Royalties, mainly on the sale of paper based books, remain the primary source of author income. I’m going to explain the fundamental concepts you need to understand how they work and are calculated. The following is an outline, more like course notes, than a lecture. I want to keep this short and to the point, as my workshop will go into more depth about all these topics.

Let’s start with the basics. Royalties are wonderful. Royalties are the one thing that compensates you for all the difficult deals you have to accept in the course of your working lives as authors. Royalties are the safety net under the whole system.

Did you not get an advance? A $1 advance? A $4,000 advance? If the book succeeds and earns royalties, you can laugh about it. No matter how cheaply you sell a book, no matter how poor the prospects, no matter how pitiful the advance, as long as the royalty is strong, you do have a chance at realizing good income from that book. I’ll never forget the first time I held a six figure royalty check in my hand. It was the first royalty check I received for that book and it was 4 times the advance we got.

So what makes a strong royalty? Luckily, the royalty system, though under assault, is initially a good one for authors. The reason for this is that the basic royalty for commercial books is a percentage of the cover price of that book. If the cover price of a hardcover book is $20 and my royalty is 10% of the cover price, I am receiving $2 per book. That’s a full 10% of what the consumer pays.

Let me show you how good that really is. You may think the publisher is seeing 90% of that sale or $18, but that’s not so. The publisher does little direct selling, instead he must use bookstores and other distributors. To keep the numbers simple let’s assume he’s granting a 50% discount to everyone who will take the book, display it, and actually make the sale. This is not far off from the discounts many publishers do grant. So on our $20 book, he’s giving $10 to the bookstore and $2 to the author. That leaves $8, which per book isn’t bad. But then there’s the cost of being a publisher, which goes way beyond a good computer and a corner of the house. There’s rent, salaries, taxes, paper, print, binding, publicity, et cetera. Historically, publishers’ margins, the amount of money left over after expenses have been deducted, have been 10%. That’s about as small a margin as you can get in a relatively low volume business and still be in business.

So a percentage of the cover price of a book is a strong, fundamental position to be in. Authors and agents should do everything they can to perserve it. (More on that later.) Beyond showing you that the cover price royalty is so valuable, I want to contrast it with other royalty calculation systems.

There are large groups of publishers that do not pay a cover price royalty. In fact, a number of royalties in your commercial publishing contracts are not cover price based at all. They are based on the “amount received.” Structurally, this is a far less good royalty for authors.

An “amount received” royalty means that the author’s royalty is calculated on the monies that the publisher actually receives and not the cover price of the book. Academic publishers like university presses have traditionally paid on amount received. I’ve worked with a number of small and not so small publishers that only pay on the amount received.

Let’s go back to our $20 book. The publisher is once again granting a 50% discount to the bookseller. So the publisher is getting $10. Now my royalty is calculated based on the money the publisher is receiving. I’m now getting 10% of $10, not $20. So, now my royalty is $1 per book. This is half of my previous royalty. If the royalty system for commercial publishers ever shifted to this model, it would be a catastrophic disaster for authors.

I’ve used a very simple example to contrast cover price vs. amount received royalty. Of course, there are mitigating factors. The most important one is that academic presses do not grant 50% discounts, their upper limit is usually 30%. So, the amount received would be larger. There are other ways to also cope with the amount received royalty structure, which I routinely employ. I double the nominal royalty. So, if a publisher is unwilling to pay 10% of the cover price, I ask for 20% of the amount received. This isn’t a fantasy. I often get amount received royalties which are double the cover price royalty just to compensate my author for the different royalty structure.

Now that we’ve realized the value of the cover price royalty, we can better examine the full extent of royalties in a commercial publishing contract. The picture gets far more complex and troubling quickly. The cover price royalty usually only applies to sales of the book below a certain discount, in normal book channels. That means that many sales of the book are paid out under a different royalty structure, and that structure is usually on the amount received.

Let’s consider some of these.

All publishers sell their U.S. based books outside of the United States. As a general rule of thumb foreign sales–books exported to Canada and accounts all over the world that take English language books — account for 10% of sales. The average royalty here is often 5% of the amount received. That would equal a cover price royalty of 2 1/2% of cover price. That is a very small royalty.

