The Weird World of Traditional Royalties

A blue outlined book with a blue question mark hovering over it.

Last week, I got my very first (post-advance) payment of royalties for Polaris Rising! 🎉🎉🎉 Thank you all so much for your support because this means the book “earned out,” a publishing term that means I’ve earned enough royalties to cover the advance the publisher paid me.

Traditional publishing accounting is interesting, so let’s talk about it!

First, having an agent who will explain your contract and answer questions is an enormous help, if not a requirement. I usually don’t lay down laws because everyone’s situation is different, but personally, I would not sign a publishing contract without an agent (hi, Ms. Sarah, I love you!). But that’s a whole other post, and today we’re talking about getting paid.

If your eyes glaze over at numbers and you’re not an aspiring author, you may want to skip this one. :)

When an author signs a contract with a traditional publisher, the publisher generally pays an advance. They calculate the advance based on how well they think the book will do, and where it fits in their lineup, and what phase the moon is in (okay, maybe not that last one, but there’s a lot of things involved I don’t know about). This advance is an advance payment on future royalties—hence the term advance.

Advances range from almost nothing to millions, depending on the author, their audience, the number of books contracted, and the author’s previous publishing history. Publishers Marketplace even has a coy little key for deal news so everyone can tell where the deal fell in the range without actually coming out and saying it:

“nice deal”:$1 – $49,000
“very nice deal”:$50,000 – $99,000
“good deal”:$100,000 – $250,000
“significant deal”:$251,000 – $499,000
“major deal”:$500,000 and up

So someone who got a “good deal” made an advance between $100k – $250k, which is a pretty big range.

Once the number is nailed down by your agent and the publisher, then you get paid—yay! But you don’t get the whole thing at once.

Let’s look at a fictional example: Wordy McWordsalot, a debut author with a three-book deal. The publisher agrees to pay them $30k per book for $90k total, a very nice deal. I picked the number because it’s nice and round and easily divides a bunch of ways without me having to bust out a calculator.

One caveat: all of the following is based on my experience with Voyager. Other trad pubs may be slightly different with regards to timing, but the overall idea is the same.

Publishing contracts usually divide the advance payments either in two—half on signing the contract, half on manuscript acceptance—or in three—a third on signing, a third on acceptance, and a third on publication. And that’s per book. If Wordy’s contract is divided in two, then they get paid $45k (minus the 15% agent’s fee) as soon as they sign the contract. If it’s in thirds, then they get $30k. Not too bad for a day’s work.

Except.

Traditional publishing runs on loooooong timelines. If Wordy sells their books today, they’ll likely debut in 2023.

Between now and then, Wordy will deliver/edit Book 1 and get paid an additional $10-15k on acceptance, depending on their contract.

“Acceptance” in publishing-speak is after the book is written and edited, and moving on to copyedits, so it’s not as soon as they fire off the rough draft to their editor. So even if they deliver Book 2, they probably won’t get it edited and accepted before their debut comes out.

Fast forward to 2023. The book is out! Yay! If the contract was in thirds, then Wordy gets their final $10k payment of the advance for Book 1. And now Book 1 starts earning royalties.

Let’s say the book comes out in mass market paperback. Wordy earns 8% of the suggested retail price. So if the book is $7.99, Wordy earns $0.64 per copy. For e-books, Wordy earns 25% of money received, which is usually 70% of the price listed on the website. So for a $7.99 ebook, Wordy earns $1.40.

At a 75%/25% ebook/paperback split, then Wordy needs to sell approximately 27791 full-price books to earn out their advance.

All of the royalties earned go toward paying off the advance amount ($30k) before any additional payments will be made. Traditional publishing does their accounting twice a year, at the end of June and the end of December (H1 and H2, respectively). They crunch the numbers for a few months, and Wordy gets their royalty statements in roughly October and April.

I told you it was a slow process. :)

Publishers like it when books earn out in the first year. Let’s say Wordy’s book is a huge, instant success and they sell 28,000 copies at the above split—enough to earn back the $30k of advance and a little bit more—in the first two accounting periods, H1 and H2 of 2023.

Thanks to accounting periods only being twice a year, that means Wordy will get paid the additional royalties the book has earned in April of 2024 (assuming their contract is not joint-accounting which is a whole other thing that I’m not getting into because this blog post is already super long).

So that initial $30k advance for Book 1, paid over either two or three payments, had to sustain them for three years before they started seeing any more money from the book, and that’s in one of the best-case scenarios. That’s why many authors have day jobs and/or spouses who can help with bills.

So what happens next? Well, Wordy still has to deliver and edit Book 2 and 3, which will each pay their acceptance and publication payments, and will start earning royalties of their own. After that, Wordy has to decide if they want to keep writing or go become a hermit living in the woods. :)

If they still think this writing thing is all right, then they need to start pitching ideas for another contract. In the example above, because Wordy’s first book earned out, and quickly, the publisher is likely to want to keep working with them, maybe even with slightly higher advances in the next contract, and the whole process starts again.

