Chip MacGregor

June 18, 2014

Ask the Agent: "How am I paid on my book contract?"


Someone wrote me to ask, “Can you explain how money is paid on a traditional publishing contract? I’ve got a contract in front of me, and I don’t understand it.”

Happy to explain it. First, when you sign to do a book with a legacy publisher, most authors are paid an advance against royalties upon signing the contract. There’s a long tradition of publishers paying advances to authors, since it allows the author to survive while he or she is working on the book. This isn’t free money — it’s sort of a no-interest loan that will be earned back after your book releases.

Let’s say the contract calls for a total advance of $20,000. Typically you’d get one-third of this on signing, another third upon turning in the completed work, and the last third upon publication. (That said, there are a million ways to divide the advance. Some pay half on signing, some pay a percentage when the author completes the bio and marketing forms, Random House wants to pay a portion when the book flips from hardcover to trade paper, etc.) So when your book releases, you’re now in the red $20,000 with the publisher. You’ve been paid that amount, but you haven’t earned anything back yet. Again, that’s not a loan that needs to be paid back, but it’s advance that needs to be worked off — or, in the parlance of the industry, it needs to be “earned out.”

Second, as your book sells you are credited with money for each sale. That’s your royalty money, and with each sale it slowly reduces that $20,000 debt. Most trade publishers in the general market (that would include Random House, HarperCollins, Penguin, Simon & Schuster, Hachette, etc.) pay a standard royalty on hardcover books: 10% of the book’s retail price on the first 5000 copies sold, 12.5% on the next 5000 copies sold, and 15% thereafter. Royalties for most trade-paper books are 7.5% of the retail price, and mass market books pay a bit less than that. Be aware: Many newer publishers, including most CBA publishers, don’t pay on the retail price of the book — they pay on the net price, which is the amount of money the publisher actually receives from the bookstore. And you negotiate royalties on each book. Though those royalties may seen higher, you’ll have to do some math to determine which method will pay you more money.

If your book is a $25 hardcover, and you’ve got a traditional book contract with a legacy publisher, you’d be making $2.50 for each of the first 5000 books sold. (Did you see how I got that figure? $25 x 10%.) What happens is that the publishing house keeps track of that figure, and applies that as a credit to your account. So if you sell one book, you no longer are in the red $20,000 — you’re now in the red $19,997.50. After the first 5000 copies have sold, your earnings jump to $3.12; and after 10,000 copies have sold, you are earning $3.75 per book. With every book sold, they credit your account the appropriate amount. Eventually you erase the $20,000 debt (you earn out), and you begin making money that will be sent to you a couple times per year. Now you’re in the best possible situation — a company is going to send you checks on a book you finished a year or two ago. There’s no better feeling than getting a healthy royalty check and remembering that you’re making on a project you’re no longer working on.

Third, keep in mind that each version of your book will have a different royalty, so the industry standard ebook royalty is 25%, which sounds great when compared to print royalties, but in effect is low in terms of the percentage of profits. And remember that different companies will offer different contracts. So a hardcover book with, say, Tyndale House Publishers, doesn’t use a traditional royalty structure. You might negotiate a deal for 16% of the net price. So if your $25 hardcover book is bought by Barnes & Noble for $12.50, you’d be making $2 per book ($12.50 x 16%). If WalMart buys a slug of them for $10 each, you’re only making $1.60. In other words, the financials on a net contract are completely different than on a traditional retail sales contract. You have to negotiate them, and keep a close watch on your royalty report. AND, just to confuse this even more, many of the new era publishers are paying more often, or paying a higher royalty. Some of the start-up companies are paying authors 50% of net on ebooks, and anywhere between 10% and 50% of net on printed books. It can seem like the Wild Wild West at times — you have to make sure you’re comparing apples to apples. Amazon is paying authors 70% of the sales price on most self-published titles, and they’re sending the author a check every month (which means it’s a great deal if you can sell books). Many ebook publishing companies are paying authors 50% of net. And some of the smaller print houses are paying a very small royalty on print books.

Fourth, understand that every company will have its own payment schedule. Some publishers pay once a year, some twice a year, and some four times per year. Whether or not your book has earned out, you should be receiving a royalty statement from the publisher for each pay period, stating exactly how many copies of your book sold, what your earnings are, and either (A) the amount of money you are being paid or (B) the amount of money you’re still in the red. And by the way, I’ve used the terms “debt” and “in the red,” but again, an advance is really not a loan, in that you’re not generally required to pay back an unearned advance. And the rise of ebooks has created a decline in overall advances, making it harder than ever for an author going the traditional route to make a living. Advances are down, but opportunities are up, and that means authors have more choices to make and more things to consider when trying to map out a career.

Does all that make sense for the basic economics of getting paid? Feel free to ask me follow-up questions.

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  • Ginger says:

    I went with a “royalty” publisher. In 2 1/2 yrs. I can only assume that no books were sold as I have not heard from them – no royalty checks (which was to be twice a year) or statements. There was no advance, but also since I was a newbie, I had to purchase 1,000 upfront @ 1/2 selling price.

    • Iola Goulton says:

      That sounds more like a vanity publisher. Who was it?

    • Ginger says:

      I’d rather not “dog” the publisher, but they assured me they were a royalty publisher. I learned a great deal from that 1st book.

    • Iola Goulton says:

      Fair point.
      Let him who has “ears” to hear, perhaps?

    • chipmacgregor says:

      That’s not really a royalty publisher, in my view, Ginger. That’s a self-publishing company who is passing themselves off as a royalty publisher by building their costs into author charges. So the cost of the cover and edit (if there was one) were paid out of the 1000 they sold to you. Sorry to hear about this.

  • Chip, good information–accurate and understandable (and much easier to know going in rather than “just happy to have a contract, never mind the royalties”). Would you consider a post contrasting this with the economics (and effort) of self-publication?

  • Insightful post, Chip. Why does CBA pay royalties on the net?

    • chipmacgregor says:

      The general market system was already established when the CBA publishers were setting things up, Preslaysa. They thought it would be easier to pay on net (and they were right). So they’ve continued paying on net — an idea other publishers now want to emulate, since it’s always easier to pay a royalty based on what they received rather than on the sales price.

  • Very helpful, Chip. I hope to need this info very soon! 🙂

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