PubCrawl Podcast: Publishing 201 Advances & Royalties

This week Kelly and JJ talk about advances, royalties, and publishing money. We get cold, hard, and mercenary this week, folks. This episode is very long, so those who are only interested in the money part, you can skip out after about an hour. For those who like Star Wars, you can stay tuned.

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Once again, apologies for some audio issues towards the middle. We’ve made pretty extensive notes here, so y’all can read the information, instead of trying to figure out what we’re saying.

Show Notes

  • Most writers have a day job. Most writers do make a sole living as traditionally published novelists.1
  • Miracles and Cinderella stories do happen, but for every rags to riches publishing fairytale there are hundreds—if not thousands—of authors who cannot earn a living on their first (or fifth) book deal. Fingers always crossed, but you need to be practical.

Advances

  • You may receive a big advance, but remember: an agent will take 15% commission, the money is split out over multiple payments, and you will have to pay taxes on top of that.
    • Even large advances are not all they’re cracked up to be. Remember that if you have an agent they’ll be taking a 15% commission, and you’ll have to pay taxes on your advance as well. If the book takes a few years to write and publish, then your advance is “covering” for that entire time, which might mean that you’re making less than minimum wage daily if you crunch the numbers right.
    • So why do agents push for larger and larger advances? Easy. That money is for sure. As long as all contractual obligations are met the advance is not refundable—even if it doesn’t earn out.
    • Earning out: when the royalties you have earned on the sales of your books equals and exceeds your advance. It is only after you have earned out will you see a single penny from the sales of your books. So how important is it to earn out your advance? Very. 2
Example

Advance: $10,000
Royalty rate: 10%
List price: $10.00
Royalty per book: $1.00

$10,000 advance / $1.00 royalty per book = 10,000 copies sold to earn out

  • Publishers Markeplace Deal key
    • “nice deal” $1 – $49,000
    • “very nice deal” $50,000 – $99,000
    • “good deal” $100,000 – $250,000
    • “significant deal” $251,000 – $499,000
    • “major deal” $500,000 and up
  • Publishers, editors, and agents use Publishers Marketplace as a way to let people in the industry know what they’re acquiring—the actual amount of money is less important than the hype it can drum up. Essentially Publishers Marketplace is one giant game of poker.
  • Advance payment splits: you will not receive all the money up front. Generally, the greater the advance, the more splits.
Example

$100,000 for 3 books = $33,333 per book
⅓ signing, ⅓ D&A, ⅓ publication over 3 years
On-signing in 2016: $33,333 ($11,111 per book)
D&A of Book 1 in 2016: $11,111
Publication of Book 1 in 2017: $11,111
D&A of Book 2 in 2017: $11,111
Publication of Book 2 in 2018: $11,111
D&A of Book 3 in 2018: $11,111
Publication of Book 3 in 2019: $11,111

Remember, this is all minus 15% an agent’s commission, so your actual take-home pay (not factoring what you have to set aside for taxes) is $9444.35 per payment. Unless you live somewhere very, very, very cheap, $9444.35 is not a lot to live on.

  • Bonus advances can be additional money negotiated in a deal, but they are NOT standard for every book deal. Bonuses can be paid for hitting one of the big bestselling lists (NYT, WSJ, USA Today, etc.) or for receiving a starred review in a trade publication (Kirkus, Publishers Weekly, Booklist, School Library Journal, etc.). You may also receive bonus money for winning a prize in your category or genre.
  • No Advance Situations: Some presses will offer no advance, but a higher royalty rate. Many imprints at the Big 5 will have a digital-only arm that pay no advance, but the author immediately starts earning money. A lot of these digital-only imprints are romance-focused, but no advance models can also exist at legitimate small publishers for other genres and categories.
  • HOW ADVANCES ARE CALCULATED: Each house has a PROFIT & LOSS SPREADSHEET (called P&Ls) where the acquiring editor puts in the numbers of how many copies they think the book will sell. That spits out the amount of royalties the author would earn if they sold through that many copies. That’s the advance amount we start with. Hype can definitely drive up the advance, especially if several houses are offering.

Royalties

  • Higher royalties = the quicker you earn out your advance
  • For print, royalties are calculated from LIST PRICE (what retailers sell your book)
Example

List price: $25.00
Royalty rate: 10%
Royalty per copy sold: $2.50

  • Standard royalty escalators:
    • Hardcover: 10% to 5,000 copies sold, 12.5% of next 5,000 copies (up to 10,000), 15% thereafter
    • Trade paperback: 7.5% on all copies sold
    • Mass market: 8% on first 150,000 copies sold, 10% thereafter
  • For ebook, royalties are calculated from NETS RECEIVED, generally 25%.
    • Print books are sold via the wholesale model, where the publisher sells physical copies to retailers at a high discounted price, which the retailers markup. (E.g. Publisher sells books to retailer at $9.00/copy, retailer sells at $25.00. The author receives royalties on $25.00, not $9.00.)
    • Ebooks are sold via the agency model, where the publisher and retailer split the profits, generally a 70/30 split.
Example

Ebook price: $10.00
Retailer net: $3.00
Publisher net: $7.00
Author royalty: 25% of $7.00 = $1.75 per copy sold

Other Publishing Money

  • Flat fees: Ghostwriting, work-for-hire, intellectual property (IP). Usually the writer gets paid a flat fee if they do not hold the copyright, but this can be negotiable, especially for packaged and IP books.
  • Kill fees: If for some reason the publisher decides not to publish your contracted book after it’s been delivered and accepted, they may pay the author a kill fee. For example, if you are contracted for a trilogy, but sales are not good for the first two and it would cost the publisher more money to publish the last, then they may pay you a kill fee. Kill fees happen when the author has fulfilled all terms of the contract, but the publisher chooses not to publish.

What We’re Reading

Off Menu Recommendations

That’s all for this week! Next week, we have an interview with BETH REVIS, NEW YORK TIMES BESTSELLING AUTHOR OF ACROSS THE UNIVERSE about REVISION. Stay tuned for that conversation, as well as a giveaway!

  1. Disclaimer: Kelly and JJ have both worked in traditional publishing, so this is necessarily a biased point of view.
  2. According to this article in the New York Times, 7 out of 10 authors do not.
  3. PubCrawl alumna! AND NOW A #1 NYT BESTSELLER!
  4. PubCrawl alumna and founder AND NOW ALSO A NYT BESTSELLER!
  

2 Responses to PubCrawl Podcast: Publishing 201 Advances & Royalties

  1. Anna Jordan Jan 14 2016 at 8:28 am #

    Awesome awesome yes yes. Thank you!!!

  2. Karim Jan 18 2016 at 11:28 am #

    I’m glad you two are doing the publishing 101 series again. I love these intricate, behind-the-scenes looks at the industry. Also thanks for the Writing Excuses and Rae Carson recs–am now a huge fan of both!

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