Saturday, July 13, 2013

A is for Advance

Steve Laube, a literary agent and president of The Steve Laube Agency, has been in the book industry for over 31 years, first as a bookstore manager where he was awarded the National Store of the Year by CBA. He then spent over a decade with Bethany House Publishers and was named the Editor of the Year in 2002. He later became an agent and has represented over 700 new books and was named Agent of the Year by ACFW. His office is in Phoenix, Arizona.

The following blog post is shared by permission from the Steve Laube Agency blog. 
Whenever I lecture about money the room becomes unusually quiet. Instead of a common restlessness from listeners there is a thrumming impatience to reveal the punch line. The punch line that declares every writer will be rich.
Now that I have our attention let’s turn to the topic of the day. The Advance. This is defined as the money a publisher pays to the author in “advance” of the publication of the finished book. We read about the seven-figure advances in the news because they are unusual and quite substantial. The amount given to everyone else can be rather different. (Read the article where Rachelle Gardner answers the question “What is the Typical Advance.”)
Payout Schedule
The money is not given all at once. There is usually an amount given for signing the book contract and the balance comes at various stages of the writing process. Some pay half on signing, half on acceptance of an acceptable manuscript. Some pay one-third on signing, one-third on acceptance, and one-third on publication. There can be other triggers to create payments like an acceptable proposal for subsequent books in a multi-book deal. We even had one highly unusual situation where the total amount of the advance was divided up over the course of 15 months and the publisher paid the author monthly.
Is Your Advance a Debt You Must Pay Back?
This is a common question. For example, if you are paid $6,000 as an advance and you are paid a royalty that is equivalent of $1.25 per book you would have to sell 4,800 copies to “earn out” the advance (4800 x $1.25 = $6,000). After your advance is covered you are then paid a royalty for every copy sold thereafter.
But what if your book only sells 4,000 copies? What happens to the unearned advance money? The answer is “you keep it.” The publisher “loses” that money. But, in my opinion, that money isn’t lost per se. The advance is a line item in the production costs for a specific book. Cover design, editorial, marketing, advances, etc are each a fixed dollar amount that much be covered by sales. If the publisher gives a small advance but overspends on marketing they lose money, even if the advance earns out.
But let’s be very careful with equating an unearned advance with an unsuccessful book. I wrote an article a while back called “The Myth of the Unearned Advance.” If you have not read it yet, do so a.s.a.p. In my opinion that article is critical for every author, publisher, and editor to understand.
The bottom line is that you do not have to write a check to the publisher for the unearned money. (Beware of contracts that do have a clause for returning unearned advance money. Those contracts do exist but are rare nowadays.)
Are Advances Getting Smaller?
The short answer is complex in its simplicity. Yes. In some ways advances are shrinking. It is a matter of cash-flow for the publishers. If they have money tied up in an advance they don’t have that cash for their operating expenses. Therefore there is a constant tug and pull between agents and publishers over the size of the advance.
At the same time we have not seen a precipitous drop in advances offered. If the project is a good one and multiple publishers are interested the up-front money becomes one measure by which a publisher can indicate the level of their desire to acquire a book. We’ve had a number of projects receive multiple offers. But we’ve also had cases where only one publisher made an offer.
How Do Publishers Calculate the Amount to Offer?
A rule of thumb used for many years is that the publisher will offer $1 for every book they project to sell in the first year after publication. But that calculation is becoming antiquated. With retail prices going up the earning power for the author on each book can go up as well. In addition the higher royalty rate for ebook sales combined with the lower retail price for ebooks makes any sort of “rule of thumb” a rather difficult exercise. This is further complicated with some publishers whose books have a smaller retail price (like $5.99 for a paperback) and thus must calculate advances differently.
Is That All They Are Paying Me?
Sticker shock is usually expressed when the price it far too high. Writers experience reverse sticker shock. They look at the $6,000 being offered up front and calculate the number of months it will take to write the book and realize they can’t afford to be a writer! If you look at the “rule-of-thumb” above and the publisher offers you $6,000, it is likely they have modest sales expectations for your book. If they have offered you $75,000 in advance you can assume they have greater sales expectations.
I’ve had many veteran authors treat their advance as the only money they will ever see for their book. Thus, if the advance does earn out, they receive new income for every copy sold. This can be a nice bonus.
One caution. If you are ever in the great position of receiving nice royalty checks on a regular basis remember that books usually have a certain “shelf-life” (even as the definition of “shelf” is changing). I knew an author who received royalty checks for about $30,000 every six months for many years. Unfortunately her publisher went through some tough financial times and they stopped aggressively selling her book to save salary expenses. Her check dropped to zero almost immediately and never recovered. Always treat your royalty payments as a bonus because you never know what might happen in our world which might affect the economy and suddenly affect your publisher.
What if the Publisher Offers Zero Advance Dollars?
If the size of the advance is a way to measure the enthusiasm and commitment a publisher has for your book, then a zero advance isn’t too exciting. But in those situations it is likely a company policy regarding advances or a smaller publisher that simply does not have the cash to pay out advances. Instead they treat the arrangement as a shared risk and the royalty payments become the only way you get paid.
Can an Agent Always Get a Bigger Advance for an Author?

“Always” is a loaded word. Doesn’t leave much wiggle room. I can confidently say that a good agent knows the approximate value of a project based on experience and a knowledge of how each publisher approaches their negotiations. Therefore we are usually able to maximize the amount a publisher is willing to advance to an author. That’s not to say we have “won” every negotiation but it shouldn’t be about winning or losing. It is about creating a win-win situation whereby the author, the publisher, and the agent are satisfied with the arrangement. If the author feels underpaid this can affect performance. If the publisher feels “buyer’s remorse” they may reduce marketing efforts. If the Agent feels sandbagged the relationship with that publisher may be wounded which will affect future negotiations. Thus it is best to find a level whereby everyone “wins.”


Heather Day Gilbert said...

Really great breakdown that lets authors know what to expect. Helpful post!

Steve said...

Sorry for the typo on paragraph five. "Must" not "much" -- 'dollar amount that must be covered by sales.'


Peter Prasad said...

Genius and very useful. Thanks for bringing clarity Steve.