Friday, May 9, 2008

Returns - part 3: Reserves and Lists

by Raelene Gorlinsky

(See part 1 for the definition of returns and part 2 for shelf life.)
Reminder that I am discussing mainly genre fiction here (in mass market paper or trade paperback). Literary fiction and nonfiction have very different sales and return trends, as does anything in hardcover.

I see the same figures over and over again from many sources. Up to 50% average return rate for new mass market fiction paperbacks. Anything less than 30% returns on a title is considered fantastic. Reread that figure — half of the new paperback genre fiction releases ordered by stores are not sold to consumers, they are returned for credit!

It can take a year or more after publication to calculate a valid return rate. Publishers don’t even seriously consider return figures until minimum six months after the book is released.

There is usually no time limit on when a bookstore can return books. I’ve heard stories of publishers receiving returns three to five years after the publication date. And the whole bookseller process of ordering, stocking, and then pulling, shipping back - and doing all the associated accounting steps at the publisher - just takes a long elapsed time.

Reserves Against Returns

So, you had a new book release. Typical NY print publication involves an initial advance against royalties, and then a royalty accounting every six month. So about nine months after your new book released, you should be getting a royalty statement from your publisher showing the sales figures for the first six months. The figures shown on your statement are the books the bookstores/distributors paid for, less the number they returned for credit. IF royalties earned on actual sales exceeded the advance you received, you would be due those additional royalties. And that also applies to all future royalty periods.

HOWEVER - your publisher knows that it is highly likely that more returns will be coming. If they pay you royalties on all the copies shown as sold in this period, ultimately they would have overpaid you. Using some small round numbers for an example: 1000 copies sold, 200 received back as returns in first six months = 800 sold; but publisher anticipating another 150 returns, for "real" sales of 650. Crediting the author with royalties for 800 copies would mean that next accounting cycle you the author could be "in the red" by the amount of royalties for 150 copies. It's not like the publisher is going to send a collection agent to your door to get that money back; they want to avoid overpaying in the first place.

So check your contract - you will find a clause about "reserves against returns". Basically, it says the publisher can withhold a certain percentage of your royalties for some period of time, in order to balance against anticipated future returns of the book. The contract may not specify the exact percent or time period, it may just say "reasonable" or "based on experience" or something vague like that. What authors have told me is that 25% reserve for up to two years is pretty common.

E-Books and Returns

Note that none of this applies to e-books. E-book sales are direct to consumer, so there are no bulk returns. Therefore WYSIWYG when it comes to your royalty statement. And that's why e-publishers can pay on a monthly or quarterly basis - they don't have to wait months to see how many returns come back from the initial sales before figuring out what your real sales were. And therefore no reserves against returns for e-books.

Best Seller Lists - shipped vs. sold

As should be clear by this discussion, booksellers love the returns system, and publishers (and authors) hate it. But there is one "we don't want to admit it" reason why some publishers have an ulterior motive for not pushing harder to change the system.

There are several high-profile bestseller lists - most well known are New York Times and USA Today. Most of these lists do not reveal their "secret formula" for how they calculate what's a best-seller. For example, Amazon doesn't tell anyone the factors and weighting that go into their hourly sub-sub-genre bestseller lists. But it is known that some lists are based on number of copies of a book shipped, not number of copies sold. (This made sense in the day when immediate and accurate sales numbers were not available quickly enough - if the book went on sale this week, the list calculations want a number for the week.) So if a publisher can report 100,000 copies ordered and shipped to stores, rather than that you shipped 100,000 but sales for the week were 50,000, you've got a better chance of hitting some lists. If the industry agreed to limit or eliminate returns, stores would be ordering far fewer copies to start, which would make your shipped number smaller. (This, of course, mainly affects the big New York publishers - small presses rarely have the numbers to reach an important list.) There are even occasional rumors of a NY publisher shipping more copies than ordered, even though they know those extras will likely come back as returns, just so they can have a higher shipped number and a better chance at a bestseller lists.

And hey, it could become a self-fulfilling prophecy - if readers see the book on a bestseller list, more of them might decide to buy it.


Maggie Nash said...

Thank you so much for the detailed explanations in your 3 posts. Much appreciated :-)

Anonymous said...

This has been a fascinating series. Really appreciate the "behind-the-curtain" peek!

Anonymous said...

"I’ve heard stories of publishers receiving returns three to five years after the publication date."

Even more true outside genre & fiction; I just got a royalty statement on a trade technical book published in 2001 that had fifteen returns on it. I had no idea that one was still in any stores as it is significantly outdated! (However, the Greek translation of that one is still selling. There's no explaining the technical market....)

Anonymous said...

I was in a distributor's warehouse and saw the boxes of books coming in from the publishers. These boxes were labeled by catagory in large letters. And lo there was a group of boxes labeled "Best Seller" coming right out of the gate. Hadn't yet sold a copy.