Book royalties and book advances are the means by which publishers pay authors for their work. Following is a brief overview of what the terms mean and how book royalties and advances work.
What Is a Book Royalty?
When a book publisher contracts with an author to publish a book, in essence, the author (who is the copyright holder) grants the publisher the right to publish the work for an agreed-upon amount of money. This money is called a royalty and is expressed as a percentage of sales. (The convention at most trade book publishers is to pay a royalty on the list price of a book.)
Like points related to the book delivery and rights assignments, the royalty rates are outlined in the book contract. Book publishers have standardized rates for royalties for various editions of the work (ex. hardcover, paperback, etc.)
How a Book Royalty Is Calculated
Here's an example: If the book Brutus, My Beloved Schnauzer has a list price of $10 and the royalty rate for bookstore sales is 10 percent, then the author earns $1 for every book sold in a bookstore.
Note that this is a greatly simplified example. Any traditionally-published author will be earning different royalty rates for different types of book sales and subsidiary rights sales so the numbers won't be nearly as tidy as the ones above.
Advance Against Royalties
What publishers and authors typically refer to as a "book advance" is an "advance against royalties."
Most traditional publishers will give the author an advance against royalties. That is, they "advance" the author an amount of money based on what they think the book will earn.
The amount of the advance against royalties is based on many factors: the size of the publisher, the historical performance of similar books in the marketplace; the author's track record and author platform or both; and the topicality of the book.
The amount of a book advance can range from a thousand dollars for a new author at a small publisher to a tens of millions of dollars for a blockbuster New York Times best-selling author with a huge fan base.
The advance is usually paid in installments at certain points in the book development process — for example "on [contract] signing," "on manuscript delivery," "on manuscript acceptance" — again; this is outlined in the various clauses of the book contract.
"Earning out" a Book Advance
A book is said to have "earned out" its advance when the author royalties from its sales surpass the advance that the publisher paid the author.
For example, of the author Brutus, My Beloved Schnauzer gets an advance of $5,000, and he is earning royalties at a rate of $1 per book, he needs to sell 5,000 copies of the book before the book is said to have "earned out."
Note that, since publishing industry convention dictates that books are returnable (unless the type of sale deems them otherwise), publishers take a small "reserve" percentage; that is, allowances for returned books. (The risk of a large number of book returns is more common when the book is new — most of what doesn't get sold within a short amount of time goes back to the publisher.)
Royalty Payments and Checks
After a book earns out, the author receives royalty checks on a regular basis as long as the book is in print and still selling. Royalty checks are sent by the publisher on a regular, periodic schedule (usually twice a year). For authors who have literary agents representing them, the checks go through the agents, who send their checks to the author—royalties minus the agent's percentage. The day the royalty check comes is a happy, happy day in an author's life.
Whether directly from the publisher or through the literary agent, royalty checks should always be accompanied by a royalty statement, which outlines exactly the amount of books that were sold in each category.
Industry convention also dictates that, if a book under-performs, the author does not have to pay back the unearned portion of the royalty.
Disclaimer: The purpose of this article is to give lay out some very general book advance and royalty basics but please note that the author of this article is a writer — not a literary agent or a lawyer — and you should not consider the contents of this article a substitute for authoritative legal advice. If you are negotiating advances and royalties, you should seek the counsel of a literary agent and an attorney or both. The Author's Guild has a contract review service for members.