Model Trade Book Contract

5.

Royalties.

    1. Hardcover Rates.

      Publisher shall pay Author the following royalties on each copy of the hardcover edition sold by Publisher in the United States through regular book wholesale and retail channels, less actual returns (subject to Subsection 5(e)):

       

      • on the first 5,000 copies sold: 10% of the suggested retail list price (hereinafter called "Retail Price");
      • on the next 5,000 copies sold: 12.5% of the Retail Price; and
      • on all copies in excess of 10,000 copies sold: 15% of the Retail Price.

       

      For most small and medium–sized publishers, including academic presses:

       

      Publisher shall pay Author the following royalties on each copy of the hardcover edition sold by Publisher in the United States through regular wholesale and retail channels, less actual returns (subject to Subsection 5(e)):

       

      • on the first 5,000 copies sold: 10% of all amounts actually received by Publisher, minus only return credits and applicable taxes, postage and shipping costs (hereinafter called "Net Receipts");
      • on the next 5,000 copies sold: 12.5% of the Publisher's Net Receipts; and
      • on all copies in excess of 10,000 copies sold: 15% of the Publisher's Net Receipts.
    Commentary

    Trade royalties today are calculated on either (1) the suggested retail (otherwise known as "list" or "cover") price of the book or (2) the publisher's net receipts, which are typically defined as the amounts received by the publisher after taxes and any applicable discounts to booksellers or wholesalers have been deducted.

     

    The royalty rates in Section 5 of the Model Contract are split into two categories: (1) Big 5 and a select few other publishers; and (2) small or medium-sized publishers, including academic presses. Previous versions of the Model Contract did not distinguish between types of publishers—practices used to be more uniform between them. However, in the years between the last edition of the Model Contract and the current one, variances have emerged between publishers' business models—the most significant one being the trend among smaller and medium-sized publishers, as well as academic presses and publishers of graphic novels, artbooks, and children's books, to use net receipts as a basis for calculating royalties, rather than the suggested retail price.

     

    Depending on the type of publisher you are dealing with, you will want to consult the applicable royalty scheme for guidance. In both cases, for adult trade books, the royalty rates tend to run around 10–12%, with the higher rates kicking in after a certain number of sales have been met. Established, best-selling authors can sometimes negotiate better rates, but it is difficult for a new or mid-list author to do so.

     

    Authors receive approximately 40–50% lower royalties from net receipts compared to royalties paid on the book's list price at the same percentage. This is because amounts received by the publisher after deducting taxes and bookseller discounts tend to be about half of the book's list price. To achieve comparable compensation, the author's rate should be much higher if the publisher is basing the royalty on net receipts, not list price. As you can see in the Model Contract, however, many publishers paying on a net basis (especially academic presses) now use the same royalty rates as those paid traditionally on list price, meaning that their authors are getting paid a lot less. This makes publishers paying on list price generally more attractive financially.

     

    It is very unlikely that you will convince a publisher that pays on net to instead pay on list—it streamlines accounting to pay all authors on the same basis. However, if you have any leverage, you can perhaps bargain for a higher rate.

     

    As an advocacy matter, the Authors Guild does not approve of the practice of paying authors only 10–12% of net receipts. This rate does not fairly compensate an author for the years of work put into the book. We encourage all authors to fight for higher rates. At the same time, we understand that authors may not want to lose a contract offer by pushing for rates that their publisher is unwiling to pay. For that reason, we have used standard rates in the Model Contract and the commentary, which give a realistic picture of what publishers are willing to pay these days.

     

    In this section we discuss some of the other clauses you might see in your contract that are not included in our Model Contract.

     

    Small Printing Royalties.

    Some publishers' standard contracts include a provision—not shown in the Model Contract—that provides for a reduced royalty—as much as a 50% reduction—for sales made from small printings (reprintings of 2,500 copies or under) in order to keep the book in print.

     

    This language should be deleted. It is a relic from the days before print-on-demand publishing and other technologies made small print runs cost effective. If it is not possible to delete this language, negotiate to increase the percentage of royalties to at least two-thirds or three-quarters of regular royalties and specify that this clause will not apply to print-on-demand books or books produced by similar techniques. In addition, you should ensure that a small printing is defined as a printing of 1,000 or fewer copies (2,500 maximum), that it may only occur two years or more after the date of the first publication, and that only one such printing may be made within any 12-month period.

