Traditional Publishing — Money, Money, Money

To wrap up this series on traditional publishing, I want to talk a little bit about money, money, money. I touched on this earlier, but it’s worth a post of its own.

Traditional publishing pays royalties, a percentage of revenue the book earns. The royalty percentage varies depending on the format of the book (hardcover, trade paperback, ebook, audio, etc.).

Some publishers give an “advance on royalties,” more commonly called just an advance. They estimate how much in royalties they expect the book to earn over its lifetime and pay you that money up front.

If your book earns more in royalties than you were paid as an advance (“earns out“), you’ll receive the extra as regular royalty payments.

If your book does not earn out, you do NOT have to return any of the advance. That money is yours unless you cancel the contract before the book is delivered.

The contract will specify whether you get an advance, how much it is, and your royalty percentage for each format. The contract will also specify WHEN you are paid.

The Advance

The advance is generally NOT paid in a single lump sum. Instead, it’s paid in parts. It could be…

  • two parts
    • 1/2 on signing, 1/2 on delivery (or 1/2 on publication)
  • three parts
    • 1/3 on signing, 1/3 on delivery, and 1/3 on publication
  • or even four parts!
    • In these days of COVID, publishers split payments into more parts to ensure they had necessary cash flow.

The larger the advance, the more parts the payment is likely to be broken into.

Money, money, money — How much is the advance?

Most advances these days are between $2,000 and $10,000. There are definitely higher advances being paid — all the way into seven figures, almost always for multi-book deals. But more and more small and medium-sized publishers are paying no advance at all.

Your advance will be sent to your agent. Your agent will take her 15%, and then write you a check for the balance. You will be responsible for paying taxes on the money you receive.

Let’s look at an example of how this actually plays out

Writer A gets a $5000 advance on her book. It is paid in two parts: on signing and on publication.

  • When the contract is signed, the publisher pays $2500.
    • The agent takes 15%, and the author receives $2125.
    • Depending on the writer’s other income, she will pay 10-30% in taxes, netting between $1450 and $1900.
  • When the book is published — 12 to 18 months later — the publisher will pay the remaining $2500, and the author will net the same amount.

To avoid the math, the general rule of thumb I use is that, after paying their agent and taxes, the writer will ultimately net 50% of the advance. So don't go too hog wild with that check!

Earning out

Writer A was paid an “advance on royalties” of $5000. That means she will not be paid a royalty amount until the amount she earns in royalties passes $5000.

Each publishing house sets a schedule for how often royalty amounts are tallied and paid — it will be in your contract.

Example

For Writer A let’s say her publishing house pays quarterly.

  • At the end of the first quarter after publication, Writer A has earned $500 in royalties.
  • $5000 (advance) – $500 (earned) = $4500 (of advance remaining to be earned).

Writer A already received that $500 as part of her advance. She will receive a royalty statement showing the calculations but will not receive a royalty check until she has earned another $4500 in royalties.

Realistically, most books do not earn out, so this is likely all the money this author will earn from this book.

Let’s dig a little deeper into royalties.

Royalties

Royalties are a percentage of the book’s sale price. Unfortunately, figuring out royalties isn’t as simple as multiplying your royalty rate by the number of books sold in that time period.

Retail or net

Your contract will state whether you’re paid on retail or list price or on net sales.

  • Retail is simple. Writer A’s book is priced at $19.99. Her royalty percentage is 8%. So she earns $1.60 for every copy sold.
  • Net royalties are based on the amount the publisher actually sells the book for. If they give the retailer a 50% discount, that means your royalty figure is based on that 50% amount, not the list price.

Net sucks. If the publisher wants to pay on net, then your agent should negotiate a significantly higher royalty percentage to counter it.

Now let’s add another wrinkle in royalty calculations

Returns

Most contracts allow publishers to retain a “reserve against returns.” Printed books are actually sold on consignment, which means that retailers can return books that don’t sell. However all of the books that were sent to a retailer were counted as “sold,” so those books returned have to be subtracted from your sales.

The reserve against returns clause allows the retailer to hold back some of your royalties to cover returns. As returns come in, the actual number of sales and correct royalty amount is computed.

All of this information is on the royalty statement. One of an agent’s most important jobs is making sense of the royalty statement and making sure you — and she — are getting all the money due.

What if I didn’t receive an advance?

If you didn’t receive an advance, your first royalty period begins after the book’s publication.

Example

Say, for example, the publishing company pays royalties quarterly. In this example, say your book launches on Feb 15, and the first quarter ends March 30.

  • Your first check will cover the period from Feb 15 to March 30 and will likely arrive in April or May.
  • Your next check (assuming sales) will arrive three months later.
  • If they paid annually (Jan-Dec), your book would launch on Feb 15, and you probably wouldn’t receive your first check until the following February!
money money money

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