Advances Against Royalties
If a book is work-for-hire - meaning the publisher owns the rights to it and you were just hired to play in someone else's sandbox for a while, you'll probably be paid a flat fee for writing the book and that will be all. But for most books, what you'll be paid technically isn't a fee at all, but an advance against the book's hypothetical future earnings. Because publishing is slow, and books may continue to sell for a long time, years can pass between the time you write a book and the time it actually generates any income. Since even publishers are vaguely aware that writers have to eat, your publisher will grudgingly pay some money up front, against your book's earnings. After the book has earned enough money to cover that advance, you'll get regular payments of any additional money it makes - but you don't have to pay the advance back even if the book never
earns out (and very few books ever earn back their advance, even though they may make money for the publisher).
That's the theory anyway. The reality isn't always quite so idealistic.
Publishers use complex formulae and market research to determine how many copies your book can conservatively be expected to sell, what it will cost to manufacture, and how high of an advance would be fair to pay you. Then they offer the lowest amount they think they can get you to accept. It may be a very low number if you don't have much leverage or a very high number if you're a celebrity or have a lot of leverage for some reason. The offer likely will bear a tangential relationship with the publisher's estimates - but a lot more to do with what you'll accept at this stage in your career. (For most books, the payment to the author is slightly lower than the cost of the paper it's printed on. Just so you know your relative worth as a writer....)
Usually, the advance isn't all paid up front. Because publishers can't force you to repay an advance even if you never turn in the book, they tend to use incipient starvation as an incentive to force you to see things their way. The most common contracts used to break advances into two payments - half on signing (or on execution) of the contract, and half when the editor accepted the manuscript as done. Nowadays, it may be spread out into three or four payments - on signing, on outline or first draft, on acceptance, and even (especially if the publisher is cash-strapped) on publication. Obviously, you want as much as possible paid up front, and the publisher wants to defer all payments as long as possible.
Royalty Rates
Since your advance is paid against the book's theoretical earnings, the rate you accumulate earnings is almost as big a factor as the book's sales figures. What level of royalties you can get will depend on the publisher, your sales track record, and your willingness to ask for a higher rate, rather than just settle for a standard rate. Even if you can't get a higher rate, you may be able to get an escalator built in (i.e., 6% for the first 50,000 copies, 8% after) rather than a flat royalty rate. Or you may be able to get bonuses built in when the book hits certain milestones. Even if the book doesn't reach those levels, you've set a precedent for later contracts.
Rates tend to vary depending on the format of the book and the amount of profit margin built in for the publisher; they're lowest for mass-market (rack-sized) paperbacks and short-run books, somewhat more for trade paperbacks (digest-sized and oversized paperbacks), and highest for hardcovers.
Mass market - 6% is the standard royalty, often escalating to 8% after a certain number of copies (depending on the genre, the number will vary). Established authors can get 8% on all, and very big names can get 10%.
Trade paperback - Margins here are going down a bit as more and more books are printed in this format. It's not unusual to get offered 6%, though you can probably get 7 1/2%, and 9% if your publisher really loves you.
Hardcovers - Margins are all over the map, and so are royalty numbers; you may get 25%, or you may get half that, depending on the publishing house and how they treat hardcovers. (Some publishers only print a token number of hardcovers to cover reviews and library sales and make most of their money on paperbacks, while other publishers only publish hardcovers.)
Since many books only appear in paperback, or may split hardcover and paperback sales between two publishers, some of the numbers may be purely hypothetical, and all of them are hypothetical until the book earns out and you actually get paid. (And don't automatically assume the one will follow from the other.)
There are tricks that publishers can use to shortchange you. For instance, these royalty rates will only apply to books sold at a certain wholesale price or above, such as 48%, that will be defined in the contract. There will be an innocuous-sounding clause in the contract specifying that any books sold at deep discounts - defined as less than that standard price - will be paid at a different rate, such as 10% of the net price. It sounds reasonable, and there is an important reason that clause is in there: If the publisher sells 100,000 books to WalMart at a 75% discount with a special WalMart cover, they can't still pay the standard royalty and make money.
On the other hand, the publisher may have a different choice:
They can sell 50,000 copies of your $7.99 paperback to Borders at a 48% discount. Borders pays $207,740, out of which they pay you $23,970 (6% of cover price) for a net profit (before production costs) of $183,770
or
They can sell 50,000 copies of your $7.99 paperback to Borders at a 49% discount. Borders pays $203,745, out of which they pay you $20,375 (10% of their net because of the deeper discount) for a net profit (before production costs) of $183,370.
In other words, the publisher has subsidized their discount to Borders out of your royalty.
Note: These are average figures, and specific conditions vary a lot from publisher to publisher and genre to genre. If you're getting less than this, it doesn't necessarily mean you're getting ripped off and if you're getting more, it doesn't necessarily mean your publisher is naive. The idea here is just to give some average benchmarks so you know what questions to ask your agent, not to cause publisher envy.