     

    For example:

     

    Publisher shall pay Author three-quarters of the stipulated royalty, as stated in Sections 5(a) and (b), on all copies sold from a reprinting of 1,000 copies or fewer, but only if reprinted after two years from the date of first publication of the Work and provided that the regular sales in the six-month royalty period immediately preceding such reprinting do not exceed 500 copies and that only one printing generating such reduced royalties shall be made in any 12-month period; this reduced royalty is provided to enable Publisher to keep the Work in print for as long as possible. This reduced royalty rate shall not apply to books produced by print on demand, electronic printing, or similar technologies.

     

    Because a successful children's book can remain on a publisher's backlist longer, children's book authors should be especially vigilant in trying to delete or minimize the financial impact of a reduction in royalties for reduced printings.

     

    A similar clause, also to be avoided, is one which permits the publisher to exclude the copies sold from reduced printings when calculating royalty escalations.

     

    Children's Book Royalties.

    Royalty rates for children's books are typically lower than those for adult trade books. For young adult books, especially ones that appeal to adult readers, you should try to negotiate for typical trade rates, but that will not always be possible.

     

    For example, rates for hardcover children's books often start at 10% of list price with the rate escalating to 12.5% when sales reach over a certain threshold, such as 25,000 copies. Trade paperback rates often start at 6% with an escalation of up to 7.5% for sales over 50,000 copies. For best-selling young adult books, the author might be able to negotiate a higher rate.

     

    For picture books, where illustrations represent a significant portion of the work, the rates are halved because publishers split the payment equally between author and illustrator. So for e.g., where a children's book author would 6% for a paperback, they can expect 3% if the book contains illustrations.

    1. Paperback Rates.

      For trade paperback:

      For each copy of the trade paperback edition sold by Publisher in the United States through regular book wholesale and retail channels (subject to Subsection 5(e)), Publisher shall pay Author a royalty equal to 7.5% of the Retail Price, less actual returns.

      For mass market paperback:

      For each copy of the mass market paperback edition sold by Publisher in the United States through regular wholesale and retail channels, Publisher shall pay Author a royalty of the following, less actual returns:

       

      • on the first 150,000 copies sold: 8% of the Retail Price; and
      • on all copies in excess of 150,000 copies sold: 10% of the Retail Price.

       

      For most small publishers, including academic presses [which rarely if ever differentiate between trade paperback and mass market paperback]:

       

      • Publisher shall pay Author the following royalties on each copy of the paperback edition sold by Publisher in the United States through regular wholesale and retail channels: 10% of the Publisher's net receipts on all copies sold, less actual returns.
    Commentary

    Trade Paperback

    Many publishers pay a trade paperback royalty of 7.5% of the retail price on all copies sold. Some established authors may be able to get escalation of up to 10% after a certain threshold of copies sold.

     

    Mass Market

    For mass market paperbacks, most publishers agree to pay an initial royalty of at least 8% on sales up to 150,000 copies and 10% thereafter. As is always the case, established, best-selling authors may be able to negotiate higher rates.

    1. Ebook Rates.

      Publisher shall pay Author royalties on each copy of the verbatim text electronic edition of the Work equal to 25% of the Publisher's net receipts on all copies sold. Author shall have the right to renegotiate Ebook rates with the Publisher, if after two years from the date of initial publication of the Work in any format, the industry standard Ebook Rate is higher than 25% of net receipts, and Publisher shall engage in these negotiations in good faith. The Publisher further agrees to revert electronic rights if the parties are unable reach an agreement on a new rate after 30 days. 

    Commentary

    When ebooks first came on the market, many publishers paid 50% of their net receipts for book sales. However, in the last decade, most have reduced these rates by half, and 25% of net receipts has stabilized to become the current standard rate. It would be prudent, nevertheless, to add language to the applicable Ebook rates clause that would permit you to renegotiate the these rates after a certain period of time has passed after initial publication (such as two years). This way, you would not be locked into the rates. If a rate cannot be agreed upon within a reasonable period of time (such as 30-60 days), the electronic rights should, ideally, revert back to you.

     

    As ebook production is less expensive for the publisher, the Authors Guild believes that it is grossly unfair to authors to receive this lesser rate while the publisher makes more money per copy. We continue to advocate for higher ebook royalty rates on every level.

    1. Audiobook Rates.

      Publisher shall pay Author the following royalties on any physical audio recording of the verbatim text of the Work, less actual returns (subject to Subsection 5(e)): on the first 10,000 copies sold: 10% of the Publisher's net receipts; and on all copies in excess of 10,000 copies sold: 12% of the Publisher's net receipts.

