How Book Advances and Royalties Work

hello everyone Alexa den here and today we are talking about book money 101 advances and royalties if this sounds familiar it's because I did a whole series on money two years ago but boy if it isn't relevant once again and worth doing a new video if you're not already familiar there was a little bit of a hubbub three or four weeks ago on the Twitter's nny a author world and author world when Hawaii author posted an article on medium about how they threw away three hundred and seventy-five thousand dollars something like that how they wasted it really they spent it they spent all of this advance money and it was diminishing returns and they had regrets and said nobody told me I have questions about that I have I have doubts because you it is definitely possible to educate yourself on how money works in publishing and you should educate yourself on how money works in publishing because once you get paid for writing books it is your responsibility to take care of your money and be smart about long-term financial planning publishing is a very unstable industry and you shouldn't blow all of your money and I'm gonna talk about how all of that works the first important thing to know up front is that it is no one's responsibility but your own to manage that money it's not your agents job and certainly not your publishers job to tell you how this all works or what to do you can ask your agent questions about how it works obviously but they aren't there to tell you how to manage your money whether to quit your job all of that kind of stuff your publisher will pay your agent and then your agency will pay you but they are not a financial adviser if you want one you're going to need to hire one for yourself I'm just pointing that out because the article in question was late my agent and publisher didn't tell me and it's like well it's really not their job you need to know all this stuff and so I'm here to tell you about all this stuff so that you can't say you didn't know and as always with these kinds of meaty traditional publishing topics it's gonna be a long one folks but don't worry I will have timestamps down below so you can jump around so for starters traditional publishing relies on the advanced system there are a few smaller publishers that don't pay advances that only do royalties and we'll talk about royalties in a second but for the most part in this video I'm only going to be talking about the advanced model since the vast majority of traditional publishers use this model and this is how you're going to get paid and this is how you need to think in terms of managing your money an advance is an advance against sales it is the amount of money that the publisher thinks your book will earn in royalties and it gets complicated I'll explain that not profit royalties that they would basically pay to you over a series of years so they give it to you in advance of publication to pay you for your work advances are paid in installments there are different payment schedules depending on your book deal and what your agent has negotiated with your publisher but typically let's say it's one book there's at least two payments on signing of your contract and on delivery of the menu script in some cases there's going to be three on signing of contract on delivery of manuscript and on publication and then as you have multi book deals the payment schedule will vary a royalty of course is a percentage of every sale that an author is entitled to but you will not see a cent of royalties until you earn out your advance earning out means that your publisher has earned back that full amount based on royalties not profit again we'll talk about it that they had paid you in your advance and I can tell you up front most authors will never earn out I've heard an editor toss out the statistic of 8020 80% of authors are supported by 20% of author's meaning 20% are earning out and earning a large profit and the rest of us don't so you should not expect to earn out your advance or if you do it can take years and years and years people who earn out quickly are very very rare what this means is you should always operate on the assumption that your advance is the only money that you will ever see for your book until you have earned out and start seeing royalties you should account and bank and financial plan based only on that advance and that advance schedule you have to think about when you're going to be paid as well which reminds me that kind of brings up taxes taxes are so complex that I'm going to do an entire separate video on taxes because this one's already gonna tip the scales it's gonna be really really long and so I'm gonna separate out taxes so we will talk about that but they will come up a few times in this video in terms of advances and royalty basics the good news is even if you never earn out you get to keep that advance as long as you met all of your obligations to your publisher which means turning in your book on time in a satisfactory manner and they publish it there are cases where you do have to return your advance I go over this in my contracts video it's basically if everything goes horribly and you're not turning in manuscripts etc so on and so forth okay so let's dig into advances how do publishers determine advances this is important for understanding the publishing industry in the long term kind of financial health situation you might find yourself in because understanding how your advance was arrived at will give you a better sense of what may or may not happen to you over time so you know the medium article in question the author got to very high advances for her first two book deals and then did not even come close to hurting out had really low sales figures and so all subsequent advances she was very lucky to continue selling books but all of those subsequent advances were much much lower this is what happens if you don't meet sales targets on those higher advances you should never expect to continue receiving six-figure advances throughout your career this just is a unicorn scenario for most authors I mean to get a six-figure deal in the first place they're far more rare now than they were that when this author sold so how does the publisher determine in advance I talked about this in my submission video but when your book goes to the acquisitions meeting the sales