Posted on Nov 21st, 2008

Yesterday we discussed advances and there were several questions, so today we’ll talk about them some more. First, what is an “advance” anyway? An advance is a “pre-payment” of the royalties the publisher expects you to earn on your book.

Let’s say the publisher has agreed to pay you a royalty of 8% on the retail price of the book, and your book is going to sell for $14.00. You are going to earn $1.12 for each copy of the book sold. So if the publisher has paid you an advance of $5,000, how many copies do you have to sell to ** earn out** your advance? Your break-even would be 4,464 copies. In other words, your publisher has already paid you the royalty on those first 4,464 units sold. If and when your book sells more than that, your additional royalties will start accruing at the rate of $1.12 per book sold. The publisher will issue royalty statements (usually twice yearly) showing how many copies have sold, and if they owe you any royalties, a check will be included.

If your book never gets to the break even point, i.e. if it doesn’t earn out the advance, you ** don’t** have to pay back any part of the advance. That’s the risk the publisher takes.

Here’s a very important concept to remember if you want to be a career author: **The best chance you have for success is for your first book to do well.** One of the ways a publisher determines “success” is if you earn out your advance in the first year, preferably in the first six months. This is why a smaller advance can work in your favor. It’s easier to earn it back quickly, thereby becoming a success story for the publisher, who may be more inclined to want to publish your next book.

So in answer to the questions about whether it can be a wise move to take a smaller advance or even no advance: yes, there are situations in which this is a smart business decision.

However, I have a few caveats about that. First, be aware that offering to forego an advance won’t make a publisher take on a book they don’t already like and want to publish. Second, if you are agented, the “no advance” strategy may not work very well. If you are going straight to the publisher unagented, it can be a smart option. Third, a smarter move than taking zero advance might be to take an advance and sink it into marketing your book. Remember, if you want to be a career author, you really need that first book to do well, and taking some active steps toward promoting it could really help you. So take all these things into consideration when you’re considering the idea of a small or zero advance.

Another question that’s been asked is about multiple book deals and how the advances get paid out. Here’s how it works. Let’s say you’re offered a 3-book contract with an advance of $5,000 per book, $15,000 total. The contract states you will get half of your advance upon signing, and the other half on delivery of an acceptable manuscript. So, after contract signing, you will get **half of the advance for all three books**. Half is $2,500, so you’ll get 2,500 x 3, which means you’ll get $7,500 upon contract signing.

Then, **as you deliver each manuscript** and each one is declared acceptable, you’ll receive the other half of the per-book advance. So, you’ll get three more checks for $2,500 as you turn in your manuscripts.

A question was also asked about whether you might negotiate for zero advance in exchange for a higher royalty. Yes, this is always a possibility. But again, keep in mind that if this is how all book contracts were done (and who knows, we may be headed that direction) then agents would have a really hard time making a living.

One more thing, and this is terminology. We talk about “earning out” your advance. There is another term that sometimes gets confused with “earning out” and that is “selling through.” It’s a completely different thing. Sell-through refers to the end-user (the consumer) buying your book off the bookstore shelf. Barnes & Noble may have bought 1,000 copies of your book, but how many did B&N sell to consumers? *That’s* the sell-through, and *that’s *what you get paid royalties on.

Okay, enough about that! It’s been a long week and I hope you all have a good weekend. See you on Monday!

[ Next Post → ] [ ← Previous Post ]Rachelle Gardner is a Christian literary agent affiliated with WordServe Literary Group in Colorado.

14 Responses

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>Rachelle,

One other thought, on a related subject. Jim Bell once introduced me to a poem that starts out, “The book of mine enemy has been remaindered…, and I am glad.” Want to tackle “remaindering” sometime?

>Thanks for the more detailed explanations, Rachelle!

And sorry- didn’t know some of that stuff- I do want you to make a living, too!!!

>Great information, thanks Rachelle.

>Thanks, Sue!

I had heard that royalties were often calculated on net, so it’s great to have that explanation in a little more detail.

>I wanted to add one litte nuance about the multi-book deal. Publishers will often want to cross-collateralize the books. This means that you don’t receive royalties until all of the advances have earned out. If book 2 earns out, but book 1 has not, you still will not get royalies until book 1 earns out.

In this economy, I can’t tell you how important it is that an advance is earned out. I totally agree with Rachel that it is better to take a little less up front and look like a BIG success when it all earns out.

Last, but not least, many Christian publishers pay royalties on net. That means you get paid (something closer to 16%-18%) on the price the RETAILER pays for a book. Exp: A $10 book sold at a .50% discount means the publisher got $5.00 for it. 16% of $5.50 is $.80 per book. With a $1,000 advance, you would have to sell 1,250 books to earn out.

>Rachelle, Thank you! I love going to your class and learning!

>You’re right, Rachelle — it is kind of confusing, but you do a great job of explaining. Thanks for taking the time!

>This great information on advances leads to some more questions. First, do distributors only give a certain amount of time after they receive the books for them to sell? For example, if those 1000 don’t sell in two months, sorry for you and they get shipped back?

Also, you mentioned a few times how important the sales of the first book are if you want to be a career author. If you’ve started with a nonfiction book that is a worthy topic but perceived by publishers to be more niche, does it make any sense to regroup and perhaps pursue another idea while waiting for the first book to be sold? Or is the author’s time better spent continuing to build platform while waiting for the book to be sold?

>Cheryl, your initial sales numbers would show 1,000 copies purchased by B&N. But it will be a few months before we know how many B&N will RETURN to the publisher. You make royalties on what's actually sold to the consumer, not what B&N returns. But there's obviously a delay in knowing what those numbers will be. For this reason, you may see on your royalty statement a line about "reserves." This means the publisher is paying you royalties based on what B&N bought, minus a certain amount the publisher holds in "reserve" in case of future returns. The number B&N bought might be misleading if they don't sell through, so the publisher doesn't want to get into a situation of paying you royalties on books they "think" you sold but end up being returned.

I know this is confusing. Hope it makes some kind of sense.

Bottom line, you only earn royalties on books that sold through. Everything else comes back to the publisher in the form of "returns" meaning not only did those books

notmake any money, they arecostinga lot of money in production, shipping and warehousing.>Rachelle, thanks for all the info. Really appreciate it.It brought up one other question for me, though — maybe you could answer it in another post sometime.

I'm about to show my ignorance once again, but when you mentioned B&N buying 1,000 copies of a book, it made me wonder if those 1,000 copies are considered part of the copies sold to help you earn out your advance. I guess I assumed those numbers referred to the number of books bought by individual consumers… (I hope this question made sense!)

>Thanks so much for this information!! I, too, wasn’t familiar with the “selling through” term. And I was happy to see you mention taking a larger advance as opposed to no advance and sinking it into marketing. That would be my strategy for the next book. You can’t always depend on a publishing house to do the kind of marketing you’d like.

>I never knew what selling through meant opposed to earning out.

This is great info and I appreciate you taking the time to teach us.

Have a great weekend!

>Ahhhhh….now I get it.

Great info, Rachelle.

Have a nice weekend, hopefully filled with fun and relaxation.

>Rachelle,

Thanks. Your fantastic class in publishing is one I’d never cut. Have a great weekend.