sold 17,000 copies. 
The numbers are always in flux on a book, and they’ll continue to be like that until your book goes out of print and the publisher can give you a final number of “all copies sold.” Also keep in mind that your contract allows for the publisher to retain a reasonable reserve against returns, and that figure can fluctuate wildly depending on when your book releases and which company you’re with. 
Of course, most authors simply want to know if they’ve earned out their advance (and if not, how close they are to doing so). That’s why authors will often hang their heads when they see a final total within brackets (for example, [$128.97] means there is still a small chunk of the advance left to earn back). On the other hand, they’ll do handsprings when, out of the blue, their publisher suddenly sends them a check for a book they haven’t worked on in a year. 
Fourth, you should know that there is a certain amount of trust involved in a royalty report. 
Authors and agents trust that a publishing house is reporting on the actual sales of books they’ve made over the past six months. There is no surefire way to check that number. BookScan can show us how many reported sales there were in retail stores, but they don’t report big box stores, special markets, or CBA stores. (Most agents figure BookScan reveals about half of a book’s overall sales.) 
CBA has its own reporting system, but it has seemed less than comprehensive to many in the industry. Authors like to look at their Amazon rating, but all that does is offer a comparison to other titles. So there’s no perfect way to check actual sales number, other than performing an audit (something we always make sure you have the legal right to do, by inserting that wording into your book contract). 
Still, all of those methods can at least give us clues as to how the book is doing. I recently had a book show up on a bestseller list, but the royalty report showed there were hardly any copies sold — something was clearly not right, and we contacted the publisher to get clarification. And remember that royalty reports are put together by humans, so there are going to be errors in them. It happens… and it’s why you need to look over your royalty report when it shows up.  
There have been some national stories lately questioning the accounting of e-book sales. You can imagine the potential for problems when there are no hard copies to count — we just have to take it on trust that a publisher allowed X number of downloads. Yeah, that’s a potential problem… and it’s why I think we’re going to see more audits and some new sales reporting systems in the near future. But again, this goes back to the trust level that is required between authors and publishers. It’s best not to think of the two as competing sides, but as people in a sort of business partnership — they need each other, and they’re going to do their best to be honest with one another. 

By Chip MacGregor, President of MacGregor Literary