How does the money work? (Part 2)
An ultra simplified breakdown of how the money side works in traditional publishing - Part 2 is after the book is published
Hi everyone,
This is the second part of my post on ‘How does the money work?’ in traditional publishing with an advance against royalties (/ all earnings) model.
See Part 1 here if you've missed it:
Some very quick PSAs:
This is for traditional publishing so doesn't include self publishing or hybrid publishing (though I mention them below).
This is focused on trade/mainstream publishing meaning it doesn't consider the specificities of academic publishing or specialist publishing.
This is mainly based on adult fiction and non-fiction publishing so won't take into account children's publishing or illustrated publishing which have their own idiosyncrasies.
My experience is in the UK.
This contains generalisations!! Not all situations will be covered but hopefully this will give you a better understanding of the process.
What happens after a book is acquired?
Publisher => Retailers => Readers
Now that the offer has been accepted and the contract has been negotiated by the author's agent, here is what's happening on the publisher's side:
Publisher:
When the publisher buys the book, they start working on it and each department participates:
first Editorial working on the text,
then Editorial Management, Production and Design working on the book as a finished object,
then finally the Publicity, Marketing, Sales and Rights Departments working on pitching the book for publication.
All these departments add value to the book.
Publishers also control the stock of books: they can't just overprint a book (to get the best unit cost1 on the book) as the warehouse tends to charge if books have been sitting in the warehouse for more than a year. Yes, that means that it is sometimes cheaper to pulp books and reprint rather than keep an overstock.
Retailers:
We'll be looking at the Rights side of things in the next section so let's focus on the work a Sales department does as they will be pitching your book to retailers. Retailers include bookshop chains like Waterstones, Foyles, Blackwell's, Daunt and WH Smith, supermarkets, independent bookshops, online shops like Amazon or Bookshop.org, but also any other shop that sells books: museums, garden centres, fashion shops, etc.
The publisher pitches the books to retailers (some at big sales conferences, some at individual meetings etc) and retailers will send their order of how many copies they’d like to buy which is what they think they can sell. This is based on the author's track record, the market, how much the publisher will support the publication, the publicity planned, the cover design, and a myriad other factors. The retailers will be cautious in their amounts so will always order a fairly conservative amount rather than an optimistic amount. sales departments also keep track of existing stock (in a retailer warehouse) and sell-through numbers (how many books go through the till) when assessing re-orders and whether a book needs reprinting. There is nothing worse than having printed the right amount of copies but a chunk of them being stuck in the warehouse of a retailer not selling them well and another retailer being out of stock.
Retailers buy copies at a specific discount rate and aim to make a profit on each sale.
If the retailers have stock they won’t sell, they will return them to the Publisher (we call these Returns). In the before times of publishing where printing costs weren't as high, publishers used to overprint books, retailers used to over-order books and you'd get returns from some retailers of 80% the amount they ordered (meaning they only kept/sold 20%). Sometimes the books were returned in their original packaging, meaning they never made it out of the retailer warehouse to actual shops. The amount of returns affects overstock. Therefore returns are also why we can't all have nice things.
When you ask your publisher for sales figures, they can give you TCM figures (books sold at the till, see below) or out of the warehouse figure which won't take into account returns. Therefore TCM figures in the first few months of publication are more accurate than warehouse figures.
Readers:
Readers buy books from retailers at the published price or retail price (if you buy a book that is discounted, bear in mind the difference is usually taken from the author's share, this is why industry people favour people buying from indie bookshops).
The bestseller lists (there are many but the official one is the weekly Sunday Times bestsellers list in the UK) are based on books sold to readers, as opposed to books sold to retailers. The Nielsen BookScan Total Consumer Market (TCM) data covers approximately 90% of all retail print book purchases in the UK and the report comes out on Tuesdays around lunchtime, which is when The Bookseller does their recap.
Pre-orders will count as readers buying books. Pre-orders influence the quantity of books ordered by retailers from publishers as they have these guaranteed sales against the book and will likely order more. The more copies a retailer orders, the bigger the initial print run for the book will be, the better unit cost the publisher will have. If you love an author, especially a marginalised author or someone with little support, make sure to pre-order. The pre-order sales will only be officially accounted by the retailer on publication day (no sale can be accounted before publication day), which means the books sales will be higher for that specific week — this is why so many books manage to become bestsellers, even for just one week.
Rights
(or Subsidiary Rights or Subrights or Sublicense Rights)
Alongside the rights to publish a book, a publisher may also acquire extra rights to license to other licensees. The Author gets a percentage (also called split) of the sublicenses and the Publisher keeps the rest. Some things like translation deals or US deals can bring a lot of money, occasionally more than your entire UK advance, so it’s a great way to earn out your advance.
Handling rights is good for publishers because they can make money on the book before it's published (in the case of audio, English language rights or translation) but not as good for authors as both the publisher and the agent will take a commission. There is no right or wrong here, the person (whether publisher or agent) who will be better at exploiting the rights of a book should ideally be the one handling the rights — this is not always the publisher.
What happens when the book is published?
Right, so, when the book is published, here is how the money flows (again, in traditional publishing with an advance against royalties/earnings model):
All earnings coming from Retailers (via the Sales Department of a publisher) and licensees and/or Foreign Publishers (via the Rights Department if they hold the rights) go to the publisher.
