Advance vs Royalties

If you picked up what’s wrong with the subject line of this column, you already have some familiarity with how publishing contracts work! It’s not really correct to compare an advance with royalties as if they’re separate things because the advance under a publishing contract (when an advance is offered) is offset against the royalties. It’s a payment upfront of royalties which then has to be “earned out” by enough copies of the book selling.

I thought it might be worth writing a column on the topic of advances/royalties because I’ve had a lot of questions lately about the merits of a large advance and it also came up in a conference I attended last week. Book deals with large advances tend to get a lot of media attention and can raise the expectation in the writing community that big advances are desirable, which is not necessarily the case.

Of course the idea of money upfront is lovely, but there are a lot of downsides particularly when the advance is very large and the book doesn’t sell well enough for the advance to earn out. This situation (while not uncommon) can hurt a writer’s next book deal because other publishers generally know if an advance has not earned out—it’s not all that hard to find out especially in situations where a large advance garnered media attention.

The idea behind an advance is to give a writer some support while writing the book so they have the time to get the manuscript done. However, most writers also have day jobs, have writing grants, and/or have other writing projects going on at the same time they’re writing the book in question, so very few authors actually rely completely on a single advance to support them financially while writing a book.

Advances are also typically paid out in portions relating to different stages of the writing process: for example a portion on signing the contract, a portion on delivery of the final manuscript, and a portion on publication of the book. So even a $20,000 advance won’t mean $20,000 in the writer’s pocket the second the deal is done.

Writers also assume that typical advances for, say, a novel must be in the high five or low six figure range and that’s generally not the case. Many novelists will be offered $10,000 or a little less as an advance, depending on the publisher, genre, author etc. When multiple publishers are interested in a book, the advance may well be higher and/or the book may even go to auction which can be exciting but, again, if it results in a really high advance, the author still has to earn out that money.

Technically, most contracts will allow the publisher to ask for any unearned portion of the advance back from the author if the book doesn’t earn out, although a lot of publishers won’t actually ask for that money back at the end of the day.

Another downside of relying on a large advance versus relying more on royalties for an author to recoup money for their efforts is that an author may have to pay higher taxes on an upfront lump sum of money. Of course, this all depends on how the book does. Theoretically, if it sells like hot cakes, an author may also end up paying large taxes in any given year on royalties as well.

I don’t want to be taken as saying that a high advance isn’t a good thing: it’s certainly gratifying for an author to know how much the publisher believes in the work. And a publisher that has paid a higher advance theoretically has more skin in the game because they’ve invested more upfront so they may be more motivated to put the marketing and PR machinery behind the book to recoup that money.

So it’s not necessarily a bad thing to have a high advance, particularly as a sign of the investment the publisher is prepared to make in you as an author. However, it is important to understand that a big advance isn’t a guarantee of a successful career or even a successful book, and it does come with potential downsides if the book doesn’t do as well as the author and publisher hope.

And for those who don’t look at publishing contracts all that often, remember that an advance isn’t an absolute payment for an author’s work but rather an early distribution of potential royalties from the sale of the book. So be cautious going into a publishing contract and make sure you understand that a high figure deal can have a downside. It’s hard to predict upfront whether a book will do well in the market or not, so keep this in mind when you negotiate your advances and royalties.

An “escalation” on royalties can be worth more in the end than a high-figure advance. An escalation or “escalator clause” means that after a certain number of copies sells, your royalty percentage goes up: so, for example, if you’re getting 10% royalties on your paperback sales, it may be worth more to ask for 12.5% after 25,000 or 30,000 copies have sold than to ask for another $2,500 in your advance. At the end of the day, escalating royalties may give you a bigger payout than a higher advance, depending on the circumstances. Of course, if you can get both (a higher advance and an escalation on royalties), so much the better!

As usual, nothing in this column is intended as formal legal or business advice and anyone who is negotiating a publishing contract should consult an agent or attorney.