- Distribution fees. Although there are always costs involved in shipping product, many times the distribution fee in a contract is determined as a fixed fee or percentage, such as "20% of gross profits". I'll let you decide whether this kind of calculation is based on actual costs of distribution. If it helps to figure this out: often the distribution company is a related party to the publisher. By the way, the same thing often happens with marketing fees: they are calculated as a percentage of profits and aren't usually tied to actual spending.
- Overhead. Basically this represents salaries and other internal costs to your publisher. Publishers often try to pass through the cost of editors, accounting staff, lawyers, and other employees. Some even want to charge a fee for things like photocopies, long distance phone calls, and office rent. You'll see this as a percentage of your profits, which is a clear signal that it's nothing to do with the work they've actually done on your project.
- Interest. If your publisher is paying you an advance, then that's money out of their pockets. If you read the advances and royalties post then you may recall that you don't get paid any royalties until your publisher recoups the advances. Some publishers also charge you interest on the advance; most film and TV studios will do this. So if you get a $15,000 advance and 10% royalties with a book whose wholesale price is $10 but 10% interest, then you don't get paid on copy 15,001. It takes another 1,500 units: you get paid at unit 16,501. Same thing for the marketing and distribution charges: some publishers allocate money to a project and then charge a interest against it even though the money isn't spent yet.
- Always try to tie any fee to actual spending of money. If your publisher insists on charging distribution or marketing fees against gross profits then requiring these costs to relate to actual, out-of-pocket expenditures will help make sure you're not overpaying.
- Push back on overhead charges as hard as you can. If you're not getting 100% of the net profits then your publisher is taking a share. Let them pay their costs from that. But if that doesn't work then you should at least try to get your money's worth such as dedicated resources. And it's not 1990 any longer: no one should be paying for phones and photocopiers.
- Let your publisher bear the cost of its own money. But if you really have to give on this or you just don't get a vote, make sure the charges are only assessed on the day they are incurred. Some companies charge these items against creators on the day the advance is paid or even the day the contract is signed. You definitely should never pay interest on money your publisher hasn't spent yet!
There's one more post on financial issues coming (they're dry but really important, sorry). Then on to new topics. If you've got things you'd like to see covered, either put them in the comments or follow me on Twitter and DM me (@LegalMinimum).