Monday, January 14, 2013

Insights Into Publishing [2]: How The Money Works

If you missed part 1 of this series, please first see the post directly below.

Publishing is a business, no matter how you look at it.  Authors may realize this in theory, but practially speaking I find they are surprised at how much it actually is.  People pursuing to be published tend to view their work through a lens of "having something to say" and they simply want others to read it.  This is good and needed in publishing.  Publishers actually look for it.  But it can be a rude awakening for authors when their passion meets the business world of publishing.

Publishers want and need to sell books for a profit.  Period.  And if you are someone who wants to write a book, you must embrace this at every practical level.  Like it or not, you are wanting to enter a new business venture.  This may not motivate you, but that's a reality you must embrace.  If you are a reader, I think you should know this too.  Your buying habits may change after knowing a few things.

I personally only write books I feel like I'm supposed to write.  When it comes to publishing I'm not motivated by money.   This is a personal thing driven by my faith.  I talk with my wife and we think/pray about a concept/contract...and if I think it's what God wants me to write, then I move forward.  But once I land on that, I then need to navigate a business world.

I won't go into all the nuances of navigating that world in this post.  Rather, I will simply lay out how the numbers typically work.  After seeing these numbers and processes you may wonder why anyone would ever write with/through a publisher.  However there ARE very good reasons and I will address that in the next post.  Publishers are not the enemy.  Like all other businesses in the world, they simply need to make a profit and they are facing all sorts of pressures - particularly from distributors like Amazon.  I will try to unpack those pressures for you in the next post as well.  It will change your perspective, I promise.

For now, here is how the money typically works between a publisher and an author.

Advances.  Publishers are shying away from offering authors any "advance," but it does happen.  Successful authors can receive hundreds of thousands of dollars for an advance, but this is very very very rare.  How it works is the publisher would give an author a certain amount of money upfront, before the book releases.  Advances are usually paid in 2-3 installments.  A portion is usually given when an author signs the contract, another portion is given after the manuscript is officially "accepted" by the publisher and, if it's paid in 3 installments, another payment is made on or around the books release date.  If you are a first time author, you should not expect any sort of advance.  That's just the reality of publishing today.  You will need to have a very good size platform to ensure the sales of books if anything is given.  And what you think is a good platform, very well may not be.  That will be in a future post of this series.

The advance is given to authors "against future royalties."  In other words, authors are paid a royalty on every book sold, but since they were advanced money, their royalty report is technically in the negative and needs to work itself back to zero through book sales.  Most publishers do not require an author to pay back their advance if it's not all paid back through sales, but they are able to in most contracts.  But since they don't usually recoup this money they usually offer little/if any upfront for first time authors.

Royalties.  Major publishers will typically offer authors a starting royalty of 16%.  But recently I've seen authors being offered as low as 12%.  12% is very low historically, but I'm seeing this more and more for first time authors.  The royalty percentages can also be tiered.  So an author might receive 16% for up to 10,000 books sold, 18% for 10,001-20,000 books sold, etc.  But no publisher is giving out higher than 22% for any authors on any tier.  Now, that's simply an example using round numbers but how this is tiered, or if it is at all, is solely dependent on the authors influence and platform.

But this is not what it seems at first glance.

Despite what people tend to think, the author doesn't receive 16% of the retail price...or even what readers pay for a book.  Instead, they make 16% of what the publisher sells the book for (or "the publishers net receipts").  So, let's say the retail price of a book is $12.99, but someone buys the book on a distribution channel like Amazon for $10.00.  Well, the publisher likely sold the book to Amazon for something like $6.00.  So, through this example the author would receive 16% of $6.00, or .96 cents.

But this isn't always the case either.  There is more to the story.

In most contracts publishers put a clause in that can cut this royalty in half...and most authors don't realize this.  The clause basically states if the publisher chooses to sell the books at a discounted rate (like 55% or more) then the author's royalty is cut in half.   And here's the thing, they usually offer the books to distributors for at least a 55% discount off the retail price.  Especially big one's like Amazon.

So, if the book's retail price is $12.99 and the publisher sold the book to Amazon for a 55% discount (or, $5.85), this would mean the author's royalty for that sale now becomes .47 cents.  In the publishing world this is referred to as "trade sales" and this clause is often inserted to protect the publishers profit margins.

Now, you might be thinking, "Well, self-publishing really sounds like the way to go then!"  But hold on just for a moment, I will soon discuss why publishing is still a better way.  And it will soon get even better.