For that matter, not every publisher pays advances; publishers with very small print runs or print-on-demand publishers may pay a royalty only, or just a token advance against a royalty. But if there isn't some kind of payment coming to you - even a slow or small payment - then remember, it's not a publisher, but a scam
Returns
Because most books are returnable, the number of books shipped isn't the same as the number of books that will ultimately sell. The sell-through is the percentage of books printed that ultimately sell: The others are pulped or sold as remainders (the heavily discounted books you see at the front of the bookstore). One of the tragedies of the way book and magazine publishing is structured is that about half of everything printed is thrown out. (It's cheaper to print a new paperback or magazine than it is to ship it back to the publisher, so the bookstore tears off the cover and returns it for credit. That's why you should never pay for a "stripped" book - it was reported to the publisher as unsold and destroyed, so the author isn't getting any royalty on it... seriously bad karma if you have authorly aspirations yourself.)
You don't actually want a 100% sell-through. That means that your book sold out and the publisher didn't print any more. Instead, when the stock of the book is low, the publisher will hopefully reprint it, and keep a certain stock on hand as long as the book is in print.
For the first year the book is out, the publisher will want to keep a reserve against returns, a certain percentage of the royalties nominally owed to you that are held back, because bookstores won't actually sell all the copies they have. As a writer, reserves are a necessary evil, but you want to make sure the reserve isn't outrageously high - around 30% is typical - and that the publisher release the reserve after a reasonable period of time. (Ask for a year after publication, but you may not get it.) Once the reserve is released, the money should get added to what the publisher owes you (if the book has earned out) or go toward paying off the advance (if it hasn't earned out).
Publishing Statements
Your contract will specify how often your publisher has to send you an accounting of the book's earnings. Twice a year is typical, usually in January and June - though some publishers are chronically late. Publishing statements run the gamut: Sometimes they're very clear, sometimes complex and misleading. Sometimes they maintain only a nodding relationship with reality. Unfortunately, it's very hard to detect if a publisher is cheating. Most large publishers won't deliberately cheat, and will readily fix mistakes that you catch, but it pays to keep a close eye on statements for anything that looks odd or off.
There will probably be a clause that allows you to audit your publisher's records regarding your book, but those clauses tend to be fairly worthless - since they can only be narrowly applied, and there's no real incentive for the publisher not to cheat. A typical audit clause looks something like this:
24. AUTHOR or AUTHOR's duly authorized representative shall have the right, upon reasonable notice during usual business hours, but not more than once each year, to examine SWORDSMITH's books and records at the place where the same are regularly maintained, only insofar as they relate to THE BOOK. Such examination shall be at AUTHOR's expense, unless errors aggregating more than TEN PERCENT (10%) of the total sum accrued (including advances) are found to AUTHOR's disadvantage, in which case the reasonable cost of such examination shall be borne by SWORDSMITH. No such examination shall be made by AUTHOR's representatives upon a contingent fee basis, except for AUTHOR's literary agent acting in the regular course of his representation. Statements rendered hereunder shall be final and binding upon AUTHOR, unless objected to in writing, setting forth the specific objections thereto and the basis for such objections, within one (l) year after the date the statement was rendered.
Unfortunately, while you can keep an eye for flagrant cheating, you mostly have to trust your publisher not to abuse you in more than the customary manner (so you may have to put up with Don Sherwood, but not Mark Foley). If you don't trust them, you move on as soon as your contract is up. (I'm in a dispute of that sort with a publisher right now; there's about a 3,000-book discrepency between what I was told by editors the book had sold vs. what the accounting department claims the book sold.)
Basically, the publishing statement will outline how many books were sold in the previous six months at various rates, how many books were returned and charged back to your account, and how much of your advance has been earned back. Once the book has earned out, there should be a check included with each royalty statement as well. Often a publisher will ask for a contract clause that says that if they owe you a nominal amount (usually less than $10 or so), they can carry the payment over to the next accounting period. That's not a big deal, but make sure the contract requires them to send you a statement even if there's no money owed.
Scenes from Next Week's Episode...
Back to contract specifics, and translating legalese into writerese. We'll look at other ways you get paid and avoid being exploited, and a few more pitfalls, before I lose interest in talking about contracts and move on to other topics. (Suggestions, anyone? Anyone? Bueller?) I'll try to keep the Thursday night schedule, but things are pretty crazed with election work on top of writing and teaching in the next few weeks. Ned Lamont and Wes Clark are appearing together on campus tomorrow, I'm going to the Lamont-Lieberman debate on the 23rd, plus two other local DTCs are doing their "meet the candidates" dinners in the next couple weeks, and of course there's phonebanking, GOTV, and I'll be a poll-watcher for the first time this year.
The Rest of the "How Publishing Works" Series
I do still monitor and respond in the previous episodes, so feel free to post questions or comments in them if you'd like. And feel free to post requests for future topics in the comments as well.
Part 1 - Why bad things happen to good books.
Part 2 - Avoiding publishing scams.
Part 3 - Literary conventions (with an emphasis on SF Conventions).
Part 4 - Book packagers.
Part 5 - Submitting a manuscript.
Part 6 - Publishing lists.
Part 7 - Literary agents.
Part 8 - Copyediting.
Part 9 - Marketing and publicity.
Part 10 - Outlining.
Part 11 - Editing.
Part 12 - Ideas.
Part 13 - Contracts.
Part 14 - How Writers Get Paid.
Part 15 - Worldbuilding.
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