Six-figure advance! Huge deal for new series by beloved bestselling author! Novel by new author goes for crazy amount at auction!

Industry headlines scream about how much traditionally published authors can make—massive advances, bidding wars on books—but have you ever stopped to really think about how published authors get paid?

With self-publishing, it’s pretty easy to figure out. You create book, you get book professionally edited and produced, you put book into marketplace via CreateSpace and Kindle (along with other venues, if you really want to cover your bases), you make sales, you get money.

You had to pay the editor and book designer and cover artist, yes, but then all the money that comes in from sales belongs to you, minus some small fees for distribution in ebook markets and the production costs of having paperbacks made via print-on-demand.

In some ways, calling the revenue from self-publishing sales “royalties,” like Amazon does, is misleading. That’s because you haven’t actually licensed your book to them—they’re really charging a distribution fee for their services. Royalties are something else entirely.

But what?

Advances and royalties are how the traditional publishing industry pays out. And they can be super-confusing, especially to a writer who’s used to the normal way of paying for things and getting paid, where you do work and someone pays you for it (or you pay someone else for their work).

Time to demystify traditional publishing payments!

Advances

In the traditional publishing industry, everyone talks about advances. This is the big payday, the huge numbers that authors always aspire to. When you hear about a six-figure deal, they’re talking about the advance.

But what they’re not talking about is the fact that an advance is really just a loan.

That’s right, the advance isn’t a nice fat paycheck for that incredible book you’ve written. It’s actually a kind of payday loan, only with no interest.

Loaned Money

You see, advances are an advance on payment—which in this case means royalties. Advances are calculated based on how many copies of your book the publisher thinks they can sell in the first year, run through a standard royalty calculation.

So if the publisher thinks they can sell a bajillion copies of your book in a year, they might offer a $500,000 advance—because they estimate that you’d receive $500,000 in royalties under their formula in that year (more on that shortly).

Earning Out

What you need to remember, though, is that you won’t receive a penny more until your advance earns out, which means that you actually sell the number of books it would take to earn that amount in royalties.

Which isn’t guaranteed.

No Repayment Needed

Now, the nice thing is, you don’t have to pay back the advance if you don’t earn out. That is, if the publisher estimates that you’ll sell 5 million copies of your book and pays you a huge $500,000 advance, but then your book only sells 12 copies to your immediate family, you don’t owe them back the difference.

The problem is, if that happens, you’re probably not going to be able to get another traditional publishing deal. No one likes betting to lose, and authors are judged based on the success of their last few books.

Installment Plan

The other thing to keep in mind about advances is that they’re typically not paid in a lump sum. Most of the time, you’ll get part of your advance when you sign the contract with the publisher, part during the writing and editing process, part when you deliver the final manuscript, and a final installment when the book is actually published and on shelves.

So that $500,000 is actually a few payments made over time (3-4, depending on your publisher).

Granted, this can be really nice if you’re writing full-time, as it helps you spread your income over the time it takes to get the book to market, rather than having to manage your money over that time yourself. It’s a little more like getting a regular salary and a little less like winning the lottery.

But remember, you don’t get paid a penny more after you receive that last installment until your book sells enough copies that your royalties equal the advance amount.

So that advance money really needs to last—while advances are calculated based on how much a publisher thinks a book will earn in only a year or two, in reality, it can take five years or more to earn out a big advance.

Average Advances

Now, most advances aren’t huge $500,000+ paydays. In reality, most midlist authors get maybe $10,000 as an advance, and that’s often for a whole series of 3 to 5 books. New authors may not get much of an advance at all, often only $2,000 to $5,000 even at a major traditional publisher.

And at a small press, authors often won’t get an advance at all. Betting on sales like that simply isn’t a gamble most small presses are willing or able to take.

However, small presses often compensate for the lack of up-front payment by offering larger-than-standard royalties, and offering them immediately. There’s no waiting for payment and you get payments regularly instead of getting paid once and then waiting around to see if you’ll ever get paid again.

Royalties

We’ve mentioned a little about how royalties work when talking about advances, but let’s go into detail.

If advances are like payday loans, then royalties are like bill payments—they happen regularly in exchange for giving something of value.

That’s because of how traditional publishing contracts work.

Licensing

In a traditional publishing contract, you’re actually licensing your work to the publisher. You wrote the book, you own the intellectual rights in it, and you’re asking the publisher to help you bring it to market and get other people to pay for it.

So instead of paying out of your pocket to get the book edited and designed, like in self-publishing, you’re asking the traditional publisher to do that for you. Which makes sense—that’s their specialty, after all!

But in exchange, the publisher wants some money. That’s only fair, because they’re paying for editors, compositors, cover artists, PR and marketing people, printing costs, distribution, and so on.

So what happens is that you license your work to the publisher. They produce the book and get it into the marketplace. When the book sells, the publisher keeps some of the money and pays you a licensing fee, which is your royalties.

Average Royalties

Now, average royalties in the traditional publishing industry are based on a lot of things—and the numbers tend not to look pretty to authors. Most traditional publishing contracts have layers upon layers of different royalty calculations based on various benchmarks, and all of them can feel pretty small.

