Demystifying Royalties

Introduction (various voices) 00:05

Welcome to the Empowered Author podcast. 

Discussion, tips, insights and advice from those who’ve been there, done that, helping you write, publish and market your nonfiction book.

Being an author is something that you’ve got to take seriously. 

I’m proud I’ve written a book.

What does the reader need, first? What does the reader need, second?

What happens if you start writing your book before you identify your “why”? What’s the problem with that?

You’re an indie author, you take the risk; you reap the rewards; you are in charge of the decisions. You’re the head of that business. 

Every emotion you’re feeling when you’re writing is felt by every other writer.

The Empowered Author podcast. Your podcast hosts are Boni and John Wagner-Stafford of Ingenium Books.

Boni Wagner-Stafford 00:58

All that time and effort that you put into writing and designing the cover and making sure your book is ready and then it gets published. And then it’s time to start talking about how you actually start to receive money from all that hard work. And that is royalties. So that’s what we’re talking about today: author royalties, everything you need to know post sale. And it’s so fun; I get my better half joining me today: John Wagner-Stafford. And he’s our royalty guru at Ingenium Books. John, hi. Thanks for joining us.

John Wagner-Stafford 01:30

Hi, Boni. Hi, everyone. Glad to be here.

Boni Wagner-Stafford 01:34

So book is published; people are starting to buy it. Yay! That’s always good news. What do authors need to consider? And – no, that’s not how I want to phrase this first question. There are three different scenarios with respect to author royalties and how much they might receive of those royalties. Can you tell me what those three scenarios are? And that’ll frame the rest of our discussion.

John Wagner-Stafford 02:04

Yeah, so they’re – the three are a relationship you might have with a traditional publisher, a relationship – and there’s the royalty arrangement in your contract with them. There’s the relationship you have with yourself as a self-published author and whatever arrangement you have with yourself – and usually that’s, you’re paying yourself everything you get. And then there’s an arrangement that you might have with a – or that you would have with a hybrid publishing scenario. So those are the three: traditional, self-publishing and hybrid publishing. There might be some offshoots of those but those are the three general, basic, common relationships you’re going to have with the publishing – receiving monies from a publisher or on behalf of yourself. 

Boni Wagner-Stafford 02:50

And what does that tell us about the royalties? 

John Wagner-Stafford 02:52

Well, the traditional publisher will typically – and I’m going to take a step back: royalties and the contract and the royalty arrangements you have with any publisher and yourself it can be anything; it’s really just, “Hi, I’m going to write a book for you. You’re going to pay me some money.” You know, you sign the contract; you shake the hands. It can be anything. Here’s the standards and the typical scenarios: a traditional publisher will pay you between five and 15 percent of the sale of the book. If the book is selling for 19.99, you’ll get five percent – or 10 or 15 or anything in between – of the sale of each one of those books around the world. Or whatever you’ve whatever your contract says with them. As a self-publisher, or being self-published, you take 100 percent: there’s no one else there in the middle to take any money. Mind you, if you are using people like Amazon or Ingram or you’re going to Chapters or other bookstores, you’re not going to get a royalty paid on the sale price; you’re going to get paid a royalty on a price or an amount that is after those people’s expenses. What it costs them to sell that book, they’re going to get an amount in that they pay out to you as a royalty. And you take 100 percent of that.

Boni Wagner-Stafford 04:14

If you sell direct, of course you keep more of that amount. But there still are costs associated to you even if you’re selling direct, like …

John Wagner-Stafford 04:24

That’s correct. 

Boni Wagner-Stafford 04:25

You know, for example, the printing costs. But for the most part, that makes sense. 

John Wagner-Stafford 04:30

Yeah. Yeah. And then with a hybrid publisher – which we are – the type of payment is the same. We receive the money from the different distributors after the cost for printing. Shipping is a different thing. So the cost for printing and any other electronic distribution costs or whatever or the amount of money that goes to Chapters or any bookstore. So that money, that amount varies slightly from sale to sale but the money that comes in to the distributor, then comes to the publisher, which is a percentage of the sale, then you get your percent of that from the hybrid publisher. And if I didn’t mention before, a hybrid publisher pays typically between 40 and 60 percent of that net amount. It could vary because it’s an open book; you can negotiate what you want. We at Ingenium Books paid 60 percent on the money that we receive from any of the distributors.

Boni Wagner-Stafford 05:35

Okay, cool. So if – we’re going to talk a little bit more about each of those models with respect to what an author can expect about those royalties. And there’s not much else we really need to say with respect to traditional publishing, except I think it is important to talk about advances.