These earnings are going towards:
The advance paid to the Author (via the Agent)
All associated costs paid by the publisher (production, printing, staff, marketing, etc.)
The author's share of all earnings from the publisher get paid to the agent who will deduct their commission and send them to the author. While publishers usually send royalty statements and pay royalties twice a year (though occasionally pay subrights earnings more promptly if earned out), an agent usually sends payments within 10 days.
Look at this gorgeous little image I prepared for those in need of a visual aid:
Earning out:
If the advance against all earnings has “earned out” (meaning the author’s share of all earnings from sales and rights is higher than the advance), the publisher will pay royalties.
If the advance is still “unearned” (meaning the author’s share of all income is lower than the advance), the author will just receive statements with their new unearned balance.
Example: For an advance of £10,000, if the author’s share of income comes in at £6,000, the new unearned balance will be -£4,000.
Royalty statements are sent twice a year usually in March/April for the six months ending December of the year before (so March/April 2025 you will get a statement for the second half of 2024) and in September/October for the six months ending end of June of the same year (so Sep/Oct 2024 will be for the first half of 2024).
I will do another post about how to read a royalty statement but it will tell you of book sales (split by format, location (UK or Export) and discount. It will tell you the Reserve Against Returns, all rights money etc.
Does earning out mean your book is profitable?
Now, this is the question that most people seem to confuse. For a book to be profitable, it needs to make more money that the advance AND all associated costs relating to its publishing. It is therefore possible for a book to earn out the author's advance (especially with rights sales) but not make enough money to clear the costs incurred by the publisher. This is usually why we know that the massive book deals, which will inevitably have a matching massive marketing spend to make up for the investment on the advance, rarely earn out and the next deal will likely be lower. Future deals are based on the review of the profit and loss of the previous contract which has both advance and costs. This is why we all worry about the rising costs of printing and shipping, because that part of the publisher's P&L goes up without bringing any more money.
What happens if your agent is handling your rights?
If your agent handles your rights (namely translation, North America, Film and TV, audio as the main money-making ones) and they do deals separately to your main UK publisher, the process is the same as outlined here but individually for each publisher.
So you'll receive the advances (for books, other subrights can be fees) separately and have individual advances to earn out. In this case you can earn out some contracts and not earn out others. Some authors are big in other territories and not as successful in the UK2 (though the opposite is more common).
Other options which aren’t the traditional advance against royalties / earnings
The publishing landscape has changed massively in recent years.
Production costs are up (printing costs because of the price of paper and ink, and shipping costs too). This means the price of books are up for debate but it's not ideal to make it harder for readers to buy books in this economy.
Retailer discounts are up so profit margins are lower for publishers.
The cost of living crisis is affecting consumer habits (less book buying, less going to events, less pre-ordering) making the market less predictable.
Avenues for promotion are down: the crisis in journalism means that it’s harder to efficiently promote books to readers. The scattered social media landscape post Twitter/X meltdown means it’s not as easy to create buzz.
Arts funding is down: this means that smaller publishers fold or get bought by the bigger publishers. The more consolidation means less competition and risk-taking tendencies as publishers are even more reliant on profits.
AI — I won't get into it because ugh, but fuck tech bros all the way to space (and not just for 11 minutes).
Anyway, the list goes on, and I'll try not to be too doomy gloomy. I think it’s obvious the current publishing model in the current market doesn't work (or rather, it works for the few, not the many). There is money in publishing, it's just not trickling down to the people doing the work (whether authors or publishing staffers), and sadly there are no obvious solutions… so, you know, join a union and make your voice heard, lads.
There are other options than the traditional publishing route:
Self-publishing: You bypass both the agent and publisher. You get a higher share of the money made on books but your book may not be available as widely as traditionally published books as big bookshop chains rarely stock self-published books. This may not be an issue if you write in the genres that are primarily digital (crime, romance, etc). You have more control but you also do all the work. Also watch out for the hidden vanity presses that masquerade as legit publishers — at no point should an author pay anything, their only investment is the book.
Flat fee: This is something which is used for people writing a contribution to a book (introduction, essay, illustration) or for some specific projects (commissioned content originated by the publisher or ghost writing etc) and is making its way in traditional publishing deals through the form of IP sometimes. It's probably something that is good short term but not as good long term, so do weigh the pros and cons.
Hybrid Publishing: There is a new wave of smaller publishers or publishers operating on a different model using hybrid set ups. In some cases, the publisher may use crowdfunding, or they will not offer an advance (or only a small one) but the author will get a higher royalty rate. It works in the long run if the sales are good but not ideal short term if you rely on writing income.
I hope this all made sense, do let me know if anything is unclear! I will do a separate post on Rights and one on how to check a royalty statement so you get a bit more detail on there.
I'm sorry if this feels quite bleak, but this is why we need people to join unions and take action together to combat the issues facing publishing.
Until next time,
Caro
The unit cost is the price incurred by a publisher to produce a book. The higher the printing quantity, the lower the cost per unit.
This one is my favourite story: Claire McFall: The British author you’ve never heard of causing ‘Beatlemania’ in China in iNews.
Absolutely brilliant - so clearly put, so helpful. I'm published with a Big Five, and at no point have I been told any of this. So thank you!
A superb article, clear and to the point. Thank you