H is for Retention*

In publishing contracts, “Retention” may have a number of definitions, but the most prevalent refers to the amount of royalties publishers can retain (or “hold back”) from payments otherwise due to the author for sales made in a given calendar period.

Most royalty-paying publishing contracts allow the publisher to withhold or hold back a certain percentage of royalties due to the author to cover potential returns. This sum is known as “retention” or “royalties retained,” and the contract should specify both the amount of royalties the publisher can retain (5-10% is standard) and also the length of time the publisher can retain the funds (typically 3 months to a year, depending on the publisher).

Retention should apply to hard-copy sales only. There should be no retention on e-book royalties, because e-books are not returnable.

If possible, ensure that your publishing contract differentiates between e-book and printed versions where retention is concerned. Many contracts do not – but not necessarily because the publisher wants to take advantage. Many contracts just haven’t been updated to differentiate between royalties due on printed copies (where retention is normal) and those on electronic books.

Publishers retain a portion of royalties to cover potential returns because industry practice allows bookstores like Barnes & Noble to purchase hard copies of printed works essentially “on spec” – and then allows those stores to return unsold copies for refunds. The publisher then refunds the purchase price to the bookstore – and since those copies didn’t actually sell to third-party consumers, no royalties are due to the author on copies the store returns. Retention is the publisher’s way of ensuring the author isn’t overpaid. As long as the retention clause specifies a reasonable amount and a reasonable hold back period, this isn’t a bad thing. It means you, the author, don’t need to disgorge (return) overpaid royalties. The checks you receive, you keep.

And for anyone still wondering: H is for “retention” because of the definition: a holding back of funds. I decided to set this topic at “H” because “R” is already taken…by Royalties.

*Extra points if you figured out the connection between “retention” and “H” before I told you.

2 thoughts on “H is for Retention*

  • April 9, 2012 at 3:38 pm

    I did not know about “retention.” What happens if you get a huge advance? Stephen Carter received a 4 million dollar advance for his first novel, “Emperor of Ocean Park.”

    • April 9, 2012 at 3:46 pm

      Hi Natalie, thanks for the comment. When an author receives an advance, the publisher typically retains 100% of the income from sales until such time as the author’s share of actual sales exceeds the amount of the advance. Normally, the author receives no additional royalty checks until the book “earns out” – which in Carter’s case would mean until his royalty share exceeded $4 million. From that point onward, he would receive royalty checks – less any amount the publisher is able to retain for a limited period to cover returns. Royalties are not normally “reduced” by retention during the advance earn-out because the author isn’t actually receiving checks during that period. Where the advance isn’t subject to earn-out (rare but it does happen), the retention provision would kick in immediately because the author would receive royalty checks right away.

      A complicated subject, but hopefully that helps shed some light!

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