The Curse of the Six-Figure Advance

Don't let anyone fool you--writing is NOT its own reward.

Writing is fulfilling, fun at times, and most of us would do it for free (shhhh...don't tell anyone), but a large part of the reward is putting our work out into the world and seeing what comes back. We need to see some positive results, something that tells us our time and effort are worth it, something that keeps us motivated on those days when it feels like the story is going nowhere and we don't think we have the will to carry on.

Among the markers we writers use to gauge our success (for better or worse) are bestseller lists, awards, movie and TV deals, glowing reviews from publications and fans alike, and blurbs from famous people. Oh yeah--and that little thing called a book advance. The single, most concrete measure of the worth of our words. The fact that any publisher would pay to put our words into print is a pretty heady thing, but when a publisher decides they are willing to pay a lot for it, well, that's the stuff of writers' dreams.

The bigger the advance, the better, right? Not necessarily. In fact, sometimes a bigger advance can be a bigger headache.

Before I delve into the reasons why a big advance can be problematic, it's important to understand how publishers determine what to pay for a book in the first place. When it comes to a first-time authors with no track record, it's anybody's guess how many copies of their book will sell. Publishers look at trends, the sales of similar titles, the current marketplace, and then make their best guess. That's right, guess. No one knows which books will hit the bestseller lists and which ones will tank. It's all a crap shoot. So the publisher takes a guess and makes an offer based on that guess. If another publishing company is interested in acquiring the same book they will also make a bid, driving up the price of the advance. Then it becomes not just a game of how well they think the book will sell, but how much money they're willing to risk in order to get the book. As the price goes up, the author gets more and more excited. He may feel this is a reflection of the value of his work, when really it's a competition between publishers to see who will "win" the book. The problem is, it may not be an accurate reflection of potential sales.

Oh, sure, in the short term, a big advance is a wonderful thing. It's lots of money in your pocket that you get to keep no matter how your book sells. It also means lots of publicity--a big book deal is often published in the trades, garnering attention well before publication. The publisher is more likely to make the book a higher priority on their list. And--let's admit it--being in the "six-figure club" just feels fantastic. It's like joining the major leagues.

Over the long term, though, the author's sales might fail to live up to that big advance. In fact, the vast majority of books will fail to earn out their advances. It may not seem like a big deal, I suppose, considering that you've already received a nice paycheck, but what happens when you try to get your second book published? You now have a track record. When a publisher considers buying your next book, they are going to look at your sales. Here, the size of your previous advance matters--a lot.

For instance, let's compare two authors--Author A and Author B. Author A received an average-sized advance of $20,000, while Author B received $100,000. Both earned $30,000 on sales. Who looks better on paper? Author A--she earned out her advance and collected an additional $10,000 in royalties. Her next contract offer is likely to go up considerably.

While Author B sold the same amount of books, his statement shows he still needs another $70,000 in sales to equal his advance. This shows up as a negative $70,000 in total sales. It's likely Author B's next offer will go way down, closer to the sales amount. Some publishers might not even want to take a chance on the next book. And yet both authors had the same earnings. The only difference is that Author B's publisher arbitrarily gave him a higher advance. 

So what's the take away from this? Should you say "No, thank you!" when a publisher makes you a big offer? Of course not! It's free money--are you crazy? What you need to understand is that a big advance does not automatically translate into big sales. Likewise, not being able to live up to your advance is not an indication of failure. On the flip side, a small advance need not feel like a failure, either. In other words, it's a numbers game and nothing more. The game may not always work in your favor, but it's not necessarily your fault. Don't use it to gauge your value as a writer.

The Multi-Book Deal: Is It Worth It?

Just imagine: an editor is so in love with your work that he wants to not only buy your manuscript, but he wants your next book, too. And it hasn’t even been written yet. Ahhhh….this is the stuff that aspiring writers dream of –the multi-book deal. But are these deals all they’re cracked up to be? I’m not sure first-time authors understand all that they’re getting into with these deals, for better or worse. Here are some things to consider before you sign on the dotted line.

Money, Money, Money

One of the best things about multi-book deals is that you get a higher advance than if you sold just one book, right? Well, sort of. Publishers sometimes use the multi-book deal to buy two books at a discount. For example, if you sold only one book, they might pay $10,000, but instead they offer $15,000 for two. That’s only $7,500 each.

One way to look at this is to say that if you take the multi-book contract you are guaranteed $15,000—which is $5,000 above the hypothetical single book offer. If your first book ends up tanking, this might not be a bad deal. It might be hard finding a publisher who will pay you $5,000 the second time around.

On the other hand, what happens if your first book becomes a runaway bestseller? In the case of the multi-book contract, you’d be on the losing end of the deal to some extent. If you had signed a one-book contract and the book made millions, you’d be virtually guaranteed a huge advance for your second book. Alas, if you signed the two-book deal, your advance would remain the previously agreed-upon $7,500 and the terms would remain at the newbie author level, instead of reflecting your status as a bestseller. You can take some comfort, however, in knowing that you’ll be rolling in royalties.