       

      Publisher shall pay Author the following royalties on any electronically delivered audio recording of the verbatim text of the Work: 25% of the Publisher's net receipts on all copies sold.

    Commentary

    If you are unable to reserve audio rights (see Section 2(e)(iv)), then make sure that you are getting paid adequately from the publisher for its use and exploitation. Physical audiobooks, though less popular now, typically start at 10% of the publisher's net receipts and escalate up to 12% based on sales. The Model Contract clause reflects this scale.

     

    By and large, audiobooks are now sold as digital downloads or licensed through streaming platforms. The current standard rate, as reflected by the Model Contract, is 25% of net receipts, which is in line with the rate for ebooks. As with the ebook royalty rate, the Authors Guild is advocating for a higher standard audiobook royalty rate.

    1. Large-Print Rates.

      On all copies of a large-print edition of any Work sold in the U.S.: on the first 5,000 copies sold: 10% of the Retail Price; on the next 5,000 copies sold: 12.5% of the Retail Price; and on all copies in excess of 10,000 copies sold: 15% of the Retail Price.

    Commentary

    Your publisher may want to publish a large-print edition of your book. The rates should be the same as for other hardcover copies. If the publisher is offering you significantly lower rates than those reflected in the Model Contract, negotiate accordingly.

    1. Reserve Against Returns.

      During the first [4] accounting periods of sales, Publisher has the right to retain a reasonable amount of the royalties earned by Author as a reserve against the return of unsold copies of the Work, not to exceed [35%] of amounts due. Thereafter, only actual returns will be deducted in calculating royalties. No reserves may be taken for electronic copies sold, namely ebooks and electronic audiobooks.

    Commentary

    The provisions in the Model Contract for royalties for hardcover, paperback, and audiobooks (in Sections 5(a), (b), and (d)) deduct "returns" before calculating royalties. Almost all publishers insist on holding a reserve against future returns before calculating royalties, particularly in the initial accounting periods after the book comes out when returns are likely to be highest.

     

    Unlike most industries, publishing typically allows retailers to return unsold copies. To prevent paying royalties on books that might be returned to them, publishers generally retain some of the money otherwise owed to the author. Publishers contend that it is often difficult to recover overpayments made to authors to justify erring on the side of imposing a higher reserve than is strictly necessary. It is important to cap reserves for returns as some publishers routinely seek to withhold too much as a reserve, delaying payment to the author by as much as a year. Ideally, the reserve against returns would be no more than 15–20% of reported sales in a given accounting period, but, in actuality, bookstore returns are often as high as 35–50% and many publishers will insist on a cap no lower than that.

     

    If the publisher's standard contracts provide for a "reasonable reserve," then you are somewhat protected, though not as well as you would be if you negotiate a specific percentage limit, since what is reasonable can be a matter of opinion. One alternative is to use the actual returns from the first or second accounting period as a basis for the reserve in subsequent accounting periods.

     

    The Model Contract limits the ability of the publisher to take reserves to the first three accounting periods after initial publication, although 24 months is more often the norm for trade and mass market editions. After that, publishers should have no reason to be receiving significant returns.

     

    Reserves taken for returns should always be shown in the author's royalty statements, per Section 13(d) of the Model Contract.

    1. Export Sales.

      On all copies of any edition sold outside of the U.S., the Author will receive two-thirds of the regular royalties.

    Commentary

    If the publisher has distribution rights to sell its own edition in other countries, it often will provide a discounted royalty of two-thirds for those sales. Many publishers will try to insist on a two-thirds rate for Canada.

     

    As an advocacy matter, the Authors Guild believes that authors should receive the full royalty rate for Canada since there usually are not the same added costs to the publisher as for sales in other countries. As such, the Model Contract provides for a full rate for Canada—although you might not get it—and a two-thirds rate on other foreign editions, which is more justifiable as book prices may be lower and additional costs, such as shipping and taxes, are incurred on those sales. You should try not to agree to a half rate.

    1. Deep Discounts.

      When, in any accounting period, Publisher grants quantity discounts outside ordinary wholesale and retail book trade channels in the United States of more than [56]% on single title orders of 1,000 or more copies of the Work, the royalty on such copies shall be reduced by 0.5% for each 1% of Publisher's discount exceeding [56]%; provided that the royalty rate shall not be reduced to less than two-thirds of the otherwise applicable rate. No adjustments shall be made for fractions of percentages. No more than [35%] of sales in any given accounting period will be accounted at the deep discount rate.