team and your editor will do a profit and loss statement this is a sales projection of well how much do they think your book will sell versus loss and they do all these complexions to figure out their profit not profit to you not your royalty Publishing's is really complicated but how much they expect to make off your book and then they determine whether it's worth it to them whether it's written to them to buy it and then if they are going to buy it how much advance to pay you your publisher will weigh factors such as the market how similar books are doing comp titles how similar books have done on their list and again what they think you would earn in royalties so it's this complex calculation of their profit your royalties standard royalties by the way are only about 10% thus if a book costs $17 you're only getting a dollar seventy per copy earning out the spirit again is so difficult because you get such a small slice of the pie it is worth it by the way in traditional publishing because they do a ton of other stuff but just FYI swipe the advance system is nice because they are paying you upfront and you don't have to wait years and years and years to get royalty checks I will mention that there are a few other factors that do come in to consideration when it comes to setting an advance for a book the clout of the agent does matter the clout of the author obviously if you're already established if you are selling subsequent books if it's not your debut they're kind of look at the sales of your previous books to determine your advance so important was is whether you're selling in a preempt or an auction a preempt meaning they want to give you more money so that you will pull it from other publishers so it doesn't go to an auction which is when multiple houses compete any time you have that kind of market competition it will drive up the amount of the advance generally publishers really hedge on the advance I've seen them really lowball people and it is a good agents job to know when they're doing that and get them to negotiate up and when you have a really good agent they don't lowball them in the first place so these are just important things to know about kind of how that advance works it really varies on what you're writing the kind of book you're writing in the market and your agent and how much they think it's gonna sell so I already talked about the payment schedule for your advance and I just want to offer you a sample of my payment schedule for my to book deal which was divided into three payments per book on signing of contracts so I basically got a massive chunk of the money cuz it was on signing of both of them on delivery of each manuscript and on publication of each manuscript as something to bear in mind in terms of the timing is they'll be given an ideal publication schedule when you first get your book deal but sometimes it doesn't work out that way sometimes you need to delay your book I needed an extension and that extension end up meaning my book publication got pushed almost an entire year which means I don't get a book payment for the whole of 2019 the next time I'm going to get one is 2020 I still have my day job so I haven't been banking on any of these book payments to pay bills but imagine if I had and I had to come into the situation of I'm not going to get a single payment for an entire year this is not that uncommon so always bear in mind that publishing schedules are complicated and they can change sometimes it's not on your end things that can bump your payment schedule include your editor leaving if they have to hire a new editor they might bump your publication by six months to a year or more which changes when you're going to get paid they could want you to do more developmental edits it's not your choice to do more edits it's theirs and again you get bumped the longer it takes to turn in and acceptable manuscript the longer it takes to get paid for that acceptable manuscript and then get paid for publication if that is how your schedule is set up I just say this to give you a complete picture of all of the weird dynamic scent that can come into play with how advances are paid out royalty statements on the other hand you will see these approximately every six months different publishers operate on different kind of two quarter systems generally it's every six months but everyone in publishing is always behind I'm always shocked when I hear about a publisher sending out a royalty statement on time and it may end up like you'll get a royalty statement eight months after maybe you should have everything is always slow and your agent is there to push them to get those statements because those statements are gonna tell you well how many copies you've sold how many copies have been returned and how much you have earned towards your advance so to that end let's talk a little bit more about earning out important things that you need to know joint versus separate accounting so most publishers are going to try to get joint accounting and most agents are gonna fight for separate accounting sometimes the publisher just wins if you want the deal you got to go a joint and sometimes the agent wins and we're separate accounting benefits an author is if the two books in your deal or multiple books in your deal are accounted separately you have a shot at earning out on a single book versus an entire series of books or books series so for example let's say you got a two book deal twenty-five thousand per book a total book deal a fifty thousand and you are separately accounted it means that you only have to earn out twenty five thousand on each book when they are going what is the difference here is the difference let's say book 1 in your series sells very very well and you earn $30,000 on that book in a year you would get a royalty payment of five thousand dollars after that first book had earned out if you are separately accounted let's say that the second book tanks really tanks and you only sell 10,000 you're separately accounted it just means we'll get royalties on book number one and not on book number two if your joint accounted this is where it benefits the publisher put those two scenarios together joint accounted you've sold $40,000 rather than the $50,000 that we're earning out so you were not considered earned out and you won't be until either book 1 or book 2 cumulatively