The Business Side of Writing: The Return Reserve and What it Means to "Sell" Books

Last month we looked at all the costs that a publisher must take on in order to get a book into print. This month I want to discuss the publisher’s income stream, which comes almost exclusively from selling books, and the first contract term that I’ll cover specifically, the “return reserve.” Let me add my disclaimer that I am not licensed to give legal advice on this blog, but I can give legal information. From this post, you should be armed with a set of intelligent questions to ask about the return reserve before you sign a publishing contract.

Okay, let’s go over some definitions:

Book Sales: You might think this one’s easy. It’s not. When someone sells 10,000,000 books, that means 10,000,000 people each have a copy right? Wrong. The kind of book sales that are used to define who’s on this or that bestseller list and author royalty payments are actually a cluster of types of sales. They include:

– Ebook sales;

– Sales direct to buyers, i.e. through the publisher’s website; and

– Sales to bookstores

Did you catch that last one? A publisher’s initial sales reports are sales to the bookstores and other sales outlets, like grocery stores, WalMart, etc. who have the books sitting on their shelves. They are not a pure measure of sales to readers. Sales from bookstores to readers are called:

Sell Through: When you see a traditionally published author stressed about their sell through, this is what they’re fretting about: how many of their books, bought by bookstores, will sell to readers. The publisher makes its printing decisions based on book sales, but it is possible for them to over-estimate the likely sell through. What happens when most of the sold books don’t sell through? They become:

Returns: This refers to books that bookstores and other sales outlets can’t sell to readers. Now, I could write a whole article on the different ways returns work. Hardcovers get sent back to the warehouses, mass markets have their covers stripped and pulped, etc. Suffice it to say, there are a lot of long standing business practices that govern what bookstores do with the books they can’t sell. One thing all these practices have in common is that the bookstore receives part or all of their money back for these unsold books.

Now you can probably see where this narrative is going. Say you’re an author and your first round of sales numbers are nice and high. You’ve moved over 10,000 copies, your entire first printing. That’s enough to get you onto the LDS regional bestseller lists. But say those books don’t sell through. Now what? The bookstores are owed money. Who pays them? Well, this leads us to:

The Return Reserve: I put a “the” at the front of that one because it’s very important. In your contract you’ve got a return reserve, a certain amount of money that the publisher holds back from your royalties to cover the cost of returns. For the latest information about what a typical return reserve is, ask writers working in your market niche. Email them. Talk to them at conferences. Ask them at the grocery store. The only place to get the most current information about what’s typical is from current contracts. If you’re in the national market, your agent should know this. This information is the type of thing an agent is for, to ensure you don’t get gouged with an atypically high reserve.

Okay, so the returns come flooding in and the publisher pays for them out of the return reserve. What happens when that reserve is exhausted? Pay attention, this is the really important part.

The Author Should Not Pay for Returns Over and Above the Return Reserve. That’s my opinion. It’s not a legal opinion because what contract you decide to enter into isn’t a purely legal decision. You will end up owing whatever money the contact says. Here’s why I think your liability should be limited by the return reserve, though: Authors do not decide on distribution. The publisher does. They’re the ones who choose how many books to print and where to ship them. Given the author doesn’t have control, I think it’s unreasonable that they should have to pay for over estimations.

Furthermore, if the publisher feels they can charge the author for all returns over and above the return reserve, what is their motivation to make economical distribution decisions? Why not woo and author with a 15,000 book print run and distribution to WalMarts, Costcos, and every Barnes and Noble nationwide? Of course, there are some limitations here. These outlets would need to approve the book, and they might not, and a publisher knows that their author’s resources are limited. A half-million copy print run is beyond everyone’s budget, so there are constraints. My argument is that if the author bears the risk, there aren’t enough constraints on the publisher.

A publisher should decide how to distribute a book using their own budget and their own past experience in the bookselling business, and they should pay for over-estimations and other mistakes.

So, that’s my position, that the return reserve is the compromise between author and publisher to cover losses, and that beyond it, the publisher should bear the cost. A publisher may threaten you with smaller print runs and distribution if you refuse to pay for returns above the reserve. Think about what they’re really saying. They’re saying that this smaller number of books is all they feel they can really move. Don’t let them stroke your ego into bankrolling wider distribution if there just isn’t that kind of demand for your book out there.

I am aware of at least one LDS publisher who has charged their authors for returns over and above the reserve. You might get publishers saying this is the norm in the market. Realize that “it’s the norm” is nothing more than the “everyone else does it” argument, and if you’re a parent or remember being a teenager, you should have a ready answer for that one.

We’ve only just scratched the surface of book distribution, printing, and sales decisions, but I’ll leave it there for this month. Please do comment and ask any questions below!