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The Steve Laube Agency

The Steve Laube Agency

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Home » Book Business » Page 2

Book Business

R Is for Reserve Against Returns

By Steve Laubeon November 6, 2023
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Every traditionally published author needs to understand the principle of “Reserves Against Returns,” which is an integral part of publishing economics. It can reduce the amount of money an author receives in their royalty statement. It is usually a shock and elicits a phone call to their agent crying, “What happened to my money?”

Did you realize that book publishing is the only “hard goods” industry where the product sold by the supplier to a vendor can be returned? This does not happen with electronics, clothing, shoes, handbags, cars, tires–you name it. If it is a durable good, the vendor who buys it owns it (which is why there are outlet malls to sell the remaining inventory) except for books. Somewhere along the line, the publishers agreed to allow stores to return unsold inventory for credit. In one sense, publishers are selling their books on consignment. Bargain books are actually resold by the publisher (after getting returns or to reduce overprinted inventory) to a new specialty bargain bookseller or division of a chain (that buys the bargain books as nonreturnable).

Below is a quote from Merchants of Culture by John B. Thompson (page 18 footnote). I highly recommend the book to anyone interested in the history of publishing and bookselling.

The practice of allowing a bookseller to return stock for full credit has a long history in Europe but was used rarely and half-heartedly by American publishers until the Great Depression of the 1930s, when publishers began experimenting seriously with returns policies as a way of stimulating sales and encouraging booksellers to increase stockholdings. In spring 1930, Putnam, Norton and Knopf all introduced schemes to allow booksellers to return stock for credit or exchange under certain conditions, and in 1932 Viking Press announced that orders for new books would be returnable for a credit of 90 percent of the billed cost.…The practice of returns subsequently became a settled feature of the book trade and marks it out as somewhat unusual among retail sectors.

Consequently, book contracts have a clause allowing the publisher to establish “a reasonable reserve against returns.” By “reserve” they mean a pool of money withheld from the author, holding that money in “reserve.” The clause intends to protect the publisher against paying the author for books that have been shipped and billed to a store but may eventually be returned to the publisher.

Imagine if Walmart purchased 10,000 copies of your book. Everyone celebrates. If you are earning $1.00 in royalty (on average) for every book sold, that means you will receive $10,000 from your publisher at some point. Hooray! Steak dinners for everyone!

But wait.

What if Walmart didn’t sell all the copies they purchased and returned 5,000?

And what if your publisher had already paid you for all 10,000 sold copies? That means your publisher overpaid you by $5,000. Do you have to give that money back? You don’t want their collections agent (his name is Gargantua de Kraken) to come to your door to get their money back.

Instead, the publisher estimates every royalty statement and withholds a “reasonable reserve against returns.” In some situations, it can seem like the publisher abuses the word “reasonable.” One author I know had 70% of their revenue withheld for a complete royalty cycle because their publisher had made a big sale to a big box chain. But is that really abuse of the clause?

The big box retailers are notorious for returning over half of their book purchases.

I don’t begrudge a publisher for holding a reserve. I’d rather they not demand the money back later!

But never fear! If the returns do not use up the reserve, the difference is credited back to the author. Let’s watch the math in the following example:

  • The book sold 10,000 copies, which generated $10,000 worth of author earnings in July-December. (This assumes the author earned $1 in royalties for every book sold.)
  • The publisher creates a reserve of $5,000 in January in case there are returns after Christmas. This, in essence, means they hold back paying the royalties on 5,000 copies in case a truck full of that book suddenly appears at their warehouse. Meanwhile, they send the author $5,000.
  • In January-June $3,000 worth of returns are sent back, which is charged against that reserve. So, the publisher gives back to the author the $2,000 balance in their account.

Does this make sense? I hope so. The bottom line in this example is that the book sold 7,000 copies, and the author earned $7,000.

By the way, lest you think I’m ignoring the E-elephant in the room, e-books technically do not have returns since there is no physical inventory on a shelf to handle. Consequently, there should never be a reserve against returns on e-books. It can happen if a bunch of people return their e-book purchase, but it would be rare if it were thousands of copies.

 

(This is a heavily updated version of a post published in 2011 and revised in 2018.)

