Monthly Archives: November 2022

What is a book advance?

What is a book advance?

That’s a very loaded question! And it’s sort of what this post is about. This post is also a response to a common misconception about advances. How often have you heard something along the lines of “the author got an advance, but never saw any royalties”?

Here’s the thing: advances are royalties. It doesn’t matter when they’re paid.

Let’s back up a little. As I back up, remember that any information you can find out publishing tends to be general, and there can be special situations and circumstances–and things can change! There is also a lot of wrong or incomplete information around, as well as information that is skewed by perspective; that is, who’s telling the story defines the focus.

Typically, authors (and illustrators, though I’ll talk about that less in this post) who work with a traditional publisher are their very own business. They might technically be a sole proprietor; they might have established some other business structure under which to license their books. Regardless, they’re not an employee of any publishing company, but work for themselves, creating and selling–licensing–the rights to use their words to other businesses (usually, with the help of an agent, who works on a commission basis). Without getting too far into the weeds, this means that authors own the intellectual property they create, whereas if they were employed to write books by a publisher, the publisher would own it. Publishers are not in employer-employee relationships with authors. (There are times when a publisher or packager does own the copyright, such as when an author or illustrator is hired to work on a project, often called IP as shorthand for “someone else’s intellectual property,” and the author doesn’t own the idea and the deal is for the creative piece to be sold outright.)

So, then, authors don’t make money in wages or salary from a traditional publisher. Instead–again, usually, unless they’re working on an IP project for a flat rate as an independent contractor–they earn money from royalties.

You’ve probably seen an episode or two of Shark Tank, where entrepreneurs pitch their products to investors. A lot of the time, the investor offers some money for a share of the company. One of them, Kevin O’Leary, is especially fond of a royalty arrangement. In the link, he offers the company money up front, and will be paid back on each product sold, with some extra stipulations. If you understand what he’s doing with his offer, you’re ready to hear about book royalties!

A traditional publisher’s offer is a partnership to bring a book to market. That publisher takes on the financial risk and handles the editorial, production, sales, marketing, and publicity tasks, as well as myriad other costs, and pays the author a royalty per item sold, sometimes on the retail price, and sometimes on the net received, depending on the format (format dictates much of pricing, and then how much money the publisher receives in the end to pay off expenses, including the royalty; that’s another post all on its own).

So, then, what is a book advance? An advance is when the publisher fronts the author some royalty money before the books are sold, sort of like those options for your bank to put some money in your checking account on Thursday because you’re regularly paid on Friday, or, in a less favorable analogy, like a payday loan.

How the advance can be calculated is a post all its own, even if a company has guidelines around that. A smaller publisher might not offer, or be able to offer, an advance at all, because their longevity and size coupled with cash/cash flow concerns won’t allow them do that without being over-leveraged. Another might offer a very minimal advance, like a couple hundred dollars, as an acknowledgment that you’re going into business together, more or less, or have a small advance, let’s say in the low four- to low five-figure range, that is standard for them to offer. A larger publisher that has been in business for a long time will probably offer a larger advance, which is more likely to be based on their projections about what an author will earn during the first couple of years on sale (for most authors, this is about as long as their book will be regularly printed–again, another post!)–but also might take into account how much they want/need the book, including whether or not the book is sold in an auction, or how much the publisher has been paying for similar books.

Still, even though there might be some wiggle room in the size of the advance for a larger publisher, and it’s always worth asking for a little more in the advance, the publisher will also have its own limits, whether that’s a sense of how much they’re willing to pay up front that’s gut instinct or related to any comparable sales figures, along with any metrics for absolute caps on paying an advance that’s larger than what the publisher expects to pay the author over time.

Now, here’s what prompted this post in the first place: I often see it stated that “the publisher gets paid first.” That’s not true; if the author received an advance, the author got paid first, though if you want to get super pedantic, the publisher staff who worked on the acquisition probably got a paycheck in the interim. To be fair, too, for a book that is published without an advance, the publisher and author got paid around the same time, with a delay to the author to allow for accounting, auditing, receiving payments (sometimes delayed too), and sending on any payment owed. In an ideal world, this process would be faster; right now, it can be pretty time-consuming and unwieldy, it takes a long time to collect all the payments from multiple sellers, which is why many publishers pay out the royalties only twice a year, and I have been told that it can be only once a year for academic presses.

Okay, so how is an advance paid?

Depends. Depends on a bunch of factors, from whether the book is fiction or nonfiction, how big it is, and even how other publishers are paying out advances. The advance payments can be tied to just about anything you can dream up. For a memoir, portions might be paid for things like providing photographs; for nonfiction, for turning in a bibliography; for a picture book, completing sketches. If you’re thinking that one of many reasons to pay an advance is to encourage timely submission of materials, you’re right! A very small advance for fiction might be paid on signing or when the manuscript is formally accepted (typically, when the developmental editorial process is over and the book is sent to copyediting); a more established publisher offering a bigger advance is probably–these days–splitting the advance payment into amounts paid on signing, on acceptance of the complete and edited manuscript, and on publication. A bigger advance might also split so that some money is paid on paperback publication, if the first format will be hardcover and a paperback is firmly expected.