There are other foreign or export royalties. Some publishers pay more than 5% of the amount received. Some publishers have special cover price royalties for large, overseas English speaking markets like Canada, the United Kingdom, Australia, New Zealand and South Africa. Large publishers that maintain full publishing operations in these large English speaking markets, plug their American books, which have multiple local cover prices actually printed on them, into their local distribution networks and pay cover price royalties in these markets. The local currency is converted and paid in U.S. dollars. These are attractive arrangements and attractive royalties, but only a few large publishers actually do this. So, the export royalty is a real problem. It’s true the freight costs of shipping overseas are higher. But that hardly accounts for the drastic royalty drop. Strong accounts in Canada, the Caribbean, etc., do well with English language books. I believe the export royalty is unnecessarily rich for the publishers.

Another major area of concern is discount. The cover price royalty only prevails below certain discounts granted to the bookseller or distributor. For hardcover books, it’s usually below 48%. For trade paperback books, it’s often below 55%. For mass market paperback books, it’s often below 60%. But these discounts vary widely from publisher to publisher. The royalty paid when these discounts are exceeded also varies substantially.

Let’s return to our basic example and see what happens when the “high discount” royalty clause is invoked. The publisher’s standard cover price royalty is paid below discounts of 48% percent. But for a substantial number of sales in our example, the publisher is granting a 50% discount. For each additional point of discount granted, the publisher is deducting 1 point of royalty. So at a 50% discount, 2 royalty points are deducted. We are now receiving an 8% royalty. So our original $2 per book is now $1.60 per book ($20 x .08).

It can get a lot worse than that, very quickly. Some publishers immediately go to an amount received royalty of 10% of the amount received when the discount is exceeded. I have in my files royalty statements from one particular publisher where a full 80% of all sales are made at the special discount (49% of more). As you can clearly see, there are financial incentives for the publisher to exceed their traditional discounts. They may be giving their distributors a better break, which isn’t a bad thing for customer relations, but who’s really paying for this break? If the author’s royalty is cut in half when the discount shifts one point from 48% to 49%, it certainly isn’t the publisher. Authors may not have an opinion about to whom and what kind of discounts publishers should grant to nourish their businesses, but they better take a very active interest in how discounting impacts their royalties.

Another important area to consider is the whole area of special sales and sales outside the trade. A lot of different sales are covered here, far too many for me to explore in this handout. Let me just enumerate the issues that demand your attention.

First is the concept of “outside the book trade.” The concept here is that because the publisher is selling outside of his normal channels of distribution, some special effort or some unique customer is involved and the traditional royalties don’t apply. This is a very tricky area if amount received royalties are being paid. The “normal channels of distribution” have changed and are changing rapidly. I don’t believe this is a valid concept and I think publishing contracts need to be policed so that full royalty are paid on all these sales unless they exceed the normal discounts.

Other special sales include premium sales, which are bulk sales often to a single customer, often not for re-sale. They are also often non-returnable. Again a 5% of amount received royalty is paid. This is another very profitable area for publishers. Similarly there are mail order sales and direct response sales, which again command the 5% of amount received royalties. There are also publisher owned book clubs, which similarly pay a low royalty. We can debate the economics of these sales. From where I sit, the author is making a substantial, excessive contribution to their success by taking such a small royalty.

Finally, we have the whole new world of electronic publishing. This is an area that is still taking shape and there is no industry protocol. There are competing technologies and new players of various sorts. As I write this I can identify three main new formats that need to be considered. The three formats I see are print on demand copies, electronic copies for reading in a stand-alone device and electronic copies that are intended to be read over a personal computer. Print on demand copies may pose no change to the royalty system, since they can be treated just like a printed book. Or, perhaps a new royalty is needed here. Electronic versions are far more unprecedented from a royalty point of view. Established publishers are treating them like paper bound books for royalty purposes and paying “standard” royalties. Some start up electronic publishers are paying royalties of up to 50% of the monies received for each sale. Space forbids me from fully articulating my views here. Suffice it to say that we must be vigilant in making sure the new royalty protocols for electronic books are advantageous to authors.

There are two other areas I want to mention to round out the royalty issue. When we talk about royalties, we’re talking about money and when we’re talking about money we’re talking about the most basic business concept “cash flow.” This is not a hard concept to understand. You all innately understand it. It’s having the money you need when you need it. Not 3 months from now, not 6 months from now, NOW!