For instance, average royalties for a paperback book are usually 6-8%, while royalties for a hardcover are 8-10%. That’s percent of the list price of the book—whatever the publisher has suggested that bookstores sell it for. In the case of a paperback, that’s usually $5.99 to $8.99, while hardcovers tend to list at $24.99.

Ebook royalties vary, but tend to hover around 10% with many traditional publishers. Savvy publishers have started to go up to around 25% royalties for ebooks, as they know modern authors are smart enough to realize that publishers don’t have to pay for paper or shipping from their portion of ebook sales revenue and so it’s only fair that digital copies should provide more income to the author!

Smaller independent publishers often offer much larger royalties than the Big Five. For instance, TCK Publishing offers 50% royalties!

However, this figure might be based on net price instead of list price, as with the Big Five. Net price means whatever money the publisher actually takes in from a sale, rather than what the suggested selling price of the book is. So the figure your royalties are based on is the list price minus any discounts that were granted to the distributor, minus any physical production costs for a print book—and possibly minus other things, too, depending on the publisher.

It’s perfectly legitimate for a publisher to offer royalties based on net price. However, a smart author will ask to see a sample calculation of royalties on paperback and digital sales and will get in writing what is deducted to come up with the net amount that royalties are based on.

Basic rule of thumb: Always know where your money is going!

Sliding Scales

If you sell more than a certain number of copies, your royalties may increase. This is called a breakpoint. So you might be getting 8% royalties on all paperback sales up to 10,000 copies, but after 10,000 copies, you’ll go up to 10% royalties because you’ve proven through sales that your book is valuable to the publisher, so you get rewarded.

Accounting

It’s kind of hard to keep track of all this, so conscientious publishers send out royalty reports with their payments. The format of these vary depending on the publisher, and not all publishers include all kinds of information with their reports.

At the very least, you should get a document explaining how many sales you made of what format in the period you’re being paid for. So you might get a report listing how your sales of 457 paperbacks, 21 hardcovers, and 5,671 ebook sales add up to the total amount of royalties you’re receiving this period.

If you received an advance, the royalty report should also list how you’re doing on repaying that amount. Basically, with an advance, you start with a beginning balance of negative that amount (say, -$500,000) and then your royalties are applied to clearing that negative balance before you start getting paid again.

Reserve against Returns

Of course, it’s still not as simple as that!

Traditional publishers often hold what’s called a reserve against returns for books. That’s because bookstores can return unsold books at pretty much any time, for full credit or a full refund.

So if your book was predicted to be incredibly popular, a bookstore might order 100 copies. But then for some reason, it flops and only 3 copies sell. The store can return all 97 unsold copies…as much as a year later! And the publisher will give them full credit.

To avoid taking a loss on the deal, the publisher holds a certain amount in an account that goes against your royalties. This is the reserve against return. Periodically, they’ll reconcile the actual amount of books returned against this account, which is kind of like an escrow, and will either deduct the appropriate amount for the returns that actually happened or release money to you because returns were lower than expected.

(Obviously, as an author, you want low returns!)

Still, this account gets really confusing really fast, especially because it means that you won’t always be getting paid the full amount of royalties your statements show you’ve earned. But you can check the size of the reserve against returns account on that statement to be sure that all your sales are properly accounted for somewhere, even if you’re not actually getting the money just now.

When Do I Get Paid?

After all this, you probably just want to know when you get paid!

Unfortunately, even that’s kind of complicated.

Traditional publishers pay on a variety of schedules. Some pay quarterly (every 3 months), while others pay twice a year or even only once a year. So once you’ve earned out your advance, you may still have to wait 6 months or more to get the money you’ve earned in royalties.

Plus, some publishing contracts specify that you have to meet a certain threshold before you get paid. This is usually pretty low, only $25 to $50, but it’s worth keeping in mind, especially if you’re publishing with a small press and don’t expect a ton of sales.

Once that check comes, it could be big or small, depending on how well your book is selling. So you can see that being a traditionally published author is going to require some really smart money management, even if you’re incredibly popular and your books are selling like crazy! The gap in between payments can be a long one.

Why Choose Traditional?

Given all this complexity behind getting paid, why would anyone choose a traditional publisher over publishing by themselves?

Well, for one, traditional publishers often have a broader reach than anyone other than a celebrity can match. They can get your book into thousands of bookstores all around the world, promote it with the resources of a full marketing department, arrange for book tours and interviews with major media, and more.

Granted, that kind of special treatment tends to be limited to authors with established track records of being bestsellers. New authors have to do much of their own marketing work, even with a Big Five contract.

However, writers want to write. By selling a book to a traditional publisher, you don’t need to worry about managing a team to produce the book, or figure out how to do formatting or uploads. And you don’t have to pay up front or out of pocket for all the things that are required to release a professional publication.

Basically, by licensing the publishing company your work, you’re paying them to do the behind-the-scenes stuff for you. To many authors, that’s well worth the cost.

 

Getting paid in traditional publishing can be confusing and complicated, but it also means you don’t have to pay up front for production.
Only you can decide what form of publishing is right for you!

 

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For more on how authors get paid, read on!

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