Creative Accounting

Multi-book contracts are accounted for a little differently than one-book contracts. This can occasionally work to your advantage, though often it doesn’t. The first way it works against you is in the payout. For those of you who are new to the world of advances, it’s important to know that publishers do not pay your advance in one lump sum. Instead, it is divided into installments. Here’s a typical payment schedule for a $10,000 advance:

      $3,333 on signing of the contract (which is paid immediately)

      $3,333 on delivery & acceptance of the complete manuscript (several months down    the road)

      $3,334 on publication of the book (maybe a year or two later)

Now here’s the payment schedule for the two-book contract described above, with an advance of $15,000:

      $5,000 on signing of the contract

      $2,500 on delivery & acceptance of the complete manuscript of book #1

      $2,500 on publication of book #1

      $2,500 on the delivery & acceptance of the complete manuscript of book #2

      $2,500 on the publication of book #2

In this scenario, you’re getting slightly more on signing, but your payouts are smaller. Considering how long it takes to write and publish a book (let alone two), it could be several years before you see the final two payments.

Basketing

Another form of creative accounting in multi-book contracts has to do with royalties. Since the books were sold together they are accounted for together, which is called basketing. This means that all earnings are bundled together and treated as one unit.

For example, let’s say that your first book does well and you earn $8,500 in sales on your statement. If this was a single-book contract with an advance of $7,500, you would earn out your advance and be paid the excess $1,000 in royalties. In a multi-book deal, however, that extra $1,000 gets applied to the $7,500 advance for book two, instead. You will have to earn out the remaining $6,500 on that advance before you see a dime in royalties. As you can see, if you have a contract for many books it will take you damn near forever before you start to see some royalties.

You’re On the Clock

Before entering into a multi-book deal, it’s important to carefully and realistically examine the delivery schedule of your manuscripts. The publisher will want a deadline commitment and you’ll want to be sure you’re not getting in over your head. Committing to a schedule is a great motivator for many of us creative types and can work very well if you already have a completed outline or first draft of your next book. But if you don’t know what your next book is going to be, proceed with caution. Negotiate for as much time as possible. Beware that if you are unable to deliver your manuscript as promised, you may be asked to return that portion of the advance. Usually, by the time this happens, the money is long gone.

Job Security: The Good News and the Bad News

One of the best aspects of a multi-book deal is that you have the security of knowing when your publishing home is for the next several books. You’ll develop solid relationships within the company and you’ll have a chance to prove yourself if your first book isn’t a hit right out of the starting gate.

That’s the good news.

The bad news is you might hate your publisher. You might discover early on that you don’t click with your editor, there is too much politics, promises aren’t kept, your promotion is nil. In this case, you’re stuck through the next several books.

So Is a Multi-Book Deal Worth It?

That depends on you. If you’re a first-time author it’s hard to say no to any offer that comes your way. If you’re dealing with a good, solid publisher, then by all means take the deal—being aware of the pitfalls. Well-seasoned authors have greater options and the benefits are more likely to outweigh the risks. Either way, it’s important to thoroughly understand any contract before you sign.

Understanding Your Royalty Statement—Part II

As I mentioned before, royalty statements can be confusing to read, but it’s in your best interest to become familiar with them. In general, the larger the publishing house, the more confusing the statement. On the other hand, big publishing houses also give more information, which can be helpful. Because statements vary so much, you may or may not find some of the elements I’m about to discuss. Know that if you ever have any questions about your statement, your agent or editor will be happy to help you make sense of it.

Know Your Editions

Most books are published in several different forms, so you will often find separate listings for each edition of the book. For example, we’re all familiar with the hardcover and paperback editions. Did you know, however, that paperbacks are divided into two categories? There are the fancy, larger-sized, more literary-looking trade paperbacks and then there are the cheaper, drugstore variety mass market paperbacks. Most hardcover books become one or the other, unless you’re a mega-bestseller, in which case you might become both.

Other editions you might find on your statement are library editions, large-print, electronic, and audio books. Your publisher may or may not control the rights to these editions (look at your contract to know) so you may or not find them on your statement. If, for instance, your agent sold the audio rights to another company, you can expect to receive a separate statement from that company.

Check the Contract

When you receive your first royalty statement, it’s important to have your contract open and to compare the details with those on the statement. Is the pub date correct? Is the advance correct? Do they list the correct royalty payout (very important)? Is the retail price correct? If any of these numbers are off, it will affect your bottom line.

Units Vs. Earnings

Your sales are represented in two ways: units and earnings. Units are the number of books sold and earnings are your monetary share of those sales. For example, if you sell 100 books at $20 each and your royalty is 10% of sales, your earnings are $200 (100 x 20 x .10 = 200). Therefore, under the heading “Units” you’ll see 100 and under “Earnings” you’ll see $200.