Cash flow is effected by when a publisher begins to pay royalties and how quickly they are actually paid out. Some publishers won’t pay royalties until they have at least 6 months of sale on a book, some don’t require that. Some account to authors within 60 days after the close of a royalty period, some enter into the 5th month after the close of a royalty period before they pay out. All these things do affect your income.

The final area I want to mention is returns and the reserve for returns. The publishers struggle with one very basic fact of their doing business: when they ship a book to an account, it is not a sale. It is essentially on consignment. Books are fully returnable, usually indefinitely. That means that if an account returns all 20 of the copies of our $20 book to the publisher, the publisher makes no money, and, in fact, has lost money on shipping it both ways, plus the loss of income from having no sale anyway. Because books are returnable, completely at the publisher’s expense, it has been traditionally very difficult to know exactly how a book has done. You may know where 80% of the copies are, or even 90%, but you certainly don’t know where 100% of the copies are. They may be sold or they may be returned one year or more after shipping. The reserve for returns, which literally means some “sold” copies are “reserved” or held back from being paid as royalties to the author because it’s not really known whether they have sold or not.

Returns dramatically add an element of complexity, uncertainty and controversy to royalty accounting. There have been abuses. When a royalty accountant looks at some basic numbers, it’s often a matter of interpretation to determine how many books have actually been sold. Because thousands of dollars of the publisher’s money is at stake, any royalty clerk who wants to keep their job is bound to be conservative. But that can savage author incomes. If a book is selling well, continues to be reprinted and averages a total return of 10% over the first year of sale, how can an industry average of a 30% reserve be justified? It can’t. But I’ve seen it. A few years back there was a legal settlement that revealed that one publisher was essentially keeping a permanent reserve of 30% on all their books, regardless of their real sales history.

There is an antidote to the issue of excessive reserves, though it’s difficult to apply. Authors should maintain accurate records and aggressively seek sales information on their books. Royalty statements must be carefully examined to catch mistakes and to track the actual sales experience of a book. I routinely write letters of query to publishers when I find anomalies in royalty statements or when a statement does not conform to my sense of how a book did. Two years back one such letter resulted in a check for $7,000. Stay on top of your royalty income and potential.

I hope this basic background information gives you a better sense of how important royalties are and how they operate. This will continue to be a dynamic, complex, fundamentally important area of author concern. Protect your income by advocating for practices that preserve and increase author royalty income where appropriate.

I know many writers believe that their submissions are routinely discarded without being considered by many agents. Based on my knowledge of the business, this isn’t true. Though I am a busy literary agent with an active list of more than 80 writers I still consider everything that arrives in my office. As I sit down to write this in May of 2000, I see five important new sales from my agency this year with first time writers who we took from the slush pile — including one from our first email query letter. It’s true the overwhelming majority of submissions are returned with a form rejection, but we are looking for books that excite us and when we find them, we pursue their authors vigorously. We’re not the only ones.

A lot of things go into finding an agent. Nothing is more important than the level of talent and accomplishment that are displayed in the actual book you are selling. Beyond that, however, you are trying to connect with another human being, a professional who earns his or her living selling manuscripts. How can you better your odds of finding that person? You must carefully target the agents who are most likely to respond to your work.

A fair amount of information is available on literary agents, including the information in this book. If you do your homework — and you must do your homework — you will better your chances of finding an agent and hopefully a good one. How can you best target an agent? Here are some of my recommendations:

Shares your interest

This is obvious, but fundamental. Target an agent who actively sells the kind of book you are shopping. Read the listings carefully. Don’t send a novel to an agent who specializes in nonfiction. Don’t send a children’s book to an agent that never represents them. Be thoughtful about it. An agent who has sold a children’s book for a celebrity author is not necessarily a children’s book agent — that agent may only represent celebrities. Sometimes there are subtle elements you have to consider. If you’ve written a Civil War novel does the agent of the top selling Civil War novelist really make the best match for you? There’s a good chance that agent won’t be interested. They need to concentrate on their top writer in this particular micro-niche.