    Commentary

    Given the increased use of deep (or "high") discounts and special sales, it is very important to read the deep discount provision carefully and negotiate changes that will protect your royalties. Most publishers' contracts provide that when a quantity discount of more than 51% or 55% is given to a bookstore, royalties on those copies are greatly reduced—by as much as half. These deep discount clauses can sharply decrease your royalties, and they put far too much control over your royalties in the publisher's hands. In many cases, the publisher can actually increase its profits by selling at deep discounts and paying the author so much less, giving it an incentive to give deep discounts to retailers.

     

    Publishers are having to sell more at deep discounts, with major online retailers and big-box stores reportedly asking for discounts higher than 50%. As such, the Authors Guild recommends that deep discount royalty reductions start at 56% discounts.

     

    Some contracts, especially for children's books, have clauses for reduced rates for special sales—that is, sales outside of normal retail channels, sometimes defined as sales "to a purchaser not ordinarily engaged in the business of bookselling." The Authors Guild is also seeing an increased use of special sales on statements. Find out what the publisher considers special sales (try to get a list of the retail outlets or types that are considered special) before you sign the contract; otherwise you may unexpectedly find yourself getting half royalties on half your book sales. If it's a picture book and you are already only getting a 3% royalty, the special sales discount can reduce your royalties to a handful of pennies.

     

    The new Model Contract makes several changes from the current standard deep discount clause. First, this clause limits sales qualifying as deep discount sales to those made outside normal channels of trade, so that sales to large retailers like Amazon or Walmart do not diminish the author's royalties. Second, the lower royalties are not triggered unless the sale is at a discount of 56% or more. A 50% or even 51% cut-off is far too low since so many retailers are entitled to a 50% discount, as noted above.

     

    Another important—and realistic, we hope—change in the Model Contract is to reduce the royalty only in proportion to the amount of deep discount granted. The Model Contract provides that royalties shall be "reduced by only 0.5% for each 1% of Publisher's discount exceeding 55%" but that the royalty will not be reduced to "less than two-thirds of the applicable rate." Many authors have successfully negotiated this kind of "shared loss" royalty provision. This will help disincentivize the use of discounts just over the threshold to trigger the lower rate. In any event, the deep discount should apply only to bulk sales (of 1,000 or more copies).

     

    Note that in many standard children's book contracts, for special sales and deep discounts, publishers will provide a royalty as a percentage of net rather than list, which effectively cuts the royalty paid in half. Those clauses should also be carefully reviewed and negotiated.

     

    Another condition you can try to negotiate is to combine the deep discount clause with a special sales clause—meaning that the reduced royalty kicks in only when the deep discount is given to an outlet outside of normal book retail—so that it would also qualify as a special sale. This may not be easy, since publishers want to slash royalties for both special and deep discount sales. If so, find out the publisher's standard discount to the big chains for books like yours and push to increase the triggering discount percentage beyond that standard by at least a few percentage points.

    1. Non-Royalty Copies.

      No royalties shall be paid on a reasonable number of copies given away for review, advertising, sample, sales promotions, or for like purposes, provided that the copies are clearly stamped or otherwise marked in a manner that identifies them as such. In addition, no royalty shall be paid on short portions of the Work (no more than 10%) appearing as previews in other books published by Publisher or on short portions of the Work used or licensed for advertising or publicity without compensation.

    Commentary

    Publishers will not pay royalties on copies that they give away for reviews or to promote a book. This helps both author and publisher. That said, in order to prevent your book from being used in promotions that don't directly benefit the sales of your book, we suggest placing some restrictions on the publisher's ability to give away free copies. This can be as simple as including the term "reasonable" before "number of copies"--that way, your contract will prohibit any egregious give-aways (however unlikely). Likewise, be sure to cap the amount the publisher can display without paying you a royalty to no more than 10% of the work. Be sure that other types of sales are not thrown into the clause for books that will get no royalties, including books sold at remainder prices.

     

    As part of the Authors Guild's campaign to reduce the number of books sold by resellers on Amazon as "new," we have been recommending that all publishers clearly indicate through a mark, stamp, or other conspicuous notation that the copies being sold are review or giveaway copies. Ideally, the contract should provide that a legend be placed on each copy stating: "For review purposes only, not for resale. The author receives no royalty from the sale of this book."