You might be hearing about publishers splitting almost all advances into at least four parts lately. True, at least for medium to large advances. One particular publisher did this early in the pandemic and other large publishers followed suit. My analysis: they panicked. Publishers hadn’t had a “good” year in a while; profit margins are tiny and corporate owners are always pushing for more; there was the expectation that the economy would sour and affect optional purchases like books; printers overseas had already been on lockdown, so there were hints back in 2019 that something was about to be really bad. In the end, a lot of the profits happened in non-trade spaces, like educational books, a lot will go to rises in materials and manufacturing costs and inflation, some went to fixing problems that happened in the supply chain, which has been an absolute mess and wreaked havoc on schedules.

Anyway, publishing pays advances sometimes years before the accompanying books are published, and pays all the production/printing/shipping/marketing costs (which for a “small” book can easily be a couple hundred thousand dollars), and then waits for payments to come in after publication, while allowing for books to be returned to them at any time (unlike any other industry that I’m personally conversant with). This puts a lot of financial risk on the publisher, so it’s not illogical to me that they want to minimize that; it’s also rare to be a business owner providing a product or service and get paid for all of that product or service before that thing is fully delivered. The other thing that’s not illogical is to want to exploit a system that offers payment in advance of delivery, so it’s not wrong of authors to want more payment sooner.

Then, what’s this yelling about not receiving any royalties? Let’s take a hypothetical situation where Big-Chonkin’ Publisher makes a deal with you. They think they can sell 1,000 copies of your book at $10 a pop, and they’re going to pay you 10% of that retail price per copy. They offer you an advance of one thousand dollars–$1,000. You agree to this deal. Handshake, signature, payment. Boom!

Next, the publisher goes out and sells 800 copies over the life of the book.

You earned $1 each time. That’s the royalty of 10% times the $10 on each book. You have earned $800 dollars from royalties! However, the publisher sent over $1,000 already. They don’t owe you more 10% payments on books yet. You’ll have to sell one thousand copies before that happens. If you do, great! The next time the publisher pays out royalties, you’ll get some sweet change. If you don’t, great! You got paid for more books than you sold; from another angle, you got a higher effective royalty rate. And you don’t have to pay the extra back–the publisher will eat the loss. There are situations where you might be responsible for paying back the advance, but this isn’t one of them.

Over the years, I’ve seen a lot of people say things about how the publisher is getting rich and not paying you anything more. The publisher might not be paying you more, and they might be getting payments in from the sale of books; that’s their portion of the profits, which is probably going toward backfilling what they paid out to make the book. If you do well beyond their initial predictions, you’ll get more money as those sales come in and are paid. If you have a publisher saying “we don’t have the money to pay royalties we owe,” you should blast them into the sun, because that percentage was always yours and should never have been spent on anything else.

Did your book that didn’t earn out make a profit for the publisher, and are they sneakily hiding their piles of money?

Probably not. Most books don’t earn out their advances, so the publisher estimated more success for you and paid you on expectations instead of reality.

If the publisher is making bank, you’re making bank too. If you came close to earning out in the overall scheme of things, the publisher maybe came out about even (read: lost a little or profited a little, some of which depends on costs that have been variable through the whole process), and if you didn’t, you’re in the big group of authors whose books weren’t profitable for the publisher. That might mean that a publisher offers a smaller advance next time around, or that they decide they shouldn’t be the publishing partner on your next project, which frees you both up for something new. But it can be a matter of degree–how much profitable or unprofitable? Is there something on the horizon that means the next project might still be successful for both of you? And how does that imprint or company figure their overhead costs? That is, did they make back the direct costs, but not as much as they were expecting in profit to put toward the cost of running the business? And how should publishers account for overhead….

The big answer is always maybe, maybe, maybe. While I made some generalizations, every book and its finances are a unique product and situation. As the author, you don’t necessarily have to care about the effect of your advance on the company; you got an offer and you took it. The situation where you got a HYUUUUUUGE advance and made few sales will indeed matter to your short-term career, but–let’s be real–if you got a HYUUUUUUUUGE advance you’ve made more money than a lot of writers make in their entire careers.

And that’s a whole other post.

None of these thoughts are to disparage authors or publishers. Everybody’s out there trying to make a buck or three, and should try to use any strategy available to stay in their preferred business–and I’m out here thinking that there are some confusing ways to put things that don’t do anybody any favors when it comes to understanding an industry that doesn’t operate like any other. Finally, remember what I said about taking things you read about publishing with a grain of salt? Every situation, every book, every budget looks different, and I’ve glossed over a lot here, so your mileage may vary.

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