John Wagner-Stafford 05:54

Yeah. The traditional publishers – again, these are kind of standard numbers or standard numbers or standard scenarios; anything can happen – but they might pay royalties out twice a year. And if you, for instance, received an advance from the traditional publisher of $5,000 or $20,000 to write your book, it is an advance on royalties. So you’re not going to get paid royalties until that advance money has been paid back. Then you’ll start seeing your five or 10 or 15 percent payment of royalties: once that advanced money is paid back. The advance is basically to get you going, get that product or that intellectual property done, completed and in the marketplace, so that everybody can sell it and make money off of it.

Boni Wagner-Stafford 06:49

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Boni Wagner-Stafford 07:22

Okay, so let’s talk about the self-publishing world then: a little bit more about the royalties. So a self-published author then is going to be, of course, doing all the work that, you know, goes into marketing a book and keeping it alive in the eyes of the public and in the reader. But with respect to royalties, there are different nuances, depending on who is the – I refer to them as distributors: I’m talking about the Amazons and IngramSparks of the world. And there’s, you know, Draft2Digital and Lulu and a whole bunch of other things. But we’ll maybe just keep the concept fairly standard to Amazon and Ingram to demonstrate the point: which is, they’re not all the same.

John Wagner-Stafford 08:09

Yeah. Amazon, Ingram, these are distributors who sell around the world; they sell both print and – Amazon sells print and ebook; Ingram sells print. And then there’s also …

Boni Wagner-Stafford 08:23

And ebook as well.

John Wagner-Stafford 08:24

And ebook. And then there’s also, you know, you can print your own copies yourself of course, at any given printer, which has its own related costs. But Amazon will be collecting the money and reporting on the sale of this – your sales – every 60 days, for instance. So, they will – at the end of January, they will 60 days later prepare a report and make a payment to you. Ingram takes 90 days. So at the end of January, 90 days after, Ingram will be reporting and sending you money to your direct deposit account or however you’ve done that. ACX – sorry, ACX in the audiobook world – and Findaway Voices has a different – they pay a little quicker. But there’s a different dynamic with each one of those that you need to kind of be aware of and manage.

Boni Wagner-Stafford 09:24

Yeah, which is so. And I think my understanding is – and correct me if I’m wrong – but the report on the sales activity from Amazon or KDP comes monthly. The money follows 60 days after the end of that monthly.

John Wagner-Stafford 09:40

Yeah, so it’s a 90-day period after the sale.

Boni Wagner-Stafford 09:42

Right? Yeah, exactly. And then so the implications for the self-published author, with respect – you know, and there are self-published authors out there that just like, “Oh, look at that. I got a, you know, $79 deposit this month. Where’d that come from?” Great but there are – you know, we would advocate, I think, that self-published authors – especially those with more than one book and who are making a career out of it – that they consciously track and keep an eye on what’s happening, not the least of which is because it helps to inform their marketing. But that’s another topic. But so there’s some complexities in kind of managing and looking at what’s happening.

John Wagner-Stafford 10:23

Yeah, and you actually, you touched on a word that is important for you to know as an indie author and I think, you know, we find it important: you don’t need to react to it but you do get market information from these royalty reports. Where was that book sold? Was it sold in Europe, in the United States and Canada? And it might help you to make some decisions about either your writing, your next book or where you put some of your market–  your advertising money. So just getting the check is one thing but taking a look at that report and analyzing it is quite a different thing. And so I think that’s important to note: that there is there is some important data that you can use to your benefit as a self-published author.

Boni Wagner-Stafford 11:11

Beyond covering the costs that you’ve already put into to creating and publishing the book. Which is important: there’s no question that that’s important. So let’s talk about, you know, there’s a lot more detail that we could go into here but we really kind of wanted to have this discussion be fairly high level. But let’s move now to talking about some of the nuances if someone is with a hybrid publisher – like us: Ingenium Books – or maybe it’s another indie publisher that has a traditional model but they’re fairly small; maybe they manage, I don’t know, between 10 and 50 books or something. But so for those authors, they are not going to receive reports directly from those distributors. They’ll receive their reports and the royalty payments from the publisher. Tell me about that.

