Want to know that One Thing you can do to make your contracts better? Then Contract Hacks is for you!

It’s a new semi-regular set of posts on the blog that will highlight different things you can do to make your contracts better.

First up: how to make sure you’re getting paid what you’re owed under a royalty contract.

It should go without saying, but I’ll say it anyway: this is not legal advice. It’s not legal advice because I’m not your lawyer.

What I hope it will be is food for thought to make sure you protect yourself and get paid what you’re owed.

By Au Kirk via Flickr.com

Let’s get to it, shall we?

So let’s say you’re looking at signing a contract with a publisher or distributor who is going to pay you based on a royalty.

A royalty is when you are paid a certain percentage of the money, or revenue, that comes from sales of your book, album, film or other art.  It’s important to know if you’re being paid based on gross revenue or net revenue.

Gross revenue is the total amount of money made off of sales, with out any expenses taken out.

Net revenue is the amount of money that remains when agreed upon expenses are deducted from the total amount of sales.

What are “agreed upon expenses”? Well it differs from contract to contract, but generally speaking it’s whatever you and the other person agree are a-OK expenses. Editorial services, marketing and distribution costs are common expenses.

Where will you agree to those expenses? In the contract.

It’s important to pay attention to how the expenses are described in the contract. You want it to be specific enough that you can figure out what might be taken out of the pot before you get paid.

By Sharon Drummond via Flickr.com

Often in a royalty situation the artist will only be paid on a quarterly (once every three months) basis. This allows the company selling the book or album or film to figure out how much of the thing they’ve sold and how much they’ve spent on selling it.

The contract will also typically include language that an “accounting of sales and expenditures” will be included with your check. This helps you make sure that you’re getting paid the right royalty and they’re only deducting eligible expenses. If your contract doesn’t say you’ll get an accounting with your checks, ask for it.

Companies don’t like to have to cut checks and do math all the time, though, especially if there have only been a handful of sales. Which is why these contracts might say that you won’t get a check if what they owe you is less than a certain amount, say $100.

This can make sense. (I wouldn’t want to have to cut a check every time I owed someone $3.76.)

But if you only get an accounting when you’re owed a certain amount of money, it’s harder for you to track sales. You’ll only know how well your book or album or film is doing when you’re finally owed money. And if you’ve gotten an advance, that could be a very long time.

Instead of waiting for your royalties to kick in, I suggest this simple hack: add language to the contract that says regardless of the amount you’re owed, they have to send you an accounting of sales and expenditures at least once a year. Or once every six months. Or whenever you ask for one but not more than three times in an eighteen month period.

Hack the contract to make sure you get access to information–hard, accurate, factual information–about how sales are going and what they’re spending on creating, marketing, and distributing your book, album or film. That way you can make sure you’re getting paid what you’re owed and they’re only taking out the expenses you’ve agreed to.

You’re a professional and you deserve access to  information about how well the publisher or distributor is managing your work. So hack your contract to get it.

By stacya via Flickr.com

Happy hacking!