sells more copies but what if your book series just falls off the map completely and you just never earn out happens all the time and generally speaking book one in a series will always outsell all the other books in a series that's having that one in particular separately accounted can really benefit an author but again publishers will always fight for joint accounting and sometimes you win and sometimes you don't but bear that in mind it can make a huge difference for ever saying royalties on a title ok so I talked about profit versus royalty and this is where it becomes important to you as an author understanding what earning out means and doesn't mean and how it looks for your career so most authors don't earn out so it's normal not to and you shouldn't feel bad if you don't and you should also not expect to earn out I talked about profit versus royalties so you only earn out if you earn back what they would pay you in royalties of just only like 10 percent of the book depending on the format trade paperback standard is like seven seven point five percent and ebook standards vary here's the thing the publisher sees a profit to them they make money off of you and your book long before you ever and out which means you don't have to come close to earning out to being a success for the publisher earning out doesn't equal success I mean earning out does equal success but not writing out doesn't equal failure it's very relative to your advance and exactly how many copies that has moved and how much money your publisher has made off of them so there's a difference between selling only 500 copies and yet your publisher is never going to see profit on that relative to what they paid you and selling 10,000 copies which you also won't earn out on but that's a decent amount of coffee isn't as long as your advance wasn't sky-high like one of those crazy high six-figure ones your publisher will make a profit on selling that number of books what this means is you can definitely get subsequent book deals even if you haven't earned out it doesn't mean they're going to be at the same advanced range though they might be it might mean your advance goes down but it doesn't mean your career doesn't die just because you don't earn out is a huge brewery that authors have so I wanted to point that out so just to kind of summarize advances don't forget they're painted installments they can be delayed you'll probably never earn out you have to get 15% to your agent and you have to pay taxes on them I'll give you the short version which is say 40% of your advance for taxes we'll do a whole video on taxes so your advance is always smaller than you think it is I've liked the actual money that you're gonna get and you're going to get it over a much longer period of time than you think you will and there are no guarantees in the publishing industry so never bank on I'm gonna quit my job because I'm just gonna get hundred thousand dollar advances all the time no you might not so I wanted to go over what you should do with your advance this is actually a conversation that came out of that medium article everyone was was like well what do you do well I'll tell you what you really probably shouldn't do we just put your job and moved to one of the most expensive cities in the world but here's my advice on what you should do advance say 40% for taxes is already mentioned treat yourself a little bit always fine to treat yourself just how much you treat yourself is gonna range based on how much that advances 3 set aside like 10% for marketing you always want to have that fallback in case your publisher doesn't do anything for you which does happen sometimes ah hire an accountant it's really important so tax has become way more complicated when you get a book deal and an accountant can help you save money and also help you figure out where to invest it even though they're not a financial adviser it was my tax accountant who suggested I put some of my advance into a retirement account so I could save on my taxes and my fifth suggestion is to put some of this money into a retirement account not only because you're gonna save on your taxes but because a lot of writers don't save for retirement and that's a bad financial planning decision you should always be sucking away money for retirement even though it's really really hard to do in this economy but especially if you were keeping a day job where you have a spouse with a day job you should be taking that book money and banking it as much as possible really most of my advice is don't spend most of your advance because you just don't know what's gonna happen with your publishing career so yeah save the rest now if you have a really small advance because they do range you can do all of this if you have a higher 5 figure or a six-figure advance you definitely are more limited if you get a smaller advance I always recommend treating yourself and I always recommend saving so you might have to skimp a little bit on the retirement savings or the marketing budget but yeah which we should talk about living off your advance and the truth is most people simply can't a huge part of that is the payment schedule it is so sporadic publishers are notoriously late with payments mine is actually almost always on time but I hear that's not entirely normal but again you can have things delayed because of things out of your control like editors leaving publishing schedules changing so relying on advance income to live off of is pretty dangerous I always recommend when you get a book deal having a nice little spreadsheet and you know I created one for you it was linked in with my videos two years ago so I'm gonna link to it down below again it's a spreadsheet with all the formulas plugged in you plug in your advance and it's gonna you have the different payment schedules you have to adjust it but it'll tell you the taxes and it'll tell you how much goes to your agent and then how much you end up with at the end so I suggest you do this calculation plugging in your expected payment schedule especially the years so you actually know what your take-home income from books is going to be year to year if you are single unless you get a massive massive book deal you probably simply cannot quit your job I mean even if you do where you gonna hit health insurance that's the thing never forget about health insurance