Money Part II – How Things Work

Okay – there’s a lot of focus on advances and how they’re superior to monthly royalties (okay, not just superior but if you don’t go that way, you’re letting yourself be robbed.) I thought it might be interesting to just lay out the two different systems by way of FYI.

As with much of life, your experiences may differ from mine, but I’ve written for three traditional advance paying publishers and two of the largest and most successful epublishers. This is my experience, YMMV and stuff.

Traditional Model: Author pitches book to advance paying publisher. If publisher wants it (and after acquisitions, which is a whole NOTHER post), they make an offer for an amount of money per book in the deal.

Offer is accepted. Some time later (up to three months or more in some cases), a contract arrives. Agent checks it over or author checks it over. Contract forwarded to author. Author looks it over, signs and sends to publisher.

An advance is not usually one lump sum. It’s usually broken down into parts. For instance, you may get some money at signing, some money at delivery and acceptance and the last bit at publication. (different authors and houses have different breakdowns)

So anywhere between a month to six (sometimes higher), you get the first chunk, minus your agent’s percentage. Then after that, after you deliver the finished book, you’ll get some more money (and again, it can take months to a year to get that because depending on when your book will be released, your editor will have eleventy billion other things to do before she gets to your book to officially accept it. I’ve been lucky, I know other authors who have not). And on release you get the rest.

And so on.

The way royalties are structured, it can be some time before an author sees any money above and beyond her initial advance. Royalties are paid twice a year in most cases, based on the previous sales period. Being specific here, we just received royalties for the first Vegas anthology that came out in May of 2008 and I was happily surprised as I hadn’t expected to see anything until the end of this year if at all. Some authors with books that hit big right off will get royalties much quicker, and some will never see another dime after that initial advance.

Several important things: An advance is NOT free money because you are so awesome. An advance is an advance against your royalties. In other words, you have to earn what they pay you (and then some) before you see any actual royalties from the publisher. If and when you ever see more money has a lot to do with what I note above.

Don’t forget the Reserve Against Returns. What’s that you ask? Book publishing is not without overhead, folks. Publishing houses send out shipments of books to bookstores. Many times, at least some of those books are returned to the publisher. Publishers don’t get paid for books bookstores don’t buy. This is a huge financial hit and the rumored cause of several small publishers who had no reserve and couldn’t survive the returns. They have to keep the money back or the returns would either mean the author would owe back the money paid, or the publisher could go out of business after losing the money.

In any case, boys and girls, this reserve can be as high as 65% in some cases and as low as 25% – By this I mean, you make your advance = sell through, but because of the reserve, you’re not going to start seeing royalties even when you sell through. Not immediately anyway. Several things trigger the release of the funds – time: contracts specify the $ can only be held for X amount of time (up to 3 years in some contracts, most that I know of aren’t that severe. Also, sometimes the release will be on a sliding scale – after X months you get 15% back, then another 20% and so on); amount of royalties earned: once you earn above and plus that reserve, the money flows. Or you can get chunks of it in combination with time and the amount of royalties earned = You earn out and then some in some percentage that triggers the release bit by bit (or the whole shebang depending on how awesome your sales are). I’m quite sure there are other ways in different contracts so if you have another experience to share, please do! The point is, don’t forget about that Reserve Against Returns!

** a note about reserve against returns – they’re totally complicated. So the time period and amount can vary wildly from author to author and even book to book. Moreover, even older books that came out ten years ago can still have reserves with reprints. Your own contract will spell it out for you.**

Also, some other points regarding money via traditional publishing – bookclub deals are structured differently. Your digital sales may have different (hopefully better) royalty shares, but not in every case, authors are still working on this issue. There are foreign rights sales in some cases. There are things like special editions and situations where trade books go to mass market. Also, with your royalties, you’ll see different percentages for different amount sold = the more you sell, the better paid you’ll be.

Part III – how digital publishing works

3 comments to “Money Part II – How Things Work”

  1. Dawn
    June 15th, 2009 at 4:09 pm · Link

    Thank you so much for sharing this invaluable information Lauren! I learned a great deal from you posting. Thanks again.


  2. Vivi Anna
    June 15th, 2009 at 4:56 pm · Link

    Yup, I hate those frakking reserves.

  3. Michelle
    June 15th, 2009 at 6:33 pm · Link

    This is so interesting.