Earning Out Advances

Posted on May 18th, 2008 | 14 comments home title

For any of you hoping for an update on the CCWC, here it is: I went, I taught, I met with writers (including some of my blog regulars which was really fun), found some potential clients, said hi to my industry friends, was forced to eat really bad food, had a fanastic dinner with a client who flew in from New York… then I took off and had lots of fun with my family. That’s about it! So, on to today’s post.

You all were so talkative while I was away. Great discussion last week and it led in so many interesting directions. I noticed some misconceptions popped up in the comments so I want to try to clear them up. Today, just a few words to address a couple of misunderstandings about the earning out advances.

First, there was a comment that indicated only “a shocking 2% of books produced by royalty publishers” earn out their advances.

I don’t know where the 2% statistic came from but I can’t verify it. I’ve heard and read everything from “less than half the published books earn out their advances” to “the vast majority don’t earn out…” Regardless of the veracity of the source, one thing we always have to remember in publishing is that statistics like this are impossible to accurately collect and calculate. There is no requirement that publishers report any of this information to any single “data collection” source, so research to this effect turns up widely varying results.

True, most sources agree that more than half of books don’t earn out their advance. However, whether a book earns out its advance is an unreliable indicator of anything specific, because it can mean so many different things. Failure to earn out an advance is one gauge of relative success or failure for an author, but for a publisher, it doesn’t necessarily mean the book was a failure. The author’s royalty is only one part of the profit-and-loss picture; publishers can actually be profitable on a book that doesn’t earn out its advance, while they can lose money on a book that does earn out its advance. I am not going into the gritty details here… you can find literally hundreds of articles online explaining advances, publisher P&L, etc. (many of them giving conflicting information).

What I want to get across is, (1) when you hear statistics about publishing like “only 2% earn out their advances,” take it with a dose of healthy skepticism, knowing it’s impossible to accurately quantify. And (2) try to understand what the statistic would mean, even if it were true. In this case, the statistic was used to try and illustrate the overall poor economic health of the publishing industry; I would question whether this single indicator (advances earning out) can give you any reliable sense of the overall economics. It is simply much more complicated than that, and you can’t understand publishing economics based on one piece of data. So I recommend we refuse to be overly shocked or up-in-arms when we hear these statistics out of context. (At the moment, there are plenty of other statistics that, added together, paint a fairly gloomy picture of the business of publishing.)

One more misconception that popped up in last week’s comments was, “When the author earns out their advance, it means the publisher didn’t plan to print enough books.” Truth is, the book’s initial print run has almost nothing to do with the question of whether the author earns out their advance. These are two separate considerations.

The publisher offers an advance based on their own formula and calculations that involve:
4 how many books they predict they can sell in the first year
4 how much they will spend on marketing, production, printing, shipping, etc.
4 royalty rates they’re paying the author
4 discounts at which they anticipate they’ll sell the book to retailers
4 and all the other costs of publishing a book

If an author doesn’t earn out their advance, it sometimes means a book didn’t sell as well as the publisher projected, but sometimes not. And if the book didn’t sell as well as projected, it could be for an endless list of “reasons,” some involving the author, some involving the publisher, some involving the market. In any case, it rarely means the publisher didn’t print enough books. If a book quickly sells out its entire first print run, it’s likely the author will earn out their advance.

This is a complicated subject and I’ll address advances in more detail in a later post… especially the question of “Which is better, a big advance or a smaller one?” Send me your specific questions about advances so I’ll be sure to answer them.

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Tags: Advances + Royalties | Publishing Facts

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Anonymous

>Thats good to know. I had one book sell through the advance and the other didn’t. I felt like the second book was looked at as a failure by the house..glad to know thats not definately the case.

PS- I liked the big advance up front, of course!

My specific question:
Does if you sell through or not influence the publishers decesion to work with you again? How much? It is the only deciding factor?
Anne L.B.

>So like starving artists of all kinds, we must write because we are gifted and called, not for potential profit — and rejoice if we do someday reap a reward!
Nicole

>Well said, Anne.

In keeping with the spirit of the last few posts about publishing/self-publishing, successful books, talent, etc., two authors off the top of my head who were published by Zondervan in a five book series and with River Oak (Cook Communications)in a three book series, all capable of being stand alones, no longer have contracts. Sales determined these authors would not be offered new contracts. I’ve read their novels and they were well-written, interesting story lines, the first basically women’s fiction, the second men’s fiction. Definitely equal to or better than the mid-list CBA novels. Another author who writes historical fiction plus some niche non-fiction was told the publisher no longer wanted any of this author’s fiction.
Talented authors are given the boot all the time.
“A righteous man’s steps are ordained by the Lord.” Who are we to say what steps someone else should take or denigrate their choices and decisions? Just as Jesus said to Peter when he asked about John. (Paraphrased:) “What’s it to you?”
Anonymous

>While it’s a nice thought to imagine all good writers who get publishing contracts will have long and successful careers and some sort of job security, the reality is just not so simple. There are a whole host of reasons for an author to be “given the boot”, though I must say I find that phrase both naive and unnecessarily antagonistic because it presumes the author is owed a continuing relationship beyond existing contracts. This is simply not true. While publishing houses love to build long-lasting relationships with good authors, sometimes an author ends up not being a good fit for the house after all.

Yes, poor sales is probably the most common reason to no longer pursue a particular author. And, yes, sometimes those poor sales have little to do with the author’s ability to write. This situation just points back to the publisher’s ongoing dilemma of trying to determine what readers want to read (and therefore will purchase) and then selecting projects that match what they determine.