book money is book money but it's not the same as working for a company you are an independent contractor so you'd have to go out on a free market and pay for health insurance if you are American you're not American you might be in a much better situation so you always need to take that into consideration and if you have a partner have a very frank honest financial discussion with them if and when you get a book deal or if it's your several contracts in and you're thinking you might want to quit your day job it is possible over a longer period with some financial planning but you want to have that conversation have that chart ready and really think about income and have a contingency plan it's also totally okay to change your day job I know people who have dropped from full-time and gotten a part-time job change industry so that it's more conducive to writing there are definitely options that you can do to essentially work around book advances and what you're being paid and how and when ok royalties I'm not going to spend a ton of time on this because most of you will simply never never see them me too so royalties though if you're with again a smaller publisher that either does really small advances or no advances at all royalties are actually going to matter to you but royalties it's a percentage of every sale on your book that goes towards you the author as I already mentioned realities are relatively small but it's because your traditional publisher puts up all of the money upfront to do all of the work on your book and get it out there and get it sold those some standard royalty rates for you to know 10% on hardcover usually up to a certain amount of copies but it's going to vary depending on the advance that they are paying you and your agent can negotiate within reason the hardcover percentage or sometimes just the amount of copies because then often once you hit that benchmark of copies the royalty rate will go up to say 12.5% it varies contract to contract but mine was definitely negotiated it was 10 percent up to a certain amount of copies and my agent negotiated the number of copies down and then it goes to 12.5% on hardcover standard four paper bag I've seen anything between six and eight percent on deals where the hardcover was first and it was a pretty reasonable advance again if you're with a smaller publisher or a publisher that pays much smaller advances often your agent can negotiate these rates up because you're getting less of in advance so they can get those royalty rates negotiated up but these are kind of standard on standard traditional publishing deals with slightly higher advances and thus higher benchmarks for amount of copies sold and these standard royalty rates I've seen 25% as the standard for electronic sale so digital copies I've seen higher in some places but I asked a few people you know I checked my own contracts and asked other people 25% seems to be pretty standard on eBook but of course remember you get less if you're your publisher discounts it which often is the only way to sell ebooks it's kind of a double-edged sword so the fact of royalties is earning royalties tends to be the best way to have a steady writing career I mean not always but theoretically if you've earned out your advance and you start earning royalties you were steadily selling copies and so you'll get payments every six months they will vary widely how much is on that royalty statement but the more books you write and the more books that earn out your royalties of course are going to accumulate and fretless sells backlist so reigning is really a long game and earning money off of books is a long game and then this is almost a topic for another video I have so many feelings about how hard it actually is for newer writers to establish that long career it's way harder than it used to be so how are you ever going to get to the point of earning out any book and earning royalties and trying to establish a financially stable career I don't know in the meantime just assume you not gonna earn out and you're never gonna see royalties and save your money I can also tell you just some fun facts you can be a New York Times best seller and not earn out and thus never see royalties you can have one breakout book and earn hat on one book and never earn out on the others so it just varies really really widely I feel like I'm scaring a ton of you out of traditional publishing but I must remind you that a slice of pie that people are eating is better than a slice of nothing so don't forget that traditional publishing for certain titles and certain authors is still your best opportunity yet ever selling any copies of your book and getting them into anyone's hands but this is again why the advance system is actually in your favor because say that publisher really screws up and they vastly overestimate how much will sell or the market changes and is totally not your fault you get to keep the money so yeh and honestly if they vastly underestimate how much you're gonna sell then you'll sell gangbusters and start earning really good royalties so pros and cons I'm going to close with just some takeaways on advances key things to know kind of a summary wrap-up but a few of these are new the first thing to know is very often the size of your advance determines how much marketing support you are going to get in-house not always because sometimes the marketing team or the sales force really falls in love with the title that maybe got a smaller advance at acquisitions and they push it really hard and it blows up but far more often the higher the advance the more they think it will sell and so they put more resources behind selling it it does sometimes happen that someone who got a mega huge advance doesn't really get any marketing support it's rare but it does happen which is why I warned my unicorn friends who might be watching this or they might not they might be sipping champagne on a terrace somewhere unwisely you can totally get a $500,000 book deal a seven-figure buy tail and then your publisher does almost no marketing for you I have seen this more than once which is like kind of mind-blowing but very often it's the market changing and them going oh shoot it doesn't make sense to push this as our lead title and then you get paid half a million dollars and you sell a thousand copies and your your I mean your career