    1. Remainders.

      Publisher shall notify Author before the Work is remaindered, which event shall not occur before one year following initial publication of the Work, and Publisher shall offer Author a reasonable opportunity to purchase copies of the Work at the remainder price, which shall be no more than the cost of manufacture. Publisher may sell any remainders to third parties and will pay Author the rates set forth above in Section 8 for deep discounts; provided that the copies are clearly marked as remainders. For avoidance of doubt, no remainder sales shall be made for non-physical copies, i.e., ebooks or electronic audiobooks.

    Commentary

    Almost all publishing agreements have a clause that allows the publisher to sell off its stock at cost or less when sales slow—known as remaindering. Typically, the publisher will agree not to remainder a book until at least one year after publication.

     

    Standard publisher contracts often stipulate that the author will receive 10% of net receipts if the remaindered book is sold at a price above the cost of manufacture. (Ideally, authors should receive this royalty even if the book is sold below the cost of manufacture.) The Model Contract takes a different approach and treats remainder sales as deep discounts (since that is essentially what they are). Instead of applying a separate, lower remainder rate, it provides for the deescalating deep discount rate to apply to remainders as well. The Authors Guild believes this is fairer to the author in addition to being simpler. If you cannot convince the publisher either to adopt the Model Contract language or to provide a royalty on sales below the cost of manufacture, then ask for a reversion of rights upon request if the book is remaindered below the cost of manufacture.

    As an advocacy matter, The Authors Guild believes that rights to particular formats and editions should revert back to the author if and when those formats and editions are remaindered or put out of print. For instance, if the publisher remainders a hardcover edition prior to the launch of a paperback edition, hardcover rights should revert to the author upon remaindering of that format or edition. At the moment, this is very difficult to get, but we encourage you to inquire with your publisher about its willingness to revert format/edition-specific rights when it remainders that format or edition.

     

    Books that are remaindered should be offered to the author first at the remainder price, which should be at or lower than the cost of manufacture, and books should not be remaindered until at least one year after the initial publication. If you have the ability to pay for the remaindered copies and have a place to store them, it is always best to purchase the copies to be remaindered and arrange for their sale or other distribution yourself.

     

    As with giveaway copies (discussed in Section 5(i)), the Authors Guild advocates strongly for limiting remainder sales because the remaindered copies end up being sold by online resellers at prices far below that of any other edition the publisher is still actively selling. Remainder copies are sold in bulk to companies that specialize in remainders and quickly make their way into the online reseller market where they are sold as "new" at significantly reduced prices, taking away sales from royalty-earning copies. This problem often occurs when the hardcover edition has been remaindered but the paperback copy is still in print and selling. If readers looking for paperback copies see that remaindered hardcover copies are available at cheaper prices than the paperbacks, they may opt for the cheaper remaindered hardcover copies over the new royalty-earning paperbacks. To prevent this practice, the Authors Guild recommends the following terms for remainder copies:

     

    • Remainders must be marked as such so that they cannot be sold as "new" by resellers. (Amazon's rules for sellers do not permit marked books to be sold as "new.")
    • The publisher should offer the copies to the author at cost or less before selling them as remainders.
    • Royalties should be paid on remainder sales; they should never be zero. The royalty rate for remainder sales should be the same or higher as the deep discount royalty rate, or a rate floor should be specified to ensure that the author gets a minimum from remainder sales regardless of the price at which remainder copies are sold.
    • The remainder clause should cover each print edition but should not cover any electronic copies (ebooks and digitally distributed audiobooks) since there is no overstock issue.

     

    Publishers often add to remainder clauses that an inadvertent failure by the publisher to notify the author of the remaindering of the work is not "a breach of the Agreement." This language limits the publisher's liability if it fails to notify the author or fails to offer copies at the remainder price. The Authors Guild objects to this provision. If a publisher is really worried about notice not being provided, it should fix its internal controls. A material breach would give the author the right to terminate the agreement, but only after the author gives the publisher a formal notice and opportunity to cure—which is fair and reasonable.

    1. From Advertising.

      For all supplemental revenue earned from advertising placed in the Work or in association with the electronic display of pages from the Work, and in connection with the program currently known as "Google Book Search" and any similar search and discovery program that generates advertising revenue for Publisher, Author will receive 50% of the full amount received, less commissions paid by Publisher in connection with any such advertising.

    Commentary

    Generally, authors should share equally in the income a publisher might receive from electronic display of the work.