Until then, this has been a very brief overview of how the money works and I think understanding more about how this can drastically affect how people go about purchasing books in the future.  In the next post I will share how current distribution channels are putting pressures that have negatively affected this for authors (and publishers).  Then, I will share some things that will be changing this...for everyone involved.

Monday, January 7, 2013

Insights Into Publishing

I have published 6 books with 4 different publishers and am currently writing my 7th book that will be available in August of 2013 (more on that later).  Although my experience is not as vast as some others,  I have learned a few things about the publishing world.  Some I don't like while others I don't mind so much.  Some things I've learned the hard way and some prior to getting bitten.

But regardless of how I feel, I think by far the majority of people don't have a clue about how publishing actually works.  And I think, with some basic knowledge, people would go about writing or purchasing books differently.  Much differently.

I frequently get emails, Facebook messages, DM's via Twitter, Google+ messages, etc from people who are writing or have written a book they desire to get published.   Most of these inquiries are about how to go about pursuing a publisher.  But I've also helped a number of people negotiate terms with publishers from the background.  In other words, I've given the advice an agent might give, without the fees of an agent.  A lot of times authors receive an offer from a publisher and they are so excited about "getting published"that they don't realize what it all really means.

And, like it or not, publishers don't necessarily want you to be educated on all the nuances.  They certainly never offer any advice to authors about the contract offers they give.  That's for sure.

Most of the time authors are shocked with my responses to their inquiries because they are operating off an ideal that just isn't reality.  And I've found that when I articulate what they are up against, their dreams are altered.  Not crushed, just altered.

I don't mean all that to sound as bad as it may have come across.  The truth is publsihers aren't crooks out to get people (well, most of them aren't).  But the fact is there is a lot about the publishing world that most readers and authors don't understand.  But they should understand more than they do.  It would change things.  Drastically.

For instances, I believe if people knew where all the money actually goes when they purchased a book, they would go about buying books differently.

I think if writers understood the financial premise publishers operate from, they would change their approach to publishing.  Or, if not entirely change their approach, at least they would navigate their relationship with publishers differently.  I also think if the average reader understood this financial premise, they would purchase books differently than they do.

I believe if readers realized how little the author benefits financially or how much the publisher relies on the authors to sell the books, they would buy books differently.  Most people think selling the books is what publishers are supposed to do on behalf of the author.  Well, that couldn't be more wrong.

If people realized that the bulk of the money in publishing isn't made by the publisher OR the author they would purchase books, in whatever format, from different places than they tend to.

If people understood how the industry ACTUALLY works, I think publishing would change forever.

The bottom line is the publishing world, for the most part, is turned upside down and it operates entirely differently than most think it does.  It's very core is fundamentally different than ever before and nobody actually knows where it's heading.  But there are some things that still ring true...and I believe people should have more information than they currently do.

I believe people want to know more.  When I share some of the things I've learned with my friends or people I meet on airplanes, they are fascinated.  And usually, if not in every case, people change the way they purchase books.  Now, I'm not claiming to some sort of whistle blower here nor am I claiming to be the only person to unveil some secret "handshakes" of the publishing world.  I am simply saying there are some things I think people should and would want to know about publishing.  So, this blog series is going to be about explaining how the industry actually works and some things I've learned.  I'm planning on writing on at least the following topics (not in any particular order):

  1. Where does the money actually go when you buy a book?  I think most people will be very surprised once they realize how it all works.
  2. The "smart business" practices of distributors like Amazon and the negative effects they have on the entire publishing world.
  3. Contractual elements most authors have no idea about and readers should realize.  There are aspects to the contracts that nobody explains when authors are signing a contract.  But if readers and authors knew about them, it would certainly cause thought about how you purchase books and where you purchase them from.
  4. The process of actually getting published.  I will talk about a few things pursuing authors need to realize and embrace about the publishing world.  I also think readers ought to know this as well as it may cause you to rethink how you purchase books.
  5. The differences and similarities of publishers of Christian books versus others genres.  They are very different in ways and yet, unfortunately, very similar.

My desire in this series is to be informative versus bashing anyone or any one part of this industry.  I'm a part of it and I actually enjoy it.  Having said that, I do think some information is important for people to have so they can make more informed decisions about how/where/why they purchase books and/or pursue getting one published.

I think the next post will be about where the money you spend on books actually goes...