October 14th, 2016

Understanding “Advances” in Publishing Deals

Susan Spann

“Advances” – technically, advances against royalties, are lump-sum payments some publishers pay to authors “in advance” of publishing the author’s work.

More simply, an “advance” is the money an author receives up front on a publishing deal.

Not all authors receive advances, and not all publishers offer them. Small and micro-publishers often pay smaller advances than larger houses—though this isn’t always true. Let’s take a closer look at what an advance represents and how it should—and shouldn’t—impact an author’s willingness to sign a publishing contract.

Generally, an advance represents an advance payment against the author’s future royalty earnings. This means that after publication of the author’s work, the author will not receive any royalty payments from the publisher until the author’s total share of sales proceeds (“royalties earned on sales”) exceeds the amount of the advance.

To illustrate this, we’re doing math. Stick with me.

If Abby Author receives a $1,000.00 advance on her new novel: MATTHEW THE MANATEE, and the royalty clause in Abby’s contract entitles her to 10% of the publisher’s gross receipts on sales of the work, and the publisher receives $10.00 per copy of MATTHEW THE MANATEE sold (which probably means this book is a hardback selling at $25.00 retail), how many copies of MATTHEW THE MANATEE have to sell before Abby starts receiving additional royalty distributions from the publisher?

With apologies for sneaking a word problem in on you…let’s work this through.

At a 10% royalty rate (and, for the record, that’s high—but I didn’t want to make you do the math with uneven numbers) if the publisher receives $10.00 on every copy of MATTHEW THE MANATEE sold, Abby’s royalty share is $1.00 per copy. (Less returns…but I’m assuming, for the sake of the math, that nobody ever returns this book.)

Given that Abby received a $1,000.00 advance, she won’t receive any additional royalty payments until the 1,001st copy of MATTHEW THE MANATEE is sold.

When that 1,001st copy sells, and Abby starts receiving additional royalties, MATTHEW THE MANATEE has “earned out” its advance.

A book that “earns out” is considered financially successful, at least by one important measure in the publishing industry. (There are other factors that also play a role in determining whether a book is successful, but earning out the advance is a good way to start.)

Publishers don’t offer advances to be nice, and publishers generally don’t offer large advances to first-time authors unless they really believe a book will sell. At least with many publishers, an advance represents a publisher’s guess at the novel’s profitability point. However, a small advance (or no advance) doesn’t necessarily mean the publisher lacks faith in an author’s work. Some publishers don’t pay advances at all. Others have smaller budgets, or simply prefer to offer lower advances.

During negotiations, authors should be aware that sometimes publishers will agree to a higher total royalty rate if the contract contains no advance (or a very small one).

Many authors consider a contract with a small advance, or no advance, a dismal failure. This is misguided thinking. Earning out a small advance is often considered a bigger success than failing to earn out a massive sum.

Instead of focusing on the advance, authors should look at the contract as a whole.

No amount of money makes up for inappropriate contract terms or a publishing house that lacks the professionalism and experience to treat the author and his or her work with industry-standard care and respect. It’s always better to take a lower advance from a better publishing house that offers industry-standard terms (including out-of-print status based on royalty bearing sales, clear author termination rights in the case of publisher breach, and other important legal protections) than to follow the money into a contract you later regret.

Remember: the advance is only one small component (and usually rather small, indeed) of the deal the publisher offers. Protecting your rights requires evaluation of all the relevant terms, and making decisions based on the publisher and the contract as a whole.

Do you have questions about advances? What would mean more to you in a contract than an advance? Do you have other contract questions you’d like Susan to write about?

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About Susan

Ninjas-Daughter1Susan Spann writes the Hiro Hattori Novels, featuring ninja detective Hiro Hattori and his Portuguese Jesuit sidekick, Father Mateo. The fourth book in the series, THE NINJA’S DAUGHTER, will release from Seventh Street Books in August 2016. Susan is the Rocky Mountain Fiction Writers’ 2015 Writer of the Year, and a transactional attorney whose practice focuses on publishing and business law.

When not writing or practicing law, she raises seahorses and rare corals in her marine aquarium. Find her online at http://www.SusanSpann.com, on Twitter (@SusanSpann), and on Facebook (SusanSpannAuthor).

17 comments to Understanding “Advances” in Publishing Deals

  • Agreed, Susan. I think that advances began to keep starving authors afloat to write their next book!

    Keep in mind also, the trend of ‘bundling’ a book deal. Say you get a 3 book deal. Each has an advance. Say the first earns out, the second doesn’t, and the third does. You don’t receive ANY royalties until all THREE earn out. I tried to get that removed from the contract, to no avail.

    After 7 books with NY, I think I’d be willing to go with less advance, and higher royalty payments. I don’t mind betting on myself! Something to think about…

    • Hi Laura! The bundling you refer to is called “co-accounting” – and it’s actually not “the norm” although most publishers will ask for it if the author doesn’t know to refuse it. Authors have the right, in negotiations, to ask for separately accounted books in a multi-book deal, which means the publisher doesn’t get to withhold payments on all books until the entire advance for all books has been earned out. Each book will start paying royalties after its own advance earns out, as long as the contract specifies separate accounting.

      It’s a very smart thing to bring up, and to be aware of. Thanks for mentioning it!

  • Thanks again, Susan, for an insightful article into the publishing end of this industry. I’ll be passing this along to my writing clients. Most new writers are all too willing to get any contract and only then, with paper in hand, wonder what to think about it all. I’ve had some think an advance is a “nice” thing publishers offer (which as you point out it is not!) without realizing the back end of it–that is comes out of royalties. How nice for you to arm them first!

  • I save every one of your blogs so I can refer back to them in the (hoped-for) event I’m ever offered another contract. I’ve heard that publishers expect authors to use some (or all) of the advance to pay for marketing. In my mind, the advance would be “my money” to spend as I see fit, like, say , for groceries. If this weren’t addressed in the contract, I assume it would be mine to spend? If it was addressed in a contract, should I run very fast in the other direction?

    • I have never heard of a legitimate publisher *requiring* authors to spend an advance on marketing (or anything else). If a contract required that, I’d seriously consider seeking a different publisher, because that’s not how it generally works in traditional publishing.

  • I agree with Terri – Your PubLaw posts will be the first thing I do when I get a contract. After I call you and squee over it, of course. 🙂

  • JC Martell

    What a great article. I’d love to see something as clear as this covering what to expect regarding marketing and promotion by a publisher.

    • Thanks, JC! I’m going to chime in and tell you what I hear from every published author I talk to: Plan on doing the marketing and promo yourself. It’s a time suck for authors for sure, but that seems to be the common concensus.

    • Thanks JC! The truth is, authors can’t really *expect* any marketing from publishers any more. The large houses market only the *A list* titles (with some minimal advertising for smaller authors’ works), and many mid-to-small sized houses do nothing at all. Some small publishing houses do advertise, and buy “co-op” space for their books (this refers to placement on the “new in paperback” table at Barnes & Noble and other large booksellers) but most do not. Publisher marketing is the exception, rather than the rule, and authors need to plan to do a lot of their marketing themselves.

      I can do a post in December on the types of marketing publishers can do, and the way they spread the word about books generally, if that would help – so at least you know what the options are.

  • I had no idea about “bundling” Laura – a great point to keep in mind!

  • Your calculation is on “gross receipts” i.e. what the publisher received from the retailer. At the risk of frightening people of with more math … I also see the terms “gross” and “net” used. I know gross and net mean in normal accounting terms, but how are they defined in a publishing contract, please?

  • I read somewhere that if the book fails to earn out, the publisher may or may not (depends on the clause of the contract) request the advance back or a part of it. Is this true? Have you seen contracts where such a term existed? Is this normal or an indication that something’s wrong with the contract?

  • I’ll look forward to the December info on marketing. This was a good reminder about advances. Your comments are much appreciated.

  • Victoria Marie Lees

    Susan, thank you so much for sharing your expertise with writers.

    Can an author who sold first rights to a print magazine reprint the story as is, in e-book format as a collection of short stories giving attribution to that magazine? Can she do it with a group of stories giving attribution to the magazine?

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