is probably over on asleep not always but often pushing is what she is interesting but I also heard really great stories where they paid a ten thousand dollar advance and the book really picked up steam and the off they're earned out in like three weeks and now makes done tons of money by the way when you are in that situation where you get a lower advance in a book and then you sell gangbusters you get to get a much higher advance for your next book that's the next takeaway for you it's always changing and shifting kind of how much you were worth as an author it's pretty depressing I won't lie once you have a sales that sales history it's gonna follow you forever and by the way that's why it can be tricky not impossible for self-published authors to transition into traditional publishing your self-published sales will follow you in traditional publishing that said if you have great sales and self-publishing that can be a real boon to you in traditional publishing so that is how it works though I have a sales history now so all subsequent books I sell they're going to look at that sales history now things can change I have a sales history in one genre I'm writing in another genre who knows but once you're no longer entry-level the whole way that advances work it will it can vary widely they can go up then go down they're more likely go down then up and so I'm sorry to keep referring to the medium article but this was a thing where the author just never predicted that her advances would go down and I'm like prepare prepare for this if you were lucky enough to sell more books sometimes your chances go down if you aren't bringing in the sales numbers another thing I want to warn you of so sorry generally advances at least certainly in Hawaii are going down not up the era of everyone gets a six-figure book deal is more or less over outliers will get massive six-figure book deals and the rest of us will get modest hopefully not slap in the face advances mid to high five figures low to mid five figures is a pretty good spot to be low five figures is depressing and hopefully you have a good enough agent to negotiate higher than that but some genres really just don't warrant higher advances they are more of a risk for a publisher if the lifetime of a title is only going to sell three or four thousand copies and that's a good number for that title it just doesn't make sense to pay that person fifty thousand dollars it's it's tough especially thinking that different books are worth different things because we all put in blood sweat and tears and we're all worth more than that in that sense but the reality of the free market and how publishing works is that we're not paid a salary an equal and even salary for writing books were paid on spec were paid book depending on the market and what the publisher feels it is worth what the publisher thinks it is going to sell and that is just kind of a system that we are part of I also want to let you know that advances are lower an adult than they are in why a why a really inflated the idea of what a wedded Vance was because for a while there we really were panning out six-figure deals like candy and there's some massive deals and you only hear about the massive deals in the press by the way you don't hear about everyone else's deals and it has created this idea that I can become a millionaire by right way I mean maybe but probably not and if you write adults you should just set your expectations lower it's very rare to get a six-figure deal especially as a debut an adult cuz they her if it's a more mature book market and they're a little bit smarter about hedging on sales though with why a saturating to my previous point this is why manses are going down and things are starting to kind of even out this means of course that fewer and fewer people can rate full-time that is just the reality the odds of you being able to act out a career money that supports yourself in writing is less likely if you are partnered with someone who has a steady income and health insurance and benefits you are in a much better position than not partnered people or people who don't have trust funds this I have a video I'm not quitting your day job I'll link to it down below and I'll probably make a brand new one because it's it's an evergreen topic everyone is in a very different position personally and financially all you can do is know the as much information going in as possible and use that information to make smart choices I mentioned an accountant but I didn't mention a financial advisor this is optional but you might want to get one or at least have a consultation with one if you're getting into this they can take an honest look at your finances and let you know what they think though you are probably gonna have to explain to them how book money works because the average financial advisor just doesn't understand how unsteady book money is I have a financial advisor now and I had to explain it to him because it's weird publishing money is very very weird but honestly I think the smartest thing any of us can do is save as much as possible and never bank on it continuing as is or earning out more often than not unless you're a huge breakout and huge is successful publishing is diminishing returns so this is where I will leave you this is a big topic so drop any of your questions down below I will answer as many of them as possible as well as I am able to and you're gonna get more videos on money there's more to talk about in this topic but I thought advances in royalties 101 would be really helpful to you so give this video a thumbs up if you liked it and I'll make more cuz if I'm not here to give you facts and severely depressed you what am i doing if you're not i subscribe to the channel go ahead and do that i post two to three videos a week thank you so much for watching and as always guys happy writing and happy financial planning be smart with your money please this industry is it's tough

Channel: Alexa Donne

Views: 13,118

Rating: 4.9732738 out of 5

Keywords: alexa donne, author tube, writing advice, how to write a book, publishing advice, book advances, publishing money, book money, book royalties, earning out advances, traditional publishing, writing full time, finances for authors, author finances

Id: yAYeomyyeP8

Length: 31min 57sec (1917 seconds)

Published: Thu Oct 17 2019