John Wagner-Stafford 11:59

Yeah, so when you’re getting a report from the publisher, you’re going to want to know a couple of basic pieces of information. I always want to know a little more but some of the basic information is, how many books did I sell? Well, how many units were sold? And what period was that for? Was it for a particular month or for a particular quarter? So you’re going to want to know how many books were sold, in what period of time. If you’ve got a paperback and an ebook and a hardcover, you’re probably going to want to know the breakdown of those different ISBNs as well. So getting that information, I think, is important. And then of course, that unit sale, there’s never a one-to-one relationship between the 17.99 sale – the unit – and the amount of money that actually comes in to the distributor or from the distributor. So you’re going to want to see how much money did the sale of those units make. If it made $1,000 and your agreement with the publisher is a 60 percent royalty, then you’re going to be getting $600 as a royalty payment.

Boni Wagner-Stafford 13:08

Right. And the – when working with these ... So you’ve talked about the type of information; you’ve talked about – I’m just summarizing and feeding back – so you’ve talked about wanting to know the time period, the format and the geography. Is there anything else that you would recommend that an author who’s with either a small indie press or a hybrid press look for in those royalty statements?

John Wagner-Stafford 13:32

Yeah. Sometimes there might be returns that are – play a role. And …

Boni Wagner-Stafford 13:44

And returns being the concept of when bookstores order books, they may order, for example, through Ingram or Lightning Source, let’s say 25 or 50 or 200 books. They will keep them in the store for a period of time and if they don’t sell, those get returned. These are not really the retail type returns but more the industrial – for the lack of a better word – returns.

John Wagner-Stafford 14:08

That’s correct. And so the bookstore will purchase those books in advance and then they will return them. And the point I want to make here though, is that that information can come in either on a monthly report or a quarterly report or it’ll be delayed. So if you’re gathering this information for data purposes, the number of units sold in January might have been 30 but you had 25 returns in February or March of the next month or so, then that is, you know, that changes your numbers. So you kind of have to be able to manage that if you’re tracking that kind of information.

Boni Wagner-Stafford 14:47

Right. And just another note on that, which is that the returns information can be significantly delayed in the bookstore scenario. Let’s say a bookstore bought 200 books in January: “Yay, I sold 200 books.” You get your payment in, let’s say, April. Everything is – you’ve, you know, hosted a big 50th birthday party for your wife or your husband; everybody’s happy. And all of a sudden, the following January, you have a big bill owing because that bookstore returned 175 of those books because they didn’t sell. All of a sudden, you have to pay that back. So that’s not usually something that an indie author is faced with but certainly we’ve heard from, you know, small presses and other indie publishers that that can be a scary scenario.

John Wagner-Stafford 15:41

Yeah. And in your contract with the publisher – certainly the traditional and hybrid – there will probably be an area that states that the publisher can and will, if necessary, hold back money for the purposes of returns. So that scenario doesn’t come up in front of you. In other words, “I’ve paid you $300 but we had $250 in returns; you owe me $250,” they don’t want that. So what they have – they built in a system where they can hold some money in an account, if you will, so that if there are returns, there’s no big impact on your life or their life; it’s just, they’re kind of buffering that amount of money. That’ll happen when you’re selling, you know, hundreds of hundreds of books every quarter or every month. That will be the case. If you’re selling, you know, 200 a month or 150 a month, it’s probably not going to be a big deal. But when you start getting into more volume, that’s where it plays a big deal. So a couple of other pieces to pay attention to: if there are any expenses that are incurred, you may – depending on your agreement with the publisher: if they’re spending money on your behalf, you certainly need to know about that, first of all, and if they are, they might be withholding that money from your royalty payments. So you need to watch out for that and be aware of what that dynamic is. And then if there’s any processing fees or additional fees that the publisher is holding back from your royalty payment, you want to see that detailed and make sure that you know why and what that is.

Boni Wagner-Stafford 17:21

Yeah. So it’s quite clear then that for a self published author, there is the monitoring and management of a number of data sources related to the royalties where, you know, this could be one of the, you know, checks in the column of an advantage to working with either a hybrid or an indie publisher, because you only have the one report; the publisher is gathering and managing all that data for you and passing it on. So you can focus on doing more of what you love to do, which is to write your next book and keep doing your marketing.

John Wagner-Stafford 17:59

Yeah. We, with any one of our authors, we collect anywhere from five to eight different electronic files that are input into our system. And then the system kind of breaks that all apart into its own categories, then brings it back together again in a singular report for the period, which is quite a bit of work and quite a bit of programming in the background that needs to be done to do it right and make it easy to use.

