How Publishers Calculate Advances

 

Cover price x advance orders x royalty rate x 1.3 x .5 x.6 = advance

 

For those of you who have number phobias, read on to find out how it all works:

The publisher gets advance orders. Say advance orders on this hardcover at 4,000 books. The publisher will often order a multiple of that number, the third factor in the above formula. If the order multiplier is 1.3, we end up with an initial print run of 5,200 books. If the hardcover is priced at $22, that's a potential gross of $114,400. The author's royalties would be approximately ten percent of that, or $11,440.

But wait. That's if the publisher sold every copy and that just doesn't happen.

Bookstores and distributors order book essentially on consignment. They've got a year to return the books for full credit. Hardcovers they actually ship back. Paperbacks, they just strip the cover off and mail that back. That's why you'll see that notice in the front sometimes about, "If you bought this book without a cover."

 Sell-through is the term used to define what percentage of a print run is actually sold to consumers. A good, STRONG sell-through is 50%. In this case, that would be 2,600 books, or net royalties of $5,700.

So that's what you'll get, right? Nope. There's more.

Fifty percent is a GOOD sell-through. You might have a lousy sell-through.

To allow for that possibility, you're not going to get that entire $5,700. The publisher has some percentage of that that is policy. If, for instance, policy is 60%, you'll get an advance of $3,420.

I ran this by one of my editors and here's his response:

Your formula is sensible and in the ball park, although smaller publishers need a higher sell-through than larger publishers. There are two factors you didn't include, however. Let's say that the advance as calculated should be $3,420. The publishing director or business manager will press the editor to be conservative and offer an advance of, say, $2,500. The author's agent will likewise press the editor to offer an advance of $5,000, feeling that the extra cash up front will force the publisher to spend more money on marketing and publicity, in order to ensure recouping the advance. That doesn't necessarily happen, of course, but that's the way agents think. And agents would rather have their percentage up front, anyway. And then there is the pernicious practice of some publishers of holding some of the royalties back from the author as a reserve.

 

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