“So if a writer gets an advance and the book does not sell well do they have to repay part of the advance? Or does it affect future contracts – no contract / no advance etc.? Or it varies per the contract in place?”
Short answer is no, advance doesn’t need to be paid back. Unless weirdness happens.
Let’s say Writer A sells a two-book series to the publisher. Let’s give them a generous advance of $20,000 per book, $40,000 total. That advance will be broken into chunks. At this level, typically into 3 and the payment schedule will look something like this:
- $14,000 on signing the contract: 1/3 from Book 1 + 1/3 from Book 2, rounding off.
- $6,500 on acceptance of Book 1: when the manuscript is written, turned in to the editor, and the writer has made the requested changes.
- $6,500 on publication of Book 1.
- $6,500 on acceptance of Book 2: when the manuscript is written, turned in to the editor, and the writer has made the requested changes.
- $6,500 on publication of Book 2.
So you can see that 40K is spread roughly over a 2 year period. Doesn’t seem like a big advance now. 🙂 That money stays with the author no matter how the book sells.
The publisher now prices that book at $6.99. Let’s say for the sake of convenience that it’s an ebook only release, because I don’t want to calculate royalty rates for all of the different editions. We are going to round up numbers as well. From a $6.99 book, the publisher receives $4.89, and the author gets 25% of that, so $1.22. The publisher keeps $3.67.
Let’s say the book sells well. The thing to remember is that publisher also has production costs when it comes to the book: they have to the editorial team, they pay for the art, etc. But for this case, we are just going to look at advance.
At the core, advance acts as a grant against future royalties. You don’t have to ever pay it back, but the royalties the book earns count against it.
From the accounting standpoint, both the publisher and the author start with a deficit. In the publisher’s case it’s investment into the book and in author’s case, it’s the advance. As the book sells, the publisher share and the author share accumulates. The publisher starts making money around 5.454 copies sold. At this point, the author is still in the hole. Once the book sells 16,360 units, the author “earns out” and his next royalty statement will reflect a credit and a payment.
As you can see, the publisher starts making money way sooner, because their royalty share is three times the size of the author’s. In some cases, even if the author doesn’t earn out, the publisher is still in the black. And in our digital age, books rarely go out of print, which means taken out of circulation due to low sales, and the publisher will be collecting that money for decades to come.
And now we come to the publishing’s not so ethical dirty secret. Sometimes there is joint accounting. Meaning, Writer A sells a two-book series to the publisher at $20,000 per book, $40,000 total, but the accounting is done against the entire advance in the contract, not a per book advance. The two books are treated as one, meaning, the author doesn’t start receiving royalties until the whole $40,000 is earned out.
Remember how we broke the advance up above over the course of about 2 years? This method means that unless the book is a runaway success, the author isn’t going to see a cent in royalties until after Book 2 is out.
You can see the numbers not exactly twice of the previous table, because remember, we are rounding off a bit since you can’t sell .25 of a book. 🙂
Fun thing, accounting.
How this affects future contracts depends on each individual case. Most of the time, the advance is meant to be earned out within the first year, but at the higher level of contracts, at around a $1,000,00,000 or so, it’s more like 3-5 years. Some people never earn out and still make the publisher a ton of money.
Is there a time when advance is paid back? Yes. This happens when the writer gives up on the project and wants to purchase the rights back. Most publishers really don’t like giving the book back. We’ve tried.