Advances and Royalties
The bottom line in any publishing contract is how much you'll get paid and when. Most contracts offer two types of payments: advances and royalties. But there can be quite a bit of variety among publishers in both the amounts and the payment policies.
It used to be that publishers paid the author his full advance upon signing the contract. That's the exception more than the rule these days. Publishers now routinely split the advance into two or more payments, based on various criteria. The worst deal for the author is when the final advance payment is scheduled on publication of the book, rather than on delivery of the full manuscript. Even after the final edits are done on the manuscript and it's sent off to the printer, it takes several months for the actual book to be produced and distributed to stores. That means you could wait for a year or more before you receive your final advance payment.
The more common practice is for the publisher to give the first advance payment after the contract has been signed and the final advance payment upon acceptance of the full manuscript. You still have to wait for the actual book to be produced, but at least you don't have to wait for the money. Many publishers split the advance in half, but some split it into thirds or even fourths. The middle payments usually are tied to delivery of a specific percentage of the manuscript.
For every author who gets a seven-figure advance on his next blockbuster, there are dozens who can't even make a decent living off book sales. According to a 1981 study for the Authors Guild Foundation, the median annual income (from books) for an American author was about $5,000. Most observers believe that figure has remained relatively static over the past quarter-century.
Royalties are a percentage of the sale of each copy of your book. The percentage can be based on the list price of the book (what it sells for in the stores) or on the wholesale price (what the publisher got for it). List-price percentages usually are lower than wholesale-price percentages. Say the list price on a hardcover book is $30, and your royalty rate is 8 percent. That means you get $2.40 for every copy sold at $30. If the wholesale price on the same book is $15, your royalty rate would have to be 16 percent in order for you to earn the same $2.40 per copy. An 8 percent royalty rate on the wholesale price would yield only $1.20 per copy.
Royalty rates usually increase with the number of copies sold. You might get 8 percent on the first 5,000 copies, for example, then 10 percent on copies 5,001 through 15,000, and 12.5 percent on every copy sold after that. Royalty rates also can change depending on the format of your book; hardcover rates might be different from trade paperback rates, and trade paperback rates might be different from mass-market paperback rates.
Most publishers report sales and royalty earnings twice a year. A typical royalty statement will show how many copies of your book have been sold to booksellers, the retail or wholesale price, the royalty rate, and the total earnings. The publisher can take up to ninety days after the end of a reporting period to issue the royalty statement, which will be accompanied by a check if any payment is due you. Remember that your book has to earn back its advance before you can expect any royalty checks.
What is an unearned advance?
Advances are upfront payments against royalties, and the author doesn't receive any more money from the publisher until the royalties on sales exceed the advance. An advance that exceeds the royalties that would be due the author based on actual sales is called an “unearned” advance.