Boni Wagner-Stafford 18:33

Yeah, I want to talk some more about that system in just a minute. But one more thing with respect to what authors can think about with respect to the royalty reporting that they’re going to receive – reporting and payments, of course – from their hybrid or small indie press: which is the frequency. So what’s usual? What should an author be aware of? And, of course – and you’ve mentioned it a number of times – but what’s in the contract is a pretty good guide. But you want to be aware that what’s in the contract is either actually what’s happening or that the publisher is overachieving.

John Wagner-Stafford 19:16

Yeah. And as the distributors pay and report at different times, it’s difficult for a distributor – excuse me, for a publisher – to you know, every week or every month, grab that information and make a payment: it doesn’t make sense. It’s a lot of work for anyone and you don’t want to get 300 payments in a year of $2.50, right? So like I was mentioning earlier at the top of this podcast, a traditional publisher often will pay out twice a year. And everyone’s got the choice to overachieve, like you mentioned. What we do and other people will do is they’ll pay every quarter. So we, at the end of Q1, for instance, we will have gathered and have processed all of the information. Or within the 90 days – excuse me – after that, after that quarter, we will be processing and gathering that information. And then we will pay out everybody – all of our authors – at one time, 90 days after the end of that quarter. Q2, it’s the same thing. We pay that out after the quarter. It’s not that you wait that – you know, you’re not waiting any longer than anything but there is a delay: an initial delay. But once that initial delay is there, you get paid on a regular basis. And like I said, because we’re a hybrid publisher, we’re a little nimble; we can decide what we want to do. So we pay out every quarter: we pay four times a year, which is more than some people and maybe not as much as some others.

Boni Wagner-Stafford 20:57

Right. So yeah, our contract – in our contract that we have with authors – we commit to twice a year. And then in reality, we like to overachieve so we do that four times a year. So just to summarize that schedule, as we do it – and probably many other indie presses or hybrid publishers do it, you know, in a similar way – but sales that happen in Q1 – so January, February, March – would get reported and paid out by the end of Q2. Sales that happened in Q2 get reported and paid out by the end of Q3, et cetera. Yes. Is that right?

John Wagner-Stafford 21:37

Yeah. And that’s the way we’ve decided to do it. Because it gives us a chance to gather all the information, wait for any return information – returns information – that might be happening and it’s just easier. And like I said at the beginning, it’s an open book: anybody can do what they want to do. That’s the way we’ve decided. And we think that’s, like, it’s more than a lot of people are doing in terms of the frequency. And you get a statement every quarter of how much books you sold and how much money you’re making from it. 

Boni Wagner-Stafford 22:13

Yeah. So let’s talk about that system now. And we know from our own research: authors may not realize but – and that’s kind of where we wanted to bring a little bit of visibility to this – but those indie and hybrid publishers that are in the, you know, fairly small space – so, you know, if you’re managing a few hundred authors; we’re talking, I’m talking about presses and hybrid publishers that are managing a smaller volume than that – but it is very difficult to find what I call – maybe incorrectly but I call it kind of an off-the-shelf system, where you go to somebody and you say, “Hey, can I buy your royalty-tracking and payment system for my small publishing company?” The choices are few and far between. They do have systems for much larger, you know, much larger organizations: we were just, before we started recording, looking at a couple of systems and people were saying, “Yeah, well, you know, my startup costs for this royalty system were $20,000. And I pay several hundred dollars a month.” Many indie publishers just don’t have that flexibility from a fiscal perspective.

John Wagner-Stafford 23:31

Yeah. And you know, it’s really all over the place. It’s still – even though we’re, you know, what, 20 years into self-publishing or so, it’s still all over the map in terms of it being systematized and in terms of collecting that information and, you know, aggregating information into something that makes sense and it’s easy to digest. Many of the hybrid publishers or small independent presses are using Excel spreadsheets. And that’s okay, probably, if they’ve got one or two authors. But when you start getting more than that, it’s difficult. It’s – Excel spreadsheets are not that nimble. Go ahead. 

Boni Wagner-Stafford 24:16

No. And it’s – sorry to jump in there but I was just speaking with another small publisher who manages somewhere between eight and 10 titles and she was just saying that the work it takes – the time and effort and work it takes to manually process – track and process that information – is enough to have her considering shutting down. So it – I mean, and we know this; you and I know this: we’ve spent – mostly you, thank heavens; I don’t have to do that – but we’ve spent months and hours and hours and hours both trying to deal with it on a manual basis, searching for a solution and now building our own solution. So tell me a little bit about that journey. Would you include – we don’t have to name – we did try to use an off the shelf system; we don’t have to name them. Nothing wrong with that system; it just didn’t work for the size that we were or what we were looking for. But I think, you know, other publishers may find this of interest and certainly authors may get a little bit of a glimpse into some of the work that goes behind the scenes into managing the proceeds of their intellectual property.

