Book Royalties Explained

We receive so many questions about how to get paid as an author. What is an “advance”? What are book royalties, exactly? How and when are they paid to authors? In this post, we’ll give you a brief overview of the money behind publishing, and hopefully dispel a myth or two!

When an author makes a deal with a publisher, there is usually an upfront, lump-sum payment called an advance, the ostensible purpose of which is in the name: to financially support an author in their writing in advance of publication. By this definition, an advance should be based on how much work is still required to get the book ready for publication. In reality, advances have become a token of the publisher’s investment, and are calculated using a complex spreadsheet of variables ranging from the publishing format to the size of the author’s platform. Publishers use these profit-and-loss sheets (PNLs) to make what essentially amounts to an educated guess about how many copies they think they can sell. And out spits a number for the author advance, which could range anywhere from four to (a very rare) seven figures.

The advance is commonly paid to the author in installments, as opposed to a single payment. A typical advance will have a three-payment structure: one third on signing of the publication contract; one third on the acceptance of the final manuscript by the editor (all books go through an editorial process that can vary from a few months to a couple of years); and one third on publication of the book. Less commonly, an advance may be made in additional payments, including post-publication, and span several years. Generally, the publishing cycle is at least two years, so even if you are offered an attractive six-figure advance, it will work out to a third over three years (or the equivalent of a minimum-wage job salary).

An advance is given to an author based on what they are expected to earn in future royalties, where royalties are a percentage of a book’s sales that the author receives from a publisher as payment for the publishing rights. The author’s royalty rate depends on the format of the book (hardcover, paperback, digital, etc.), the category (picture book, coffee-table/art book, literary fiction), and the publisher (some houses are able to offer more competitive rates than others). For example, royalty rates on a print hardcover book will always be the greatest—ranging from 10-15%— as they have the highest suggested retail price, or “list” price. For the sake of simplicity, let’s say an industry-standard royalty rate is roughly 10-20% of the price of the book, which means the author earns somewhere from $1-3 on each copy sold. But the thing about an “advance”, is that the author has to earn it back before they will start getting royalty payments from the publisher. So, again, if you have a six-figure advance, you’ll have to sell six-figures worth of books before you see any royalties in your account. However, authors are not obligated to pay back their advance if it does not “earn out” in royalties (industry estimates are that as many as ninety percent of all published books do not earn out their advance!).

If the amount of an author’s royalty seems low to you—making it near impossible to earn out their advance—let’s review the many costs associated with getting a book into readers hands from a traditional publisher to begin with:

First, there are production costs: editorial, design, typesetting, printing, warehousing, distribution, advertising, marketing, sales, and administration. These factor about half of the cost of a finished book that one sees available for sale. Second, the book can be discounted by anything from 30-40% of the listed price by booksellers (who in turn must run their entire business from rent payments to employee wages on a very narrow margin). The remainder is then the profit that the publisher makes on the book after they pay out the author’s royalties. So that $24 paperback book has slim margins for everyone involved, and when royalties do get paid post-advance recoupment by the publisher, they are often of the modest variety.

Royalty reports, most often delivered to the author (or agent) twice a year by the publisher, display the sales of each edition of the book along with an accounting of the earnings for the previous “period”. (Usually, publisher accounting periods are January to June, and July to December.) Either the author will get a cheque for their royalties, or there will be a negative balance representing the as-yet unearned advance.

There has been a bevy of hybrid publishers in the past decade who often offer a 50/50 royalty split to the author but no upfront advance. While, in theory, this might look like an appealing option, in the majority of cases, the sales of hybrid titles fall significantly below those of traditional publishers. The theoretical big slice of the pie never materializes. Traditional publishing houses have the infrastructure to support a book, and marketing power that will nearly always outstrip a hybrid or a self-published model. In independent publishing, it is also assumed that the author will carry the burden of many professional roles, like distributor, marketer, publicist, and more. It is a tall order to learn and execute well on more than a dozen positions that take educated professionals in the publishing industry decades to master. In many cases, the authors making a fortune in this space already had large platforms (that sometimes came from being traditionally published in the first place!). 

Another way authors earn money from their books is by participating in public lending rights programs, in which they are compensated for having work available at public libraries. There are many countries all over the world that have public lending rights programs for their authors. In Canada, the Council for the Arts distributes funds annually to individual authors based on how many of their works are housed in public libraries, ranging anywhere from $50 – $4500!

Advances, royalties and lending rights are all complicated and compounded with multiple publishing contracts and subsidiary rights sales. In a future post, we’ll delve further into the myriad money-related details of publishing, including the rise of e-book and audiobook consumption, book-to-film content on streaming services, and international appetite for English-language authors in translation.

Looking for more answers to publishing questions, and how to get paid as an author? Book a consultation with us today!

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