If an agent doesn’t list or seem to have a specialty, try to discover some actual sales and see if you think they’re a match for your work. If other elements of the agent’s profile suit you, you may want to try a query. There are a number of guides to literary agents you can consult, including the industry “bible” Literary Market Place. There are also sites on the web that can be consulted. If you are querying one of the larger agencies which has multiple agents, you may need to call them first and ask which agent does such and such. Hopefully, you’ll get a name in this fashion. If whoever answers the phone isn’t willing to divulge any information, that may be a sign the agency really isn’t interested in unsolicited work.

Years in the business

This is an important indicator of a number of things. You really have to use your judgment here. Someone just entering the business may be hungry for clients, but they may lack contacts, experience and knowledge. Our industry has been plagued with a number of fraudulent agents, so you have to be doubly careful. A long established agent may have great cache, but may be taking very few clients, if any. Try to size up the whole picture of an agents current situation — can you locate news of recent sales and new clients, are their listings welcoming, do they have associates who might be looking for new clients, do they write articles for any writing magazines, do they attend conventions, etc.? Get a feel for exactly where this agent is in his or her career. I think membership in writers organizations (Mystery Writer’s of America, Romance Writer’s of America, Novelists, Inc., etc.) are important indicators of commitment. I also think membership in the Association of Author’s Representatives, a trade association that has an ethics code, is significant. I think convention attendance and article writing are also indicators that this agent is working full time at building their agency and selling books. All of these small, but important things are indicators of who you are really contacting.

Another fundamental indicator is the actual sales the agent has made. Make a serious appraisal of the sales they list. Are they sales to major publishers? Agents who are only selling e-books or to small publishers you haven’t heard of, may well not be actively selling books. Are they all for one or two clients or do they cover a number of clients? If a single client dominates all the sales information you have, it may be that this agent isn’t selling a lot of new talent. See if you can see how many sales are for brand new clients. This would be an important indicator that this agent takes unsolicited work and sells it. Quantity is a factor as well. An agent who only lists one or two sales may not be active enough or successful enough. At my agency, we’re making more than a hundred sales a year (books, audio, movie, etc.) It is not a challenge to list 6 or 7 new book sales for established or new clients. All of the good agencies I know could easily provide similar credits.

Responsiveness

This comes into play once you’ve begun to actively approach agents. Whatever an agent’s reputation or credentials, you are most concerned with how this agent is going to treat you. When you solicit an agent, how long does it take for that agent to get back to you? A quick response is usually a sign that the agent is excited about your work. It also means this agent has available hours to work for you. How personal and intelligent is the response? Is the agent really focused on your work? Have they a thorough understanding of your manuscript? It’s very important that they do. This is a tough business and an agent’s personal commitment to the work and you the client, is often the only thing you have going for you early on. They must believe in the book and you. If they don’t, it’s very likely they’ll lose heart after a few submissions. Is the agent willing to answer your questions and spend some time with you over the phone? This is also an indicator of how available the agent is and how committed.

One thing that always strikes me is that there’s a huge gulf of knowledge between author and agent. There has to be, one is a specialist immersed in the business and the other a newcomer who is entering the business as “talent,” not as a business person. Being a doctor, lawyer or entrepreneur doesn’t give you any knowledge of publishing. So most clients want to have their comfort level raised. They need to ask questions, however so called “obvious”. If the agent doesn’t comfortably answer them or claim that they’re too busy or unimportant, that agent may not be willing to do the hard work necessary to maintain the relationship.

If the agent wants to represent your book, does he or she have a game plan? A lot of the exact marketing plans will come later, but I rarely take a book without considering who I can send it to and how many truly viable submissions I can make. There’s no reason why an agent should say never mind about that, I like your book. This is your business; you don’t want a fan, but a business representative.

How does the agent handle some of the important fundamentals of the author/agent relationship, e.g., does he or she offer a contract, are there any fees, how soon will your book be offered for sale and to how many houses? As I said previously, our business has had a problem with fraudulent agents. These are agents who have no real intention of selling any books, but live on “reading” or “marketing” or “editing” fees. I charge none of these fees, I never have. I don’t believe they are legitimate. If you have to pay an agent, I take this as a bad sign, period. I would avoid agents that request payment. They’ll get paid, when they sell your book.

