Author career · Feature · publishing

Pub Finance #2: HOW DO AUTHORS MAKE MONEY? A MASTERPOST

HOW DO AUTHORS MAKE MONEY? A MASTERPOST

“By selling books, of course!”

Yes, of course authors make money by selling books, but the reality of authorly income is actually far more complex than simple book sales. And if you’re an aspiring writer, it’s wise to get a grasp of the financial basics of the career you’re pursuing (I advise this as someone who had little understanding of any of this before I signed my book deal).

As a breakdown, authorly income can be divided into three categories.

  1. Contractual Payments from your Primary Publisher
  2. Subsidiary Rights
  3. Miscellaneous

Each of these categories can be divided into sub-categories.

  1. Contractual Payments from your Primary Publisher
    1. Royalties
    2. Advance against royalties
    3. Bonuses
  2. Subsidiary Rights
    1. Foreign rights
    2. Audio rights
    3. Film / TV rights
    4. Etc.
  3. Miscellaneous
    1. Event fees
    2. IP opportunities / ghost writing
    3. Anthologies

Compiled using the cumulative experience and wisdom of all of Writers Block Party & Friends, this post can serve as a total breakdown for all the ways an author can make money by being solely a writer.

CONTRACTUAL PAYMENTS FROM YOUR PRIMARY PUBLISHER

This category includes all of the money guaranteed to you in your contract with your primary publisher. For most American writers, your primary publisher is your domestic publisher.

Royalties

Royalties (n): The amount an author receives from each individual book sale, calculated as a percentage of the book’s cover price

The idea of a royalty is fairly straightforward and very quintessential to the publishing business. So quintessential that all my extended family loves to ask me how much I make in royalties. But the answer to that question is quite complicated.

Royalties, as stated above, are calculated as a percentage of the book’s cover price. And almost always, that percentage varies based on what kind of book it is. An author might make 10% on a hardcover sale, 25% on e-book, but only 8% on paperback, 6% on mass market. These percentages are negotiated by your agent in your contract.

Your royalties will also depend on what the price of the book is. Large retailers such as Amazon, Indigo, and Barnes & Noble bulk order books at a discount, which means that the price sticker you see on the back cover might not match the number used by your publisher’s accounting department.

These are the two basic concepts to understand regarding royalties: the percentage varies, and the price varies.

Your publisher sends your agent royalty statements either twice per year or once per quarter, with twice per year being more common. Royalty statements also face a lag. For example, the quarterly statement I received this past August accounted for the previous January-March quarter several months prior. This means, not only will royalty checks arrive infrequently, you will likely not see a statement for at least six months after your book’s release, which is likely at least two years after you closed your initial book deal.

Advance against royalties

Because you would otherwise have to wait two years (at least!) to see any money from your book, your publisher pays you a sum up front called an advance. Advances vary wildly depending on your publishing experience and the marketability of your book. They are typically paid in two, three, or four installments , with three being the most common. Those are

  1. Payment upon signing the contract
  2. Payment upon delivery (which is often defined as the book being finished with major revisions and moving on to copyedits)
  3. Payment upon release

If your advance is $12,000 and it is paid in two installments, you will receive $6,000 at one milestone, $6,000 at another (Mine are personally paid in two installments, #1 and #2). If your contract stipulates three installments, you’ll receive $4,000, $4,000, and $4,000.

If you sign a multi-book contract, this set-up works basically the same. Let’s say you sign a three-book deal for $90,000. (I’ve chosen these numbers for easy math, not for industry standards). Let’s also say you are paid in three installments, and that you sign your contract in January. This means your advances are $30,000 for each book.

  1. January, Year 1 – You sign your contract for all three books. You receive $30,000, which is the first installments of each book ($10,000 + $10,000 + $10,000)
  2. September, Year 1 – Book 1 is delivered. You receive $10,000
  3. July, Year 2 – Book 1 is released. You receive $10,000.
  4. August, Year 2 – Book 2 is delivered. You receive $10,000.
  5. June, Year 3 – Book 2 is released. You received $10,000.
  6. October, Year 3 – Book 3 is delivered. You receive $10,000.
  7. June, Year 4 – Book 3 is released. You receive $10,000.

This means that your totals for each year were

Year 1 – $40,000

Year 2 – $20,000

Year 3 – $20,000

Year 4 – $10,000

So as you can see, what initially seems as a very sizable advance might not be feasible to live off of alone, especially because you then pay your agent 15% of that income, then at least another 35% goes to taxes (Check out our Taxes for Writers post!).

