Tuesday, August 14, 2007

Contracts 101: Advance

As requested, I’m going to start a contract workshop. Now and then I’ll do a post explaining some (probably not all) contract terms that you might want to be aware of. And what they mean. Since this is our first day of class I want to break you in easy and begin with the advance. While most of you should know what an advance is, I’m often surprised by how few know what it really means.

An advance is NOT what you are getting paid for your work. It’s not like working a job and getting paid $100,000 a year. In other words, it’s not at all intended to reflect your “value.” An advance is just that, it’s an advance against future earnings. Think of it this way: if you went to work and your boss knew you were having hard times and offered to give you a $10,000 advance on your salary, he’s not saying you’re worth only $10,000 to him. No, he’s saying that he has faith that you’ll complete the work you need to complete for him, successfully, and he’ll gladly dock your future pay to help you out. That’s an advance.

With most publishers an advance usually reflects your book’s earning potential the first year it’s on sale, less costs to the publisher. What does that mean? Traditionally when publishers run those elusive numbers they try to figure in how many copies a book will sell it’s first year in print, then they try to figure out how much it’s going to cost them to make that book—design the cover, pay for paper, printing, and shipping costs—and then they will figure out how much you might make on the book based on your royalty percentage. And that’s your advance. It’s your share of the book’s profit its first year in print. Of course the publisher (and you) hopes you far exceed that number and that first royalty statement blows the advance out of the water.

Advances are usually paid out in segments. Ideally it’s half the payment on signing of the contract and half the payment upon delivery and acceptance of the manuscript. The key word there is "acceptance." Just because you delivered the book on May 2 doesn’t mean your payment is put through on May 3. No, your payment will be put through when your editor has finally had time to read the book, write a revision letter, received your revisions and approved your revisions (in other words, found time to read your book again). Sometimes (ideally) you can get a time frame written in on when acceptance needs to happen by. Oftentimes, you cannot.

Nowadays, though, the ideal is changing. It seems that more and more publishers are dividing payments into thirds, or more. Partial payment on signing, partial on delivery and acceptance, sometimes partial on the delivery and acceptance of proposals for any other books, and the dreaded partial payment upon publication. I hate that. Authors hate it. Agents hate it and publishers love it. It’s becoming standard now at most houses, so complain all you want, you’re not getting out of it, no matter how small your advance is.

My advice on how to handle a really small advance? Negotiate the hell out of it. And if that doesn’t work, prove them wrong. Sell so many copies of that first book that they will have to pay you a ton on the next.



Aimlesswriter said...

Wow, I'm exhausted just reading about this stuff. I think this all spells out why we desperately need an agent. I wouldn't want to figure this all out by myself.

Unknown said...

Thanks for the breakdown! This helps me understand the advance process much better. It's good to know how those partial advances can be divided up.

Anonymous said...

I liked this very much and can't wait to see what the next installment of "contracts 101" will be! This is the type of post that writers print and save, dontcha know.

JDuncan said...

Jessica, what sort of leverage do you have in negotiating the advance? Given how many unknowns there are about the potential success of the book, how do you go about convincing a publisher that an author deserves a 20k advance instead of 10? Curious how this works.


Anonymous said...

Jessica, I've heard this description of how the advance works on other websites as well, and it seems pretty straight forward to me. However, I'm confused by one thing. Agent blogs say, "Get the highest advance you can!" Publisher blogs say that if you do convince them to give you a larger advance and you don't earn back that advance in the first year (or, worse, ever), then you'll get a much smaller advance on your next book...and that downward spiraling advance payments on subsequent books are a bad sign for your career. Most agents also seem to indicate that you can either increase the advance payment or the royalty percentage, but not really increase both at once.

If the above information is correct, then it seems to me that a person should try to increase the royalty percentage as high as you can reasonably go, but leave the advance alone. That way you'll pay off your advance more quickly and make more money off the book overall. Assuming that all went well, I'd think that you could then ask for a higher advance at the same royalty percentage on your next book.

If you get a $5,000 advance at 10% royalties on the mass market cover price, then you need to sell about 7,153 books at a $6.99 cover price to earn off your advance. You then make 0.699 cents per each additional sale. If you sell a total of 13,000 books in the first year, then you make $9,087 total in royalties (or $4,087 in addition to the advance).

If you get a $7,000 advance at 8% royalties on the mass market cover price, then you need to sell about 12,518 books at a $6.99 cover price to earn off your advance. You then make 0.559 cents per each additional sale. If you sell a total of 13,000 books in the first year, then you make $7,269 total in royalties (or $269 in addition to the advance).

Both earn off their advance in the first year, but the first situation looks better to me. So, what am I missing? Why don't agents focus more on the royalty percentage instead of the advance?

Anonymous said...

I'm with you Bran Fan and aimless writer! Author...agent...teacher--you've got it going, Jessica! I'm glad I've got a seat in this classroom.


Merry Monteleone said...

Thanks for covering this topic. While I knew the basics of what an advance is, I've heard some information from a small publisher which sounds inaccurate to me and was wondering if you could clarify:

I was told that if the advance is not made back by book sales in the first year, the author would be expected to reimburse the publisher all portions of the advance that were not earned in royalties.

Do reputable publishers do this?

BookEnds, A Literary Agency said...

I'll be doing a follow-up to some of your questions. I wanted to answer Merry quickly though. the answer is No.


Anonymous said...

Well, after reading this... I come back to the same place as always.


I recently took a seminar from a mystery writer in the city where I live. She has SEVEN books published in a wonderful series and they are GREAT. She's quite well known in the mystery circle. I asked her during a break if she could support herself on her writing alone and she said No, I still have to sustitute teach to make ends meet.

And that's after SEVEN books! SEVEN!!! Published Books!!!!

Sigh. Heavy sigh.

Merry Monteleone said...

Thank you for the quick reply!!!

It didn't sound right, but then there's a lot of faulty information out there in cyberspace.

Anonymous said...

I have one published non-fiction book, a self-instruction manual about software. It sold well enough in its first year to earn the advance and pay a royalty.

Is this a good thing to mention in a query letter for a novel, or is it of no relevance?