The Economics of Publishing, Part Two: Royalties and Unearned Advances
Spirited Press is featuring an ongoing segment about traditional publishing vs. assisted self-publishing in terms of money. Last week we blogged about the way author advances work. If you missed it, you can access it here.
Basically, an author advance is like a loan from a big publisher. And, just like a loan from a bank, it has to be paid back before you, as an author, can start making any money for yourself. The way that authors pay back their publishers is through the money they earn from royalties. A royalty is a percentage of each sale of the author's book that goes back in the author's pocket, technically speaking. Royalties generally start at one number, and get a little higher as more copies of the book are sold. For example, let's say an author makes 10% in royalties for the first one to 250,000 copies. (This figure would actually be very high for a paperback, and average for a hardcover; paperbacks generally have a royalty rate of 6%.) If the hardcover book sells for $20 per copy, that's only $2 per book. Each time a book is sold that measly $2 goes back to the publisher, until you've paid off the (best-case-scenario) $5,000 they gave you as an author advance. (Again, for more back story, please see last week's post.) So, basic math will tell us that you will be in the clear with the publisher after your first 10,000 copies are sold.
Again, it is important to keep in mind that these figures are optimistic. Royalty rates on paperback books can start off as low as 1%. Let's take this time to also note that royalties are only made on the sale of new books, absolutely nothing on used ones. In other words, you will never see a penny from a good-sized chunk of sales being made on websites like Amazon.
But, let's sidetrack for a moment and talk about a potential reserve against return clause that may be part of your contract with the publisher. Books are sold on a 100% returnable basis. So say a big retailer like Barnes and Noble calls and orders 50 copies of your book. Well, great, that's about $100 you can put towards that loan, er, author advance. Not. So. Fast. Barnes and Noble may have "bought" 50 copies of your book, but if none of them sell, Barnes and Noble is going to return all 50 copies to the publisher for a full refund. That is their right to do so. Because scenarios like this take place often, publishers enable a reserve against return clause. What that basically means is that the publisher is going to look at the return rate, which could be 50%, and hold that amount against your sales. So half of your royalties will be held, meaning they don't serve as repayment towards your advance. In other words, they mean nothing.
In the assisted self-publishing world, this could never happen. Books are printed on demand, meaning when they are bought and paid for by real customers, not big box book retailers. The royalty you make as the author (which is generally a lot higher - say something like 30%) you keep. You don't owe the assisted self-publishing company any money because they never gave you an advance. You earn real money as an author. You can also rest easy knowing that a lot less harm is being done to the environment. Paperback books that are returned are required to be destroyed. With print-on-demand, paper materials don't go to waste and there is no need for warehouses to store thousands of unsold books.
Now, what happens if you never sell the 10,000 copies necessary to pay off the author advance? This would be considered an unearned contract, meaning you would never make any royalty money ever on your book, and you may even be stuck paying the publisher back out of your own pocket. For a first book, this could be a sum of $5,000 which isn't so bad, but what if you were one of the lucky ones and pulled a much higher sum? By signing a contract with a big publisher, you are essentially taking a gamble for what could eventually become an all-consuming amount of debt.
Even if taking that path is what ends up being best for you, it is always better to consider all the options and facts before making a big decision. Once you've sold your book by signing the contract, you can't ever get it back. Assisted self-publishers allow you to retain the rights, meaning no matter what happens, your work - that piece of you that spilled onto pages of narrative - will always remain in your hands.
Interested in learning more about assisted self-publishing? Visit the Spirited Press website, or subscribe to our RSS feed for weekly tips and advice!
Copyright 2012 Absolute Love Publishing
Basically, an author advance is like a loan from a big publisher. And, just like a loan from a bank, it has to be paid back before you, as an author, can start making any money for yourself. The way that authors pay back their publishers is through the money they earn from royalties. A royalty is a percentage of each sale of the author's book that goes back in the author's pocket, technically speaking. Royalties generally start at one number, and get a little higher as more copies of the book are sold. For example, let's say an author makes 10% in royalties for the first one to 250,000 copies. (This figure would actually be very high for a paperback, and average for a hardcover; paperbacks generally have a royalty rate of 6%.) If the hardcover book sells for $20 per copy, that's only $2 per book. Each time a book is sold that measly $2 goes back to the publisher, until you've paid off the (best-case-scenario) $5,000 they gave you as an author advance. (Again, for more back story, please see last week's post.) So, basic math will tell us that you will be in the clear with the publisher after your first 10,000 copies are sold.
Again, it is important to keep in mind that these figures are optimistic. Royalty rates on paperback books can start off as low as 1%. Let's take this time to also note that royalties are only made on the sale of new books, absolutely nothing on used ones. In other words, you will never see a penny from a good-sized chunk of sales being made on websites like Amazon.
But, let's sidetrack for a moment and talk about a potential reserve against return clause that may be part of your contract with the publisher. Books are sold on a 100% returnable basis. So say a big retailer like Barnes and Noble calls and orders 50 copies of your book. Well, great, that's about $100 you can put towards that loan, er, author advance. Not. So. Fast. Barnes and Noble may have "bought" 50 copies of your book, but if none of them sell, Barnes and Noble is going to return all 50 copies to the publisher for a full refund. That is their right to do so. Because scenarios like this take place often, publishers enable a reserve against return clause. What that basically means is that the publisher is going to look at the return rate, which could be 50%, and hold that amount against your sales. So half of your royalties will be held, meaning they don't serve as repayment towards your advance. In other words, they mean nothing.
In the assisted self-publishing world, this could never happen. Books are printed on demand, meaning when they are bought and paid for by real customers, not big box book retailers. The royalty you make as the author (which is generally a lot higher - say something like 30%) you keep. You don't owe the assisted self-publishing company any money because they never gave you an advance. You earn real money as an author. You can also rest easy knowing that a lot less harm is being done to the environment. Paperback books that are returned are required to be destroyed. With print-on-demand, paper materials don't go to waste and there is no need for warehouses to store thousands of unsold books.
Now, what happens if you never sell the 10,000 copies necessary to pay off the author advance? This would be considered an unearned contract, meaning you would never make any royalty money ever on your book, and you may even be stuck paying the publisher back out of your own pocket. For a first book, this could be a sum of $5,000 which isn't so bad, but what if you were one of the lucky ones and pulled a much higher sum? By signing a contract with a big publisher, you are essentially taking a gamble for what could eventually become an all-consuming amount of debt.
Even if taking that path is what ends up being best for you, it is always better to consider all the options and facts before making a big decision. Once you've sold your book by signing the contract, you can't ever get it back. Assisted self-publishers allow you to retain the rights, meaning no matter what happens, your work - that piece of you that spilled onto pages of narrative - will always remain in your hands.
Interested in learning more about assisted self-publishing? Visit the Spirited Press website, or subscribe to our RSS feed for weekly tips and advice!
Copyright 2012 Absolute Love Publishing
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