You might be thinking… that’s no biggie! By Year 2, I’ll be earning royalties! Not so fast. Due to the lag in royalty statements, a July release for Book 1 probably wouldn’t be paid out in Year 2, so you’d be waiting until at least Year 3. And on top of that, you will not see a cent of royalties until you’ve made enough to equal your advance.

What do I mean by that? Well, let’s say your royalty rate is 10% and your cover price is $20. As we know from earlier, royalties are far more complicated than that, but for this illustration, I’m keeping it simple. In order to pay back $30,000 worth of advance on Book 1, that’s $2 royalty per book x 15,000 books. You’ll need to sell 15,000 copies before your royalty statement becomes a royalty check. This point is what publishers call earning out.

The reason for this is in the name “advance against royalties.” Your publisher realizes how otherwise long it would take you to make any money if you only got paid with royalties, so they pay you your advance upfront. But it’s expected that you then make enough in royalties to cover it.

The grim reality is that most books don’t earn out. Not earning out doesn’t necessarily mean your book was a failure—your publisher likely made money on it, even if you did not make royalties. But this means that royalty checks are impossible to plan for. Until you actually receive the statement, you have no idea how much money you’ll receive, let alone if you receive any money at all. This makes royalties tricky, if not impossible, to budget.

Also, don’t worry! If you don’t earn out, you don’t owe your publisher back the difference. That advance money is all yours.

Bonuses

Not every contract has bonuses, but they’re certainly nice! Bonuses are additions to contracts if the book manages a particular achievement, such as earning out within the first year of release, receiving an award or starred professional review, landing on a specific bestseller’s list, or after a certain amount of copies are sold. Many contracts include them because they make deal announcements look fancier, as a book with a $90,000 advance and $10,000 of bonuses can be announced as a “six-figure deal.” Which makes foreign publishers and film/TV people pay more attention, apparently.

SUBSIDIARY RIGHTS

Subsidiary rights are contractual payments that derive from some place other than your primary publisher. The way these work vary wildly from author to author, depending on the language in your primary contract. We’ll discuss all that here.

What’s great about subsidiary rights is that, unlike your primary contract, there’s no extra work for you here. You aren’t the one who translates your novel into Polish. Or who writes the television script. Or who narrates the audiobook. (I mean, you could, but those don’t happen very often). So subsidiary rights have always felt like free money to me! That’s my favorite kind!

Foreign Rights

So foreign rights are the authority to sell international book deals to foreign publishers. But the question is… who owns these rights? You or your primary publisher?

This is one of the major negotiations in your contract. If you relinquish these rights to your publisher, it typically means you’ll receive a higher advance. If you retain them yourself, your agent/agency will then try to sell you more book deals internationally, which might mean more contracts and thus more advances, but your primary advance will likely be smaller.

Here are the three major categories of what kind of foreign rights agreement you might have with your primary publisher.

  1. “For world rights” – Your publisher keeps your international rights and sells them to foreign publishers. The contracts with those foreign publishers will look like your primary one (advance/royalties/bonuses), but all the money you’d make goes to your publisher first and gets shaved off your advance.

For example, going back to our previous illustration, if your advance for Book 1 was $30,000 and your publisher won world rights, then your publisher went on to sell translation rights to X publisher in Germany for $5,000… you now only have $25,000 left to earn out in your advance.

  1. “For world English rights” – Your publisher only keeps international rights in regards to English-speaking countries, aka the United Kingdom, Australia/New Zealand, and South Africa. Your agency will then try to get you book deals in non-English-speaking countries.
  2. “For North American rights” – Your publisher only publishes your book in the United States and Canada. Your agency will then try to get you book deals everywhere else in the world.

Like I said earlier, “for world rights” typically helps you negotiate a higher advance than “for North American,” but more often than not, your agency will do a far better job getting you foreign contracts than your publisher will. But foreign contracts typically have much lower advances than primary ones… so it’s a bit of a gamble! And it’s why it’s so important to consider the quality of your agency’s foreign rights team before you choose an agent.

Audio Rights

Audio rights work similarly to foreign rights, in that either your publisher has them, or you do (there’s no third option in this case).

Film/TV Rights

While foreign and audio rights, more often than not, are sold within a year or two of your book’s original book deal, film and TV rights can be… years after the deal. Or immediately after the deal! There’s no time frame when it comes to Hollywood.

