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Home » Money

Money

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

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

Author Accounting 101

By Steve Laubeon April 17, 2023
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You are a published author. You must be rich! You are an agent. I know you are rich. If it only were true. Let’s attempt to explain some of the bottom-line basics of Author Accounting. Please remember this exercise is generic; your mileage may vary. I will use some simplified numbers, so we can all follow the math. Let’s start with a $20.00 retail-priced book. The publisher sells the book …

Read moreAuthor Accounting 101
Category: Book Business, Career, Contracts, E-Books, Economics, MoneyTag: Author, Economics, Money

Money Problems?

By Steve Laubeon November 21, 2022
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Money is of significant importance to every one of us. Some writers live on the revenue generated by their efforts. We represent a number of clients who are the main breadwinners in their families. It is unfortunate that the role of the agent is regularly defined by the size of the deal. The film Jerry Maguire made the slick, money-centered agent into a cliche with his client shouting, “Show me …

Read moreMoney Problems?
Category: Book Business, Money, PersonalTag: Money, thanksgiving

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

When the Gloves Come Off

By Steve Laubeon August 17, 2020
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Fist Slams Table in Anger

The publishing experience is rarely done in isolation. This means working with other people. And if their performances or efforts do not meet your expectations, conflict can occur. Over the years I’ve seen more conflict than you can imagine–of all types and variety. But the majority of issues boil down to four areas: Editorial Production (cover design?) Marketing and publicity Getting …

Read moreWhen the Gloves Come Off
Category: Book Business, Career, Communication, EditingTag: Career, Communication, Editing, Money

Where Is My Money?

By Tamela Hancock Murrayon February 10, 2020
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Before I became a literary agent I had no idea how much energy this profession spent being a “collections agent.” Recently someone asked us the following questions (use the green button to the right to ask your question!):
What do you do, as an agent, when a publisher does not pay advances on royalties on time as per their legal contract?
What if a publisher is consistently late (months) saying …

Read moreWhere Is My Money?
Category: Agency, Book Business, Contracts, MoneyTag: Agents, Money, Returns

How Do You Measure Success?

By Steve Laubeon December 9, 2019
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by Steve Laube

A few years ago while talking to some editors they described an author who was never satisfied (not revealing the name of course). It this author's latest book had sold 50,000 copies the author wondered why the publisher didn't sell 60,000. And if it sold 60,000 why didn't it sell 75,000? The author was constantly pushing for "more" and was incapable of celebrating any measure of …

Read moreHow Do You Measure Success?
Category: Book Business, Career, TrendsTag: Book Business, Career, Money, Success

Who Gets Paid in Publishing?

By Steve Laubeon March 18, 2019
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The economics of publishing is a bit of a mystery if you are just coming into the business. With all the talk about indie publishing vs. traditional publishing and the talk about how writers can get rich if they follow a certain plan, I got to thinking. Maybe we should do a quick look at the economics of publishing to see if anyone is making off like a bandit. Sorry for you non-numbers people, but …

Read moreWho Gets Paid in Publishing?
Category: Book Business, Get Published, Money, Writing CraftTag: Book Business, Contracts, Get Published, Money, Writing Craft

How Authors Make Money

By Bob Hostetleron August 29, 2018
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So, you’ve written a book. Good for you. Now the money will start rolling in, right? Not exactly. There are a number of ways authors make money, but writing a book is only one step in a long and arduous journey. And, though the details vary widely from one author to another (and one book to another), there are six basic ways an author makes money. An advance When you sign a book contract, the …

Read moreHow Authors Make Money
Category: Book Business, Money, The Writing LifeTag: Career, Money, The Writing Life
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