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.”