Authors almost always keep their own film/TV rights, and so the submission process works similarly to what happens when an author keeps their foreign rights. Your agency (or your agency’s favorite film scout they work with) will submit your book to production studios. If a production studio likes it, they will buy the option to produce it within a certain time frame (usually a couple years). That means, during that time frame, no other production studio can adapt your book. Just them. And if they haven’t produced it by the time the time frame expires (most studios… will not have), they can either renew it and pay you more money (yay!), or let the rights expire, which means they’ll be up for grabs again.

As I haven’t worked with film or television rights before, I outsourced a lot of this info to the rest of Writers Block Party. And here are some facts I’ve learned.

  1. Film rights typically pay more than television rights
  2. Once your rights are acquired, there are still many checkpoints in the production process before your book goes to screen. Like getting a director assigned to it, getting a script written, etc. These may or may not happen. Most books that sell film/TV rights never get adapted.
Other Subsidiary Rights

Merchandising rights typically go to the author… but I’ve never personally made money with mine. Etsy stores make pins and bookmarks with my cover or quotes all the time, and I don’t receive a percentage or anything. I’m technically supposed to, but it would take a lot of effort to hunt down these shops for making $10 pins, and honestly, I just think it’s cool someone wants to make and sell pins about my book! I’m happy for the free publicity. Most authors share this mindset. Merchandising rights come into play again if your book becomes a movie or television show, but otherwise, there’s not much to say here.

Theme park rights! I cannot think of an example beyond the Wizarding World of Harry Potter, which was probably when publishers started including this line item in contracts.

Other dramatic rights – This means Broadway/theatre. These are also uncommon.

MISCELLANEOUS INCOME

Here are some other opportunities to get paid as a writer.

Event Fees

If you are speaking at schools, conferences, conventions, etc… it’s nice to get paid, especially because your publisher probably doesn’t pay to get you there. More often than not, you have to seek out these opportunities yourself. Your agent doesn’t get a cut of these fees. When you start out, you might not charge much—if anything at all. But as you grow more experienced, you can start charging some pretty nice fees (I’ve heard of super famous kidlit authors charging schools $2,000 for a day). They’re tricky and you have to put yourself out there, but it’s definitely worth it to build up your speaking resume!

IP/Ghostwriting

“IP” stands for intellectual property, and in publishing, this term applies to when an author writes a project they do not own themselves. Typically, authors in IP contracts are paid a flat fee—no advance + royalties.

IP falls into two categories:

  1. It’s an original project brainstormed by a publisher or IP company
  2. It’s part of an existing franchise

In either scenario, an author is typically tapped for the project, or invited to audition with other authors to be the one to write it. These invitations are typically sent to your agent. If it’s something you’re open to, talk to your agent about it so they can be on the lookout for these sort of opportunities.

These opportunities can also include writing for projects other than books! Like video games or web comics, for example.

Ghost-writing includes IP projects in which you are writing under someone else’s name. The financial mechanics are otherwise the same.

Anthologies

Short story anthologies are pretty popular in the kidlit world, and as an author, you might get asked to contribute to one. Typically, these begin with the idea, with one author who takes on the responsibility of managing and editing the project. The project will either be represented by its own agent or by the agent of the editing author. A few of the contributing authors (including the editing author) will be asked to write some short stories to include for a proposal, enough to give publishers an indication of what the anthology will feel like overall. And then the proposal for the project is submitted to publishers.

You as a contributing author likely don’t have to write your short story until after the anthology is picked up by a publisher, and you will work to edit it with the editing author (who acts as the lead on the project) as well as the actual editor in the publishing house. The compensation here is small. A large percentage of the advance and royalties go to the editing author, who is putting in the most work, and the rest is divvied up among the various contributing authors, of which there are likely about seven to twelve.

Alternatively, anthologies can also work like IP contracts in which the authors do not own the property and are paid a flat fee in lieu of advance + royalties.

The End

If you made it until the end… Bravo! Thank you! There’s a lot of publishing knowledge in here, far more than I ever knew when I first started researching the industry. Far more than I even knew when I started writing this post, thanks to the contributions of the other members of WBP! Hopefully this serves as a good resource for you… or even something to email to your family members asking far too many questions about how much money you make.

Did we forget anything? Any comments or stories to share? Let us know in the comments!

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