On your first few statements, the number of units sold will be a pretty decent number. DON’T GET EXCITED JUST YET. Now is not the time buy a boat or head to the nearest watering hole and buy everyone a round of drinks. The units sold on your statement is actually the number of books purchased BY BOOKSTORES and not by consumers. For example, a Barnes & Noble might say, “Sure this looks like a good book—we’ll put five copies in each store.” This purchase is what you see on your statement. The catch is that if Barnes & Noble doesn’t sell those copies, they have the option of returning them to the publisher for a refund. This is why your publisher will occasional hold back a percentage of sales, called a “Reserve for Returns” until a certain amount of time has passed (more on this here). For the first several royalty statements, you’ll see all kinds of sales, and then after a few accounting periods have gone by the returns will kick in and you’ll start to see negative units (unless, of course, you’re Stephenie Meyer). It’s a discouraging sight, but take heart—it happens to most authors.

As far as earnings go, it’s important to remember that just because there were sales, it doesn’t mean you’ll be seeing a fat check anytime soon, due to that pesky thing called an advance. Advance is short terminology for “Advance Payment Against Royalties,” meaning you won’t see a penny of your royalties until you “earn back” your advance. Any amount above the advance is your true royalty. The nice thing about an advance though, is that you get the money up front and if you fail to earn enough to equal your advance (also known as “earning out”) you still get to keep it.

Be Aware of Escalations

Many contracts contain different royalty percentages, depending on sales. For example, the publisher might agree to pay you 10% of sales for the first 10,000 copies sold, 12% for the next 10,000, and 15% thereafter. This is called an escalation. If your contract contains an escalation, it is very important you pay attention to the number of units sold, and that the royalty percentages escalate properly.

Cumulative Units and Earnings

The cumulative columns are the most important part of your statement. This is where you’re going to find mistakes, if there are any. The cumulative columns show the total units sold to date and the total earnings to date.

This is where you need to do a little math. When you receive your second royalty statement, add the units sold with the units from the first statement and make sure it agrees with the cumulative units on the second statement. Do the same with the earnings. If you have an unearned balance from your advance, you’ll also want to subtract cumulative earnings from the initial advance to make sure the balance is correct. It sometimes helps to keep a small ledger of just statement dates and unearned balance amounts, since this is the most important number to know.

Next Time--The Multi-Book Contract: Is It Worth It?

Understanding Your Royalty Statment--Part I

This has been a long time coming. In fact, I’ve been wanting to cover this topic ever since I started this blog—over a year ago—but I kept putting it off. For those of you who don’t know, I spent many of my formative years in New York City, working in the accounting department of a literary agency. A big part of my job (aside from chasing down info from my famous co-workers, storing old documents in the rodent-filled basement, and eating copious amounts of take-out Indian food at lunch) was auditing unearned royalty statements. And yes, we found mistakes. Lots of them.

If you have an agent, the accounting department of your agency will likely be scanning your statements for errors (reason #812 to have an agent). If you don’t have an agent, you’ll need to be looking for errors yourself. Either way, it behooves every author to know how to read a statement and check for errors. Far too many of us right-brained authors are at a total loss when it comes to the business side of things and it’s crucial that we keep ourselves informed. Sure, reading royalty statements is about as much fun as filing taxes, but it doesn’t have to be painful. So open that desk drawer, dig out those unread statements, and let’s have a look, shall we?

The first thing you need to know is that most royalties are reported twice a year. It used to be that all the major publishers reported at the same time, but now the dates are spread out and every house has its own timetable. To find out when your statement is reported, look at the top of the statement. It should say “For Period Ending __________”.

Let’s say your statement says, “For Period Ending June 30, 2009”. Just because the accounting is finished on this date, it doesn’t mean the statement will make its way to you anytime soon. It can take as long as three months for the publisher to compile, print, and send out the report. So that statement for the period ending June 30^th won’t make it to you or your agent until the end of September. If you have an agent, you can add at least another month for processing, meaning you might see it in October or November. It might feel like everyone’s sitting on your statement, trying to make the wait as long as possible, but I can assure you that a lot of work goes into getting the statements out to every author. I’m not exaggerating when I tell you that at royalty time, my colleagues and I in the accounting office were surrounded by foot-high stacks of statements, covering every available surface. Be patient; you will get your statement.

There is one quirky instance, however, when you can wait up to a year for your first royalty statement. This happens when the release date of your book falls close to the end of an accounting period. Let’s say then that your book comes out in mid-June and the publisher’s accounting period ends June 30^th. The publisher will, most likely, not issue a royalty statement because there isn’t any data to go on. In that case, your first statement will be for the period ending December 31^st. Add in the usual four-month wait time for processing and you’re already at the end of April—nearly a year since the release of your book.

So you finally have your statement—now what? We’ll delve into the meaning of those numbers on the next post.