John Wagner-Stafford 25:36

Yeah. You know, a quick note about our journey: we started with Excel spreadsheets. And that didn’t last very long because it was very time consuming, especially when we started getting more and more authors. Then we went and searched for systems that were out there. And there were not many that, at that time, were really feeling good. And there were a couple and there was one that we tried and it didn’t quite work out for us. And so we decided to build our own system and …

Boni Wagner-Stafford 26:09

Not with Excel spreadsheets.

John Wagner-Stafford 26:11

Not with Excel spreadsheets. We use a relational databases. And the benefit to us is time: we save a ton of time. The process really simply is there’s a file that comes into our email box from Amazon saying, “Hey, you just got a sales report,” that gets, with you know, one button push for all intents and purposes, imported into the system. And then in two weeks, Ingram will report on theirs and then ACX will report on theirs and Findaway Voices and, you know, we get all these files in from the different markets. So that takes a button push to import them, essentially. And then we get to see who sold what, where: we get to push another button and it generates a report. And so the time that we used to spend putting it all together – from the beginning of getting that data to the end of paying our authors – was many, many, many hours. And now we have just a few hours every quarter, that we spend doing that. And it’s because we have a system. We built it around our needs but we built it around, also, from a user perspective; not from a engineering perspective or from a programmers perspective, which, if anyone out there is into systems and programming, you’ll know that building it from a user perspective is really the way to go. But anyway, that’s, just me, John. 

Boni Wagner-Stafford 27:43

That’s another – right. Well, that makes sense. So for authors to know that, you know, we want them to be aware of what information they should be able to see on their royalty report and also to be aware that, depending on the size of their publisher and what kind of system they use, it might be a really – not that it makes any difference; I mean, authors have a right and a need for the correct and, you know, the proper details in their royalty report – but to understand that it isn’t what – you know, even though you’re talking about it being a push of a button, you know, you do spend the bulk of a, you know, a good solid week or, you know, we do at Ingenium Books: there’s a good solid week’s worth of work to deal with those reports and make sure that they’re all lining up appropriately and getting things generated out. So it’s, if we didn’t have the system that you built, it would be weeks. Several.

John Wagner-Stafford 28:44

Yeah. Two last things that I want to mention. In fact, when we pay our authors, we get it done in one day: the actual, you know, I’m sending a report out: we send an email and pay them right away. So that’s just one day. But you know, the other thing I wanted to mention is when you are looking for a publisher to help you out with your self-publishing, if that’s what you’re doing, you might want to just ask the question, “How do you pay royalties? How do you collect the royalties? What is the frequency that, you know, in which you pay?” And I’m sure it’s all going to be in your contract but before you decide on that publisher, it’s part of the conversation that I think has to happen before you make your decision about who you’re going to be asking to help you publish your book.

Boni Wagner-Stafford 29:30

Exactly. Yeah. Sounds good. Okay. Well, just in case anybody, you know, anybody who manages another author’s intellectual property, aka their books, and is curious about the system that we built for the royalties, you’re willing to chat with folks, I would imagine?

John Wagner-Stafford 29:50

Oh, sure. Yeah. I’m happy to share not only what we’ve done but if people have challenges, I’m happy to share what I’ve learned with them, and just help put and make it easy for anyone. So they can just fire off an email to me at john@ingeniumbooks.com. 

Boni Wagner-Stafford 30:06

Sounds good. Okay, so this was a really quick lesson on royalties for indie authors. The different types of publishing will tell you essentially what percentage you receive. We’ve talked about traditional, self-publishing, hybrid; what you want to see on your reports from if you are published by a hybrid or small press – even a traditional but they usually have standard systems – but and then a little bit of a window into the world of what indie hybrid publishers are going through when they try to generate those reports so that you have some awareness around it. Hope you found this interesting. I certainly have. And I’m really grateful you’re on my team, John.

John Wagner-Stafford 30:48

Yeah, well, I am too. I’m happy to be on your team. I’m happy to be part of Ingenium Books and I’m happy to help anybody who has some questions.

Boni Wagner-Stafford 30:56

Awesome. Thank you so much. 

John Wagner-Stafford 30:58

Take care. Bye bye. 

Boni Wagner-Stafford 31:03

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