Earning Out Advances
For any of you hoping for an update on the CCWC, here it is: I went, I taught, I met with writers (including some of my blog regulars which was really fun), found some potential clients, said hi to my industry friends, was forced to eat really bad food, had a fanastic dinner with a client who flew in from New York… then I took off and had lots of fun with my family. That’s about it! So, on to today’s post.
You all were so talkative while I was away. Great discussion last week and it led in so many interesting directions. I noticed some misconceptions popped up in the comments so I want to try to clear them up. Today, just a few words to address a couple of misunderstandings about the earning out advances.
First, there was a comment that indicated only “a shocking 2% of books produced by royalty publishers” earn out their advances.
I don’t know where the 2% statistic came from but I can’t verify it. I’ve heard and read everything from “less than half the published books earn out their advances” to “the vast majority don’t earn out…” Regardless of the veracity of the source, one thing we always have to remember in publishing is that statistics like this are impossible to accurately collect and calculate. There is no requirement that publishers report any of this information to any single “data collection” source, so research to this effect turns up widely varying results.
True, most sources agree that more than half of books don’t earn out their advance. However, whether a book earns out its advance is an unreliable indicator of anything specific, because it can mean so many different things. Failure to earn out an advance is one gauge of relative success or failure for an author, but for a publisher, it doesn’t necessarily mean the book was a failure. The author’s royalty is only one part of the profit-and-loss picture; publishers can actually be profitable on a book that doesn’t earn out its advance, while they can lose money on a book that does earn out its advance. I am not going into the gritty details here… you can find literally hundreds of articles online explaining advances, publisher P&L, etc. (many of them giving conflicting information).
What I want to get across is, (1) when you hear statistics about publishing like “only 2% earn out their advances,” take it with a dose of healthy skepticism, knowing it’s impossible to accurately quantify. And (2) try to understand what the statistic would mean, even if it were true. In this case, the statistic was used to try and illustrate the overall poor economic health of the publishing industry; I would question whether this single indicator (advances earning out) can give you any reliable sense of the overall economics. It is simply much more complicated than that, and you can’t understand publishing economics based on one piece of data. So I recommend we refuse to be overly shocked or up-in-arms when we hear these statistics out of context. (At the moment, there are plenty of other statistics that, added together, paint a fairly gloomy picture of the business of publishing.)
One more misconception that popped up in last week’s comments was, “When the author earns out their advance, it means the publisher didn’t plan to print enough books.” Truth is, the book’s initial print run has almost nothing to do with the question of whether the author earns out their advance. These are two separate considerations.
The publisher offers an advance based on their own formula and calculations that involve:
4 how many books they predict they can sell in the first year
4 how much they will spend on marketing, production, printing, shipping, etc.
4 royalty rates they’re paying the author
4 discounts at which they anticipate they’ll sell the book to retailers
4 and all the other costs of publishing a book
If an author doesn’t earn out their advance, it sometimes means a book didn’t sell as well as the publisher projected, but sometimes not. And if the book didn’t sell as well as projected, it could be for an endless list of “reasons,” some involving the author, some involving the publisher, some involving the market. In any case, it rarely means the publisher didn’t print enough books. If a book quickly sells out its entire first print run, it’s likely the author will earn out their advance.
This is a complicated subject and I’ll address advances in more detail in a later post… especially the question of “Which is better, a big advance or a smaller one?” Send me your specific questions about advances so I’ll be sure to answer them.