Now let’s say Wordy’s first book was just okay. This is where most debut authors fall. Luckily, the publishing house starts earning money before the book has earned back its royalties (because the publisher is earning far more than the 8% or 25% the author earns), so authors at least hope to cross that line even if they don’t earn out in a year (or ever). If Wordy did that, then they will likely be able to get another contract in the future, but maybe with a lower advance.

As long as Wordy delivers the book and gets it accepted, they won’t have to pay back the advance, even if the book is a terrible flop and doesn’t earn any money. But if the publisher doesn’t make money, then they are much less likely to extend another contract Wordy’s way. If Wordy wants to continue writing anyway, they can either switch to self-publishing, where the risk is all on them, or they can change their pen name to Typey McTypesalot and try to sell another “debut” without the baggage of their previous pen name.

And that’s a very brief overview of how traditional advances and royalties work. Clear as mud, right? ;)

If you’re still here and have any questions, drop them in a comment and I’ll do my best to answer them. I’m not an expert by any means, but I’ve gone through traditional contracting twice, so I know just enough to be dangerous. :)

15 thoughts on “The Weird World of Traditional Royalties”

  1. Just keep on writing girl…can’t wait for your next book to come out. Love your work. And it good for your readers to know how things work.

    Thank you,

  2. When your book is sold at a discount (remaindered at Barnes and Noble or through Book Outlet, say), does that still count toward your sales? Or is it only full-price sales that are calculated?

    1. Books sold at a regular discount still pay royalties, but remainders are their own thing, and they generally only pay if the book is actually being sold for more than the manufacturing cost, which (as I understand it) rarely happens.

      1. Thank you! I’ve often wondered. Congratulations on the sales mark. I LOVE your work and look forward to devouring it for years to come.

  3. I’m an accountant so numbers are my life and that was a very good explanation.

    Glad the book earned out I enjoyed it and happy others did too for you.

  4. So what about lending sites like Kindle unlimited, Hoopla, or libraries. How do you make money from them? I love my KU but is that cheating you hardworking authors out of money?

    1. Libraries buy books, so authors get paid. And most authors (myself included) love libraries! They give new and old readers alike a chance to read our books when maybe they wouldn’t otherwise be able to afford them.

      Kindle Unlimited is a whole other ballgame. You’re definitely not “cheating” an author whose books are in KU, because the author/publisher has to decide to include them, and authors still get paid, but the payment structure is completely different.

      Since I’m not in KU, I don’t know exactly how it works, but I think there’s a big pot of money (i.e., all of the subscriptions) that gets divided based on the total number of pages read for the month. This led to some rampant cheating by shady authors, trying to maximum pages read by stuffing books with lots of filler and linking to something at the end. I think Amazon tried to crack down on it, but I only hear rumors since it doesn’t affect me currently. Some authors make very good money being in KU, especially those who can write fast.

      I don’t know how Hoopla works, but it seems to be a library model, so authors get royalties when the library buys the books/audiobooks.

    2. @Val adding to what Jessie said, I wanted to chime in with some extra info on libraries.

      Libraries not only buy books, but they pay more per book, because it is understood that in all likelihood multiple readers will read the book. (I think it sort of tops out for most publishers for somewhere less than 3 times the book list price to the average consumer). Many libraries offering ebook options for book check out are limited by the publisher with how many copies can be loaned out at once (one user per book is the norm), and either how many times they can loan the book out before they have to repay for the book, or resubscribe to have it as an offering over X amount of time. A library may decide based on budgetary concerns, book/author/subject/genre demand in the context of other needs for their local community to retire the book from their personal circulation instead of re-upping.

      Certain publishers usually have specific modus operandi on what they charge libraries for a physical book, ebook, or audio book. Some publishers may offer special rates for library acquisition if the library does community related support of the book, like having it featured in a book club, or perhaps hosting events related to the book. A major library system serving a big city with multiple library branches might host a book signing/reading if an author is in the area, and get a deal they can use for purchasing circulation copies across their entire library system. (I want to stress here, that just because a library does host such a function, doesn’t necessarily mean they are being offered a discounted rate. They may just do it because it encourages reading and is of interest to their patrons).

      Some publishers also have black out periods to avoid cannibalization of sales, meaning that new book releases won’t be available for some time for library purchase, and thus they delay when the book can become available for library circulation. In much the way that a new Hollywood blockbuster movie (pandemic aside) would usually release to theaters first, before eventually releasing on home video (DVD, blu-ray), and becoming available for download to own, video on demand, and eventually streaming, as well as home broadcast on cable or broadcast TV.

  5. Congratulations on earning out with book 1. Here’s hoping books 2 and 3 soon follow.

    I loved the entire trilogy, but Polaris Rising is the one I’ve managed to hand-sell to friends and other readers the most. I figure once they’ve read that one they’ll want the others as well.

  6. I’m not the e-book buyer for our county, but the US Supreme Court has declared it legal for publishing houses to charge libraries 3 times as much as the retail price for an e-book. So if an e-book normally costs $25 retail (the original price, not any discounts), the publishing house is within their rights to charge libraries $75 for the title with one person accessing at a time (you have to buy the title again to have 2 people access it simultaneously), up to 26 (or any number they select) check outs or 2 years (or however many years they want), whichever comes first.

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