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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.

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