I also offer a contract to all clients, a simple agreement that spells out our mutual rights and obligations. I think it’s wise to enter into an agency agreement, so you know more where you stand legally. Written documents are often very revealing of a person’s sense of fair play. For instance, I offer contracts as short as 6 months. If I can’t sell your book by then, you have the option of terminating the agreement and finding another agent. My contract obligates me to pay all monies received promptly, no later than 10 days after receipt. These are just examples of what I consider important indicators of fair play. All the good agencies follow these practices and I’ve seen similar provisions in their agreements.

Another final, very compelling factor is speed. Does the agent feel your book is ready to go? Are they ready to put it on sale? Are they willing to multiple submit the book or do they insist on sending it to one house at a time? We often hear from people who claim their current agent has made 3 submissions in two years. This would not be acceptable behavior to me.

Additional Strengths

Though the basics may well decide things, let me mention a few other things to consider. Most agents and agencies have certain strengths. You may want to ascertain what a particular agent’s strengths are, because they may be what you specifically need. For instance, some agents consider themselves “editorial” oriented agents, they like to work with authors to improve their work and direct their careers. Others see themselves as sales people, people who will find the deal. Still others see themselves as primarily deal makers, people who will maximize an opportunity for a writer, but aren’t particularly interested in starting someone out. I put a great deal of emphasis on my editorial skills, I like coaching storytellers; I believe this has been a key to my success.

If you are fairly along in your career or you believe you have a “big book” you may want to find an agency with a strong subsidiary rights department. By subsidiary rights, I mean the rights that are sold off the book–movie rights, audio rights, translations in foreign countries, etc. If you feel you need a lot of attention, you may want to target agents with small lists or agents who advertise their desire to concentrate on only a few people. Perhaps you believe your book especially needs promotion and publicity and you may want to try and locate an agent whose background is in these areas.

All of these small, important facts can help determine your search.

If you follow this basic course of action you will soon have a number of names of agents that fit these criteria in one way or another. Prior to the submissions process, how should you proceed?

I recommend you organize your list and start at the top — the agents that you would most want to have regardless of the odds. It’s very hard for a writer to know the value of their work, so there’s no reason to undersell yourself. Let’s say you have 30 names. Choose the top ten — the agents you think have the skills, reputation and track record to successfully market your book. Don’t assume they are too busy for you or that your book isn’t good enough. Approach these top 10 following the protocols they ask for and see what happens. If one or more of them is interested in you and you’re impressed with their willingness to work with you, you’ve found the opportunity you were looking for. If your book is rejected by this first ten, analyze what might have gone wrong. Did you get any personal responses or were the only responses form letters? If you did get a personal response is there any way you can learn from it and incorporate what you learned in your next batch of submissions? After you consider that, re-read your work, your introductory letter and consider the whole package of material you are sending. If you are happy with it, it’s simply time to try again.

Re-consider your list of targets. If you think that you were rejected because you simply approached too many agents who were too busy, construct your next list from people who have smaller client loads and fewer years in the business. Let’s say your first list included only agents with 50 or more clients, who’ve been in business 10 years or more. Now maybe it’s time to try agents who have 20-40 clients and have been in business 3-7 years. You may also want to try an agent with a strong professional background, for example, someone who was a successful book editor, who has just begun their business. You should get the idea by now, continue this process until you’ve landed an agent or until you realize it may be pre-mature to look for one.

At the beginning of this article, I sounded an optimistic note. Agents need good writers. Many agents are still growing their businesses and many agents treasure the joy of discovering a new talent, as I do. With the right targeting and the right property, even though it’s a long, arduous process, you can find the agent who will help you. That said, I also want to add a cautionary note.

A bad agent is worse than no agent at all. These are my thoughts on what makes a bad agent. First, you should never pay a reading fee or marketing fee or any other kind of fee to a literary agent. You should only pay the direct cost of the expenses to market your book when you are signed with an agent who is actively marketing it. You should never work with an agent who directs you to a vanity press or an editor who you must pay to “fix” your book. It’s true some professional editors can make a huge difference and these people do charge, so there are situations where this is legitimate. Unfortunately, the large amount of abuses in this situation have forced me to warn against this practice unless you are certain you know exactly what you’re getting into. Finally, make certain you and the agent agree on exactly how many submissions and to whom they are going, and in what length of time. An agent who makes no submissions and performs no work is much worse than no agent at all.

Good luck in your search.