Friday, January 24, 2014

Why writers need math

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In publishing, you can't take anything for granted. There are no guarantees or absolutes. So, it's no wonder that the idea of an advance is the jewel in the corner of every writer's eye. If you haven't dreamed of announcing a six-figure advance on Publisher's Marketplace then you're lying. Who wouldn't want cash money in the bank that's yours to keep no matter what crazy winds blow in the book world?

But if you've been paying attention, you know that the big advance is not all that common anymore, especially in the growing segment of small to mid-sized independent presses. Of course, the trade off is usually a higher royalty rate. The question then becomes, which one is the better deal? And this, my right-brained creative friends, is why all writers still need to know math.

It's important to understand your earning potential when considering contracts. Before you ask your agent to push for a bigger advance, you should know what you're really asking for. You might be surprised to know that taking a smaller advance in exchange for a higher royalty rate is usually going to be the better way to go.

And just in case you don't believe me, I've done the math for you.

Let's take a look at two different options. In option A the publisher is offering a $1000 advance and 7% in royalties. In option B the publisher is offering only a $500 advance but is willing to give a 10% royalty rate. For this example we are assuming a $10 cover price because that makes all the numbers nice and neat.

You can see that because of the difference in royalty rates, it will take much longer to earn out the advance in offer A, 1429 books versus only 500 in option B. If we assume the author can sell 5K books with their first print run, the total royalty earnings for option B are $1500 more than option A. That number will only continue to increase as additional books are sold.




Offer A
Offer B

Assume $10 cover price
Royalty Calculation
7%*$10.00
10%*$10.00
Royalty per book sold
   $0.70
            $1.00
# of books to earn out
1429
500
# of books to reach 5K
3571
4500
Revenue post earn out
  $2,500.00
 $4,500.00
Total revenue for 5K
 $3,500.00
 $5,000.00


Now, let's say the author can't sell 5K books. Would it be worth it to take the higher advance if the author was only able to earn out?




Offer A
Offer B

Assume $10 cover price
Royalty Calculation
7%*$10.00
10%*$10.00
Royalty per book sold
 $0.70
 $1.00
# of books to earn out
1429
500
# of books to reach 1429
0
929
Revenue post earn out
 $          -  
 $929.00
Total revenue for 1429
 $1,000.00
 $1,429.00

The answer: No. Even if the author is only able to sell enough books to earn out the advance, they still would have made more revenue with the higher royalty.

Now, obviously, there are a lot of factors that go into this. The cover price, the difference in the royalty rates, and the difference in the advance. However, in most cases, the higher royalty is the way to go.

If you want to play around with some figures I've created this handy dandy Contract Revenue Calculator for you to plug it all in. Just enter the royalty rate, advance, cover price and anticipated book sales. The worksheet will automatically calculate the number of books you need to sell to earn out and the total anticipated revenue.

I realize math isn't the most fun subject for a lot of people, but as an author, you are also a business owner whether you go with a traditional publishing house or go it alone. You need to know what you are worth, how much you should be making and when a bird in the hand is not actually better than the two in the bush.

11 comments:

  1. Great thoughts on this! Thanks for pointing this out.

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  2. Wow on the calculator! That's so cool. But on advances--I have a little bit of a different thought here. I think that paying a writer an advance before a book's release (especially a big one) forces a publisher to market it because they have tomake back their investment. This does two things. The first is obvious: marketing help. The second is really just part of the first but worth mentioning. The kind of marketing your publisher offers writer's lots of time can't get on their own. Premium shelf space, supported at libraries. That sort of thing.

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    1. I'm not sure that advances (outside of the really big ones) will make much of a difference in that area. Publishers already have an investment in what they spend for editing, formatting, cover art and paying the salaries for their employees. They always want a book to succeed. Of course, I could be wrong. Trying to predict what publishing houses are thinking is like trying to predict weather during a Polar Vortex. :)

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  3. This really puts things into perspective. Unless you're getting that huge deal we all dream of, higher royalties seem to be the way to go.

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    Replies
    1. Yep, now you start throwing around seven-figure advances and it's a different story completely. :)

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  4. Thank you for your thoughts on this. I'm so happy that you posted this... and I'm going to steel it for my blog - so that you know. ;) Not 5 minutes ago I had this conversation with a client. It's very difficult for authors to rewire their brains with an eye toward this model ... and e-publishing all together. Great job my brilliant Sarah!

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    Replies
    1. Glad you like it! You know how much I dig numbers and spreadsheets. I get asked about dwindling advances all the time so I thought it was time to put some numbers on the table.

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  5. I side with Mr. Vonnegut on the issue, "I have mixed feelings about advances on first books. They are hard to get, for one thing, and are usually so small that they tie you up without appreciably improving your financial situation."- Kurt Vonnegut

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    1. You're right. Even with a $5000 advance, which can seem like a nice number to an author who is living month to month, it isn't going to change the way you live. By the time you take out taxes and factor in the amount of hours that went in to making that 5K, it's much lower than minimum wage. Most authors are going to make their money with better royalty rates.

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  6. Appreciate the insight! Very informative post. I know as an author seeking mainstream publication (and as an e-author I don't receive advances anyway) that an advance would be low and my first choice even before reading the entire post was Plan B. It just makes more sense.

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    Replies
    1. This is why so many ebook publishers are starting to draw more authors. They offer higher royalty rates than most contracts and authors can quickly "earn out" what would have been offered as an advance with a more traditional contract. I feel like a lot of the small to midsized publishers are pushing the model forward on this one.

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