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Category: Book Business, Publishing A-ZTag: Book Business, Contracts, Get Published, Money, Traditional Publishing

J Is for Just-in-Time

By Steve Laubeon October 30, 2023
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The economics of bookselling are complex and ever-changing. There is a method of inventory control called “Just-in-Time” (or JIT) that revolutionized both the retail and manufacturing industries. When I began as a bookseller, there was no such thing as computerized inventory, at least not in the Christian bookstore business. We used a method called “Stack ’em high and watch ’em fly.” Because “If …

Read moreJ Is for Just-in-Time
Category: Book Business, Marketing, Publishing A-ZTag: Book Business, Economics, Publishing A-Z, Technology

P Is for Preemptive Offer

By Steve Laubeon October 16, 2023
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It can be exciting if more than one publisher is interested in your book. The publishers gather their calculators and prepare to make their offers on the book. Depending on how many publishers are involved in the bidding process (we’ve had as many as nine at once for a property), it can quickly become complicated. (I talked about the “auction” in a previous post.) Some will bid solely …

Read moreP Is for Preemptive Offer
Category: Book Business, Publishing A-ZTag: Book Business, Preemptive Offer, Publishing A-Z

I Is for ISBN

By Steve Laubeon September 25, 2023
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978-0-7852-6400-2 978-1-62184-113-5 978-1-4245-6490-3 No, these are not the plays being called by a quarterback during a football game. They are the ISBN numbers on the back of three different books by three different authors. Kudos to the first person to identify the three titles in the comments below. Origins In the mid-60s, a major British bookstore chain (W.H. Smith) moved toward a …

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Category: Book Business, Publishing A-ZTag: Book Business, ISBN, Publishing A-Z

Who Owns Whom in Publishing?

By Steve Laubeon August 14, 2023
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Updated August 2023 (first created November 2011) For a comprehensive list, check out The Christian Writers Market Guide. Available in print at your favorite retailer or as an online subscription (updated frequently) at www.ChristianWritersMarketGuide.com. My emphasis in this post is the Christian publishing industry. There are many fine commercial publishers that do not publish Christian books …

Read moreWho Owns Whom in Publishing?
Category: Book Business, Defense of Traditional Publishing, Get Published, The Publishing LifeTag: Book Business, The Publishing Life, Traditional Publishing

Let’s Talk About Money

By Steve Laubeon June 5, 2023
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Hope that headline got your attention! Those of us who work with authors find that an area of consistent turmoil is when money is the topic. A major challenge is teaching authors when to talk about money and when not to talk about money. Let’s explore some of these challenges. And first, let’s assume you already have a literary agent. When to Talk Money With Your Publisher/Editor Never. That is …

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Category: Book Business, Money, The Writing LifeTag: Book Business, Money

Review Any and Every Contract You Sign

By Steve Laubeon May 22, 2023
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Today’s headline sounds like a blinding flash of the obvious, but you’d be surprised how many writers are not careful about the agreements they sign. Those with a literary agent have a business partner who will review their book contracts; that is a given. But that does not remove the writer’s responsibility. And what about their magazine or online article contracts? Years ago, the Condé …

Read moreReview Any and Every Contract You Sign
Category: Book Business, ContractsTag: Book Business, Contracts

The Myth of the Unearned Advance

By Steve Laubeon September 12, 2022
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[I wrote much of this article back in 2011. Upon review, I stand by the analysis. I’ve left the past comments to accentuate the discussion.] ______________ A common myth permeating the industry is that a book is not profitable if the author’s advance does not earn out. I would like to attempt to dispel this myth. First, let’s define the term “advance.” When a book contract is created between …

Read moreThe Myth of the Unearned Advance
Category: Book Business, Career, Money, Writing CraftTag: Agents, Book Business, Contracts, Get Published, Money, Traditional Publishing

A Is for Agent

By Steve Laubeon March 14, 2022
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by Steve Laube

I thought it might be fun to write a series that addresses some of the basic terms that define our industry. The perfect place to start, of course, is the letter "A." And even better to start with the word "Agent."

If you are a writer, you've got it easy. When you say you are a writer your audience lights up because they know what that means. (Their perception is that you …

Read moreA Is for Agent
Category: Agents, Book Business, Book Business, Career, Creativity, E-Books, Legal Issues, Publishing A-Z, Writing CraftTag: Agent, Book Business, publishing

B Is for Buy Back

By Steve Laubeon February 28, 2022
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by Steve Laube

Many authors are also speakers and as such usually have a book table in the back of the room where the audience can purchase a copy of their book during an event. This can be a very valuable source of income for the author if they have negotiated a “buy back” price (also known as the author’s discount) at the time of signing their book contract.

Check Your Contract …

Read moreB Is for Buy Back
Category: Book Business, Publishing A-ZTag: Author Buy Back, Author Purchases, Author Sales Tax, Book Business, Publishing A-Z
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