Author Advances + P&Ls

Making sense of how publishers decide what to pay authors and why.

When I began my book publishing career in 1996, I had no idea what authors were paid to write books. As I moved through the executive ranks at different companies, my focus was publicity and marketing, so I wasn’t privy to many author advances or P&L (profit and loss) statements. In several instances, I was told that the publisher I worked for paid “a lot of money” for a particular book, so my walking orders were to ensure a stellar publicity plan. So imagine the shell shock that engulfed me when I became an agent and learned how low most author advances are. Then imagine my concern while working for independent publishers when I discovered that some author advances are as low as $1500-$3000. Yikes.

During the DOJ vs. Penguin Random House trial, some light was shed on how publishers determine what they will pay authors for their work. Unfortunately, it was a moment of embarrassment for the industry because an executive said, in so many words, that it was a guessing game. He was being honest. Kind of. Let’s talk about author advances and the mysterious P&L statements no one seems to be able to explain fully.

What is a P&L statement in book publishing?

The simplest explanation is that a P&L is a method publishers use to determine whether it makes financial sense to publish a book. Now, that definition would make more sense if P&Ls were indisputable. More on that in a moment.

When an editor wishes to acquire a book, they run a P&L statement to review with their publisher (aka their boss). This task requires editors to use hypothetical information: If we publish book x with a trim size of y, 300 pages, and price it at $24.99, what profit could we make? Then they plug in figures: royalty rate, title costs (freelance copyediting, marketing, etc.), manufacturing (these are mostly “fixed costs,” or costs that are predictable), overhead (staff falls under this category), sales quantity (how many copies they estimate the book will sell), and profit & loss (a balance sheet where price, units sold, units returned, discounts, royalties, gross sales, net sales, and overhead each have a line). Caveat: I’m loosely describing the process and probably missing a few line items, but you get the gist. Every publisher has their own P&L system, so consider this a general description.

Are P&L statements accurate?

The short answer is no. The more detailed explanation is that sections of P&L statements are accurate. Manufacturing costs are predictable (mostly), so that information usually doesn’t change drastically. I imagine manufacturing costs have increased, given the current economy. Still, they aren’t going to vary that much from book to book.

What is impossible to predict, and what makes P&Ls disputable, is how many copies a book will sell and how many copies retailers will return if the book doesn’t sell as expected. Therefore, it is difficult to predict the net units sold (# of copies sold after returns are calculated), gross units sold (this number is made up—it generally comes from comp titles—meaning how many copies a similar book sold), and net earnings (the profit publishers earn). Caveat: For discussion purposes, let’s say we are talking about the average book and not known bestsellers.

I have worked for publishers who don’t use P&Ls to determine whether or not to publish a book. Guess what? There is no difference between using P&Ls and not using them. The valuable information on a P&L statement is the fixed costs—manufacturing and overhead. This tells us how much it will cost to make a book. However, we can’t know how many copies a book will sell and how many copies will be returned. This is an extreme example: Imagine the P&L statements for books published when the pandemic hit. They were all but useless. Here is another scenario: Imagine the P&L statements for an author with a robust Twitter following. Given the state of social media platforms, the sales estimate shouldn’t be based on followers buying the book. And finally, imagine the P&L statements for books whose orders were cut significantly by B&N or Amazon. Ouch.

Don’t get me wrong; publishers must calculate the costs they’ll incur for a book. However, using arbitrary numbers to determine author advances is not a good practice. No one knows if a book will earn out (earn out=recoup the author’s advance). What do you think happens when no one knows if a book will earn out? If your answer is that authors receive lower advances, you are correct.

The Author Advance

Money is a delicate subject in book publishing. When authors shared their advances with the hashtag #publishingpaidme, it was not a great look for the industry. It is not a secret that there is a significant pay disparity regarding author advances. Your advances will reflect as much if you have an excellent sales track record. If you are a debut author with no sales track record, your advance is anyone’s guess. This is why it is essential to have an agent who can negotiate your contract. They can fight for more money and better contract terms. An editor who loves your book will champion it internally and will try to offer a good advance. What is a good advance? That’s subