Wednesday, August 15, 2007

Contracts 101: More on Advances

I received a couple of great questions on my first Contracts 101: Advances post yesterday that I think are worth a follow-up. One reader pointed out that while agents will tell you to get the highest advance you can, publishers will go on and on about how that can be a mistake. Let me clarify that while I think it’s important to negotiate the hell out of an advance, I’m not always in the camp of getting the highest advance of all time. Maybe it’s from my years as an editor, but I think that all too often agents do authors a disservice by selling that big six-figure deal when everyone somehow knew it should have only been a nice mid-five-figure deal.

So let me try to explain a little of what everyone’s thinking is on this . . .

Agents: The reason most agents will shoot the moon on getting you the highest advance possible is twofold. The first is that authors often judge how effective an agent is based on the advance an agent gets for you. In other words, when talking about the amazing things your agent has done for you, what most people focus on is how your agent was able to get you that big advance. Few authors look at the fact that your agent was able to negotiate a better royalty rate or stronger option clause. So in order to get street cred, or build a big reputation, it somehow comes down to advance. A bigger reason, though, is that very, very few books earn much in royalties. So the goal is to make as much as possible up front, therefore guaranteeing you are at least making money on the book.

Publishers: Publishers obviously want to keep the advance as low as possible because they don’t want to pay up front. In other words, you are making your money at the same time the publisher is and it’s not coming out of their pocket.

Basically both camps are trying to eliminate their own risk as much as possible. By getting a bigger advance the agent lessens the risk of making little to no money on a project. By keeping the advance small the publisher lessens the risk of losing any money on the project. Get it?

Authors: The truth is that you want to be somewhere in the middle. Ideally you want an advance that does earn out in the first year, but not necessarily in the first week. You want to make enough to pay for what you’ve already done, but not too much that it takes five years before you actually see your first royalty payments. Because yes, if you make a $10,000 advance, but only earn $6,000 of it out in the first one to two years, it might be difficult for the publisher to really get behind you for another book deal. Why? They’ve already lost money on you and they don’t necessarily want to do it again.

The question was also asked why agents don't focus more on negotiating the royalties rather than the advance. They do, and often they can’t. Most royalties are pretty well set in stone. My first negotiating technique is always to hit the money first, and that means advance, royalty, and the territories I sell (or keep), but few publishers are willing, especially with a new author, to budge even a percentage on those royalties.

For an unpublished author this is essentially a guessing game. No one really has any idea how well the book will or might do. The publisher knows how much they are willing to put into it and can base the advance on that, and the agent hopes that by increasing the publisher’s investment they will be willing to put even more into it. How much negotiation can an agent do at this stage? That really depends. It depends on how many publishers are playing. It depends on the author’s track record, on sales of other similar books, on the author’s platform, and yes, it depends on the publisher’s enthusiasm for the project.



Kate Douglas said...

LOL...I wonder if this will EVER make sense to me! Thanks...your post goes a long way towards helping me figure out why I get paid when I do. I think.

Mark Terry said...

Just another thing coming from an author's point of view.

A certain amount of promotion is pretty much required these days. Written into the contract? Well, no (although a friend showed me hers once where it had been put in the original contract, but her agent struck it out). From a writer's point of view (okay, THIS writer's point of view), if a relatively minor marketing campaign--say, postcards to libraries and bookstores, a round of AuthorBuzz, at least one conference and various travel considerations--is going to cost anywhere from $3000 to $5000, if they have any sense at all they're going to try to balance that with the size of their advance.

In other words, if I get a $3000 advance, I'm going to at least spend some time considering whether it's worth my while spending $5000 on promotion.

Caren Crane said...

This makes perfect sense to me. I have often wondered how in the world a publishing company could make money on some commercial fiction works with high six-figure or even 7-figure advances.

Especially the case of, say, a $50k advance for a more "literary" work with a 10k print run. The numbers would only work out if Oprah picked it up for her book club or there were another event hurtling sales into the stratosphere.

I had heard, with the sixth Harry Potter book, the publisher did not anticipate making much because of Rowling's high advances and the deep discounts given to major distributors. Hard for us mere mortals to comprehend. *g*

Anonymous said...

Because yes, if you make a $10,000 advance, but only earn $6,000 of it out in the first one to two years, it might be difficult for the publisher to really get behind you for another book deal. Why? They’ve already lost money on you and they don’t necessarily want to do it again.

This is true, but, sadly, it also is promoting the ongoing myth that authors who don't earn out don't get another contract. $6k in book earnings is itsy bitsy, and an author who can't sell that much isn't going to get another book deal. That's correct. (My decidedly midlist novel made more than that in royalties in its first two months in print.)

But if an author gets a 100k book deal and earns out 60k of that in the first year, it's still going to be a huge success and the publisher is going to be making money, because, aside from the more promo they've probably done for the bigger book, the cost of production is going to be pretty much the same as it was with the 6k book: editing, art, binding, electricity, staff salaries... After those set costs, the profit goes way up.

Mark Terry said...

Just a wry observation:

If the publisher offers the author a $100,000 and the book earns back $60,000, the author is blamed for not selling enough copies, but the publisher, apparently, is not blamed for managing their business poorly.

Anonymous said...

Me again...

I'd say a book that earns 60k its first year out (that's about 100,000 copies at 8% royalty of a standard $6.99 mmp) is probably going to be earning that other 40k without a problem in the royalty periods to follow, so I don't think either the author or the publisher are going to get blamed for anything...100k copies of a book is a great success.

Anonymous said...

Thanks, Jessica. Your explaination makes perfect sense.

Maybe you can eventually do a post explaining why or why not a person would want to include promotion in the contract (see Mark Terry's first post). I've never heard anyone talk of that being a part of the contract.