A three- or five-book series that doesn’t sell particularly well gives a publisher plenty of solid data to suggest the writer isn’t finding a large enough audience to support more books. Again, this doesn’t mean the author can’t write – but it does suggest that what the author is writing isn’t what the reader is buying.

Unfortunately, a history of poor sales does have a negative impact on future contracts for a previously published author. I am with you here in grieving the loss of their author voices, particularly if the poor sales were unrelated to their ability to write. But even a track record of poor sales won’t stop a publisher from signing a contract for a new book if the book is compelling and…something readers are clamoring to read. (In other words – it may be an obstacle, but it’s not a death knell.)

Hopefully, publishing houses will continue to improve in their ability to market the books they do contract to the right audiences, thus giving them a fair chance to succeed. But ultimately, isn’t it the reader who chooses which writers can keep publishing their books and which will only publish one book (or three or five) before disappearing from the shelves?
Nicole

>I agree in principle that it is the reader who determines which writers will keep having books on the shelves. However, if different kinds of books are not offered, readers will read what’s there for them or find their choices in secular selections, and who will know the difference?

“. . . but it does suggest that what the author is writing isn’t what the reader is buying.” So many books to choose from, all different kinds of stories, the timing and topics–all factors which can be hard to determine. Also leaves out the part where the publisher asks an author to do a series about such and such. When it doesn’t work out . . . ?

Almost any phrase which is interpreted by the industry professionals as “antagonistic” is put down with a defensive comment such as yours. How about “heave ho”, or given an exit. No, no one is “owed” a career. Professional people in the industry don’t gleefully dismiss authors they’ve contracted unless they’ve become a “problem” or a difficult author. I’m not insinuating or implying that the industry is cold-hearted or acts without wisdom. I fully understand the profit margin thing.

My point is that being published is not the ultimate determination of whether or not a writer is “good” as some insist.

And admittedly by some in the industry, they have yet to figure out how to market men’s fiction, continuing to hold onto the myth that men “don’t read fiction” which is simply untrue. If the abundance of male authors writing both secular and Christian fiction is an indicator–which it is–there is a huge male audience out there, and it isn’t just a secular group.

Finally, my belief is that our Lord is the ultimate determiner of our careers when we are obedient to Him. His designs for us don’t always mesh with our designs for us. But when they do, we will please Him and find contentment however He provides it, and that is true “success”.
Rachelle

>“My point is that being published is not the ultimate determination of whether or not a writer is “good” as some insist.”

I’ve actually never heard anybody, inside the industry or out, insist that. And I’m pretty sure you’ll never see that POV espoused on this blog, by me or the readers.

One thing that seems to be missing in your equation, Nicole, is that industry professionals love books and “great writing” as much as, or more than, anybody out there… writers and readers alike. As a writer, you are not playing for an antagonistic crowd, no matter how much it may seem that way sometimes. I guarantee, agents and editors spend far more time immersed in “words” than 99.9% of the population. We’re on your side. We love good books, and we spend our entire lives trying to get them published.

But all of us… you, me, every reader, every writer, every publishng professional… we are all just tiny cogs in this giant wheel. We don’t have a lot of control over outcomes.

I can’t help it, I love the wheel.
Marla Taviano

>I didn’t earn out my advance on my first book (didn’t know that was the proper terminology for it either). Thankfully, my publisher (Harvest House) didn’t give up on me. I just passed (oops, earned out) my advance with book #2 (it took a year. Book #3 (released 2 months ago) is off to a really good start.

I like big advances, but it sure would be fun to earn one out in, say, a month or so.
Nicole

>Perhaps you don’t “hear” it, Rachelle. I know that you’re a person who is always willing to listen, to grow, to investigate, and to eschew platitudes. I know you love writing, and your heart is to represent those who you can present to publishers with a passion. You’ve even admitted you will have to pass on some good writing/writers because of what you perceive as the places to be filled in the particular houses.

Honestly, I’m not alone out here in my perceptions of how this all sounds to me, a twice self-published writer, although I might be one of the most vocal, which is not necessarily to my credit. I actually have published authors/editors in the biz who are my friends! I even have an author endorsement on the back cover of my second novel, and he’s no slouch! I didn’t have to coerce him to do it either, not that I could have. On a self-published novel–go figure.

Perhaps you’re too close to it. I’m not the brightest bulb in the lamp, but my perception isn’t generally too bad. I’ll take my lumps if you think I’m being out of line, but I have heard the implication that if you’re good, you will be published, that the cream rises to the top, etc., and while it definitely can be true, I do not think it is a guarantee. And, in fact, it indirectly assumes/implies/states that all of what is published is top of the line and, frankly, it’s not. I know: JMO. But not only mine.
Rachelle

>Hey Nicole –

You’re right, I AM too close to it! In fact, I’m right down in it. I guess we all have a certain amount of tunnel vision. Anyway, I hear your heart, and I think you hear mine. We want the best books to be published, and let’s face it, we want those books to be ours! (Or at least, the ones WE enjoy reading!)

Hey, if you and I ran the world, everything would be perfect.
Kate H

>I have a question: I’ve heard that advances in CBA average less than in ABA. I know amounts vary hugely, but overall would you say that’s true? Is it harder for a CBA author to make a living?
Twill

>Most of my comment agreed with what you just wrote. But actually, you read my “earn out” comment backwards. Let me repeat (and correct) that portion of what I meant to say.

If the author *did* earn out their advance, it *may* mean that the publisher underestimated the sales potential of the book, and thus both the advance and the size of the first printing was too small.

But, for the most part, I was just saying what you said here — that the number of books that “earn out” isn’t as significant a figure as the prior writer had been implying.
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