Excerpt Craft from "The Break-Up Activity Book,
Crafting Your Way Through a Broken Heart"
Unless you have no need to win the local Power Ball or be the next Publisher's Clearinghouse winner, the likelihood is that you're curious - how do you make money if you publish a book? The answer is really quite simple when you realize Publishers are a business - like any other business. In fact, I have found publishers I have worked with (Chronicle Books, Andrews McMeel, Prospect Park Books and Universe) to be actually a little old-fashioned in how they conduct business. They tend to be very strict in their business dealings and base many decisions on the basis of the good, old fashioned Profit and Loss Statement (P&L).
An advance is what you get paid upfront to finish your book. The concept is, you have enough to live off of while you're struggling to complete your masterpiece. In media you hear of the big advances, the ones in millions of dollars which, generally the person receiving doesn't really need because how many Hermés Birkin bags to you really need? But there are many advances paid every year on books with less than spectacular advances but that does not equate that your book is not worthy or that is won't be financially beneficial to you.
One thing that is important to remember, is that although there is a romantic notion of writing a book, where the author or authoress languishes in something silk, with some debilitating illness or or going to countless literary cocktail parties with something frothy in your hand and witty remarks on your tongue, Publishing is actually a business. When a publisher purchases your book, they believe your book will make money for them.
How Your Advance is Determined
Every month or so, there is a meeting where editors get around a big table and bring in submissions. If your editor is successful, your book comes out of that meeting with your book earmarked for a purchase and literary success. This editor, generally the same one who championed your book will then run a Profit and Loss Statement (P&L) with a high, low and medium scenarios with the finance department on your book. They will base their scenarios with like books, their intuition, some speculation and a dash of leap of faith. After some internal haggling, one of the P&L scenarios will reveals itself as the correct choice and whatever quantity of books on that P&L is the number in which your advance is determined. Some people believe amount of your advance is pulled out of thin air. It is not. It is definitely based on a P&L.
How to Work Out Your Advance
If the run is 10,000 books, the book retail is $10 (generally publishers work on the retail price of your book) and your royalty is 8% - then your advance would be 10,000 x $10 x 8% = $8,000.
How Advances are Paid Out
Advances are usually paid out in 2 - 3 payments; upon signing, upon delivering the first galleys and upon delivering the final book. The actual schedule is also tied into the payment as the publisher needs you to finish the book based on an internal schedule - not when you feel it is ready which clearly is when your planets are being ruled by Venus. They will be strict on delivery dates, and often if you cannot make the dates, you can lose your advance. It is, I think good advice not to be a prima donna on your first book unless you are already a prima donna, with a huge fan base and in a position to call the shots.
If you are lucky to sell through your first print run, the publisher may decide to go into a 2nd printing (and hopefully a 3rd, 4th and 5th printing). The payments you receive after your advance are called royalties. If you receive royalties after your advance it is called "outliving your advance." Royalties are generally paid quarterly or if the Publisher is smaller bi- annually. The Publisher will also always withhold a percentage of your royalty for returns for the next statement. This is because bookstores can return books and basically the Publisher wants to CYA. Unlike the advance are only paid to you at the start, you will only receive royalties when they Publisher "sells through" the subsequent printings. Sell through means the book has been purchased by highly, intelligent consumers at a retail outlet (ie Borders or Barnes and Nobles).
The Second Printing
To determine the quantity of subsequent print runs, the Publishers will run P&L scenarios in what the believe can sell. This will be based on more concreate information than the first printing. For example, how many books sold through certain retail channels and how fast and demand from new venues like gift boutiques or retailers such as "Urban Outfitters" that don't fit into the typical bookstore mold. At this point, even if your editor is your biggest champion and brings in a brass band and baton waving cheerleaders - the determination of the second print run will likely be based on sales data from your first run. Sometimes there is even a strange internal formula or rule of thumb. It will in general not be based on what you, the author thinks should sell and it is unlikely you will be consulted for your opinion.
In a second printing, the Publisher decides to print another 5000 books. 1000 sell through and the 4000 now are in remainder purgatory. You will only receive a royalty of 1000 x 8% x $10 = $800 (minus the withholding for the returns).
Why you don't receive a royalty on every book printed?
A Publisher is actually a real business (see first paragraph). They need to pay their lease, keep their lights on and ensure their employees paid and hopefully give them some health benefits so they don't end up with black, disgusting teeth or missing limbs. Their goal is not to hold your hand and other writers hands around the world and sing Kumbayah. While there is nothing wrong with the goal of people all around the world singing Kumbayah, this is not the bottom line objective of a Publisher. They are actually very interested in making money - just like you.
When the publisher takes on your concept, they take on the risk. In the example above, where the Publisher prints 5000 books on the second run and only sells 1000, the loss on the remaining 4000 books (a cost of $10,000 to just print them alone) is their loss based on their poor business decision. They will not pay you royalties for the 4000 remaining books because they are a business and they have already been literally "taken to the cleaners" with a loss. It does not make any business sense for them to pay over and above their loss. However, you will though, still make royalties on the 1000 books sold.
Life is Unfair
There may also be differences in this basic rule of thumb if you are Kim Kardashian, James Patterson or the King of France where you might have a stronger weigh in on what decisions are made and what you are paid - but if you're not one of these people - this is the likely scenario for you. It's true, life is completely unfair.
Don't knock outliving your advance. While the Publisher continues to go into additional runs with your book, you will be back listed - which is still shown in their catalogue and better yet still receive checks in the mail which is like manna from heaven or shoe shopping time, whichever comes first. Quite a few people seem to be focused on the advance. Big advances definitely give you bragging rights, and possibly a mention in a literary magazine that you can leave casually lying around your home to impress your friends and family - but not getting a big advance does not mean that you book will not be financially successful for you.