4 Tips for Simplifying Royalty Management

You likely did not enter your business because of your love for royalty management.  Yet this aspect of your operations often requires attention disproportionate to its importance in the production of quality books.  It consumes valuable resources and represents uncomfortable risk.

As an enthusiastic student of this arcane aspect of our industry, having worked with close to 200 publishers, media and other royalty generating companies over the years, I’ve come to recognize several patterns of organizational behavior that result in simpler, more manageable royalty management.  While every organization is unique, and size and budget will clearly play a role, the following 4 tips will hopefully provide you with at least a couple of useful insights into how to simplify your royalty operations.

 

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Tip 1:  Create Contracts that Match to Your Backend Capabilities

I recently spoke with a very smart publisher who had moved from a “Big Five” to startup indie.  With him came great ideas for setting up contracts – ideas that would enable them to take more risks and ultimately best reward their authors.  Being in startup mode, the first few sets of royalty statements were done manually with Excel (the most common “Royalty System”).

They quickly realized, however, that terms like reserves against returns and joint accounting (aka “Cross Collateralization”) could not be easily handled by Excel.  In fact, managing the balances from one period to the next became a total nightmare fraught with risk and inefficiency.

This is common for many publishers.  Which leads us to tip #1:  Create Contracts that Match to Your Backend Capabilities.

If you don’t have a way to accurately account for a contract term, either do not offer it, or plan for the added overhead required during royalty periods and the lack of interim reporting.  I have heard from many publishers that they hate to be limited in their contract flexibility, which has tremendous validity.  The flip side is the risk of error and the corresponding impact to your reputation and bottom line.  Either don’t do it, or be prepared with the necessary resources and quality checks.

Tip 2:  Address Author Issues in the Statements

Once your statements go out to authors, the support calls start to come in.  Authors have questions about sales, prior balances, free copies, etc.  Each call that comes in requires resources to investigate and respond.

Interestingly, we have observed a phenomenon in publishing that most publishers’ statements – or at least particular imprints – often yield their own unique sets of questions.  There could be dozens of things an author could ask about, but in most cases, they only actually ask a small subset of those questions for a given publisher.  Thanks to this phenomenon, publishers can often address the vast majority of these author inquiries directly on the statement.  For example, if all your authors are wondering why so many copies were “comped” on their statements, you could add a footnote explaining all the different possible uses for, and benefits of, comping books.

Another interesting pattern I have noticed over the years is that there is a balance between details and summary that is a little different for each publisher.  Consider for example a royalty statement that breaks out revenue detail for each price point the book sells at.  For some authors, this detail provides fascinating high value information.  For others, it’s a major distraction to figuring out how they got paid what they did.  Find your balance.

How do you find your balance?  Even more, how do you identify the modifications that could bring the best return?

Keep a log.  Just start a Google Doc or similar and create an entry with the reason for every call that comes in.  It won’t take much time, and once the calls have settled down, you’ll quickly see what your top issues are.  My guess is that there will be 1 or 2 adjustments you make to reduce calls significantly.  Incorporate these into your future statements, keep your authors happy, and reduce the resources required to research each inquiry.

Tip #3:  Invest in Automation

Your reasons for wanting to simplify your royalty operations are likely one of the following:

• Inefficiency/cost
• Risk
• Stress/anxiety
• Reporting

Automation is far and away the best way to achieve simplification and hit these goals.

We recently met with an ECPA member customer who explained how their process went from 2 months in duration to 2 days after implementing our royalty management solution.  There are many options available to you (one of which I highly recommend :-)).

Most often the reasons for not automating are cost and inertia.  Often, the ROI is just not there.  It can be more cost effective to continue to perform this manually.  Other times it’s just hard to make a technology switch.  The status quo, even if inefficient, represents familiarity.  Change can be hard.

If royalties represent a problem that consumes valuable resources or represents risk, Automation is by far the best way to simplify.  It also reduces the impact of tip #1, as most contract complexities can be automated.

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Tip #4:  Automate Sales Aggregation

This tip applies to publishers that do their own ebook distribution, or have multiple sources of sales data.

There are dozens of channels through which you can sell your content.  Many publishers use distributors to access these channels and consolidate the corresponding sales data.  Many don’t.  And many take a hybrid approach.

If you are receiving more than a few sales files every month, this can be a pain point both in terms of managing royalties and of accurately tracking your revenue.  Some publishers receive in excess of 50 of these files a month.  Consolidating those files can easily consume a couple of days of effort.

Simplifying your royalty operations yields several business benefits.  Hopefully a couple of these tips can help you in that process.

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