Author Contracts: Advances & Royalties

To be an author, you must love to write. That love must be the thing that drives you, over all other motivations. There are no guarantees in publishing. There’s always the hope, of course, that your book will be loved, will sell well, will make money. However, the book market is fickle and it’s hard to know what readers will buy one season to the next. Authors often have dreams of making a lot of money from their craft, and, depending on your genre and publishing contract, that could happen. Here’s the breakdown of where that money will come from and how to understand it when it does.

Authors make money in two phases: the advance and any subsequent royalties. Both of these are laid out in the author contract and negotiated before the author signs with the publishing house.

Advance

When an author signs a contract with a publishing house, he or she is granted an advance (against royalties). Essentially, this means that the author is paid a set amount of money to write the book and deliver it to the publisher. This amount may be paid all at once, upon execution of the contract between the publisher and author, or it could be paid in installments (at execution of contract, acceptance of the manuscript by the publisher, and publication, for example).

An advance paid to an author, however, is an advance against royalties. This means that, before earning any royalties on subsequent sales, the book must first “earn out” its advance. This means it must sell enough copies to earn back the amount of money the author was initially paid. If it does that, then the author will begin earning a percentage of each book sold as a royalty.

Royalties

Author contracts establish the advance to be paid and also the percentage of unit sales that an author will earn as a royalty if the advance is earned back. The royalty percentage will vary from publisher to publisher, as the advance did. However, it is customary that the determined royalty percentage is only earned on sales of books in ordinary channels of the book trade, e.g. bookstores, big box retailers, and other outlets.

As an example, the contract may stipulate that an author earns a 10% royalty on unit sales from ordinary channels. Say that the book is priced at $27.00. Once the book has earned back its advance, the author will then earn $2.70 for each copy sold.

Some contracts stipulate a royalty agreement with a sliding scale, as well. This further incentives the author to push his or her book’s sales in order to earn more as more books sell. An example of a sliding scale could be: for sales of 1 to 5000 copies, the author earns 10%; for 5,001 – 10,000 copies, 12.5%; for more than 10,000 copies, 15%. In this way, an author earns more money for a more successful book.

Finally, it is important to note that royalty percentages will vary depending on the format of the particular copy sold. Thus, royalty percentages for e-books are not the same as those for print books, which are not the same as those for paperbacks.

A Note About Agent Commissions

The basic breakdown above explains how an author earns money from advances and royalties. There are also other forms of income which future posts will discuss. All of these profits, however, are disbursed to an author’s agent who subtracts his or her commission before sending the final amount to the author.

We’ve spoken before about how agents do not charge to work with authors. They do, however, upon selling the author’s manuscript to a publishing house (for the advance), and upon receipt of royalties if applicable, take a percentage of profit as a commission. This commission is typically 15% of the author’s profits, although this may vary.

For example, if an author receives a $100,000 advance, $15,000 of that will go to the agent. The remaining $85,000 is the author’s. If an author’s book is selling for $27.00 (see above example) and the author is making 10% as a royalty, or $2.70, the agent is making $0.41 and the author is making $2.29.

This commission is a “payment,” so to say, for the services rendered by the agent: polishing the manuscript, shopping it to houses, finding an interested editor, negotiating a contract, advocating for an author, etc.

Once the agent receives a check from the publishing house (generally paid out twice a year), the agent subtracts his or her commission and writes a check to the author for the difference. Congratulations, author and agent! You’ve been paid!


A Note From Emily: I apologize for the delay in getting this post up and the corresponding hiatus! Posts this summer and for the foreseeable future will likely be every other Monday! Check Twitter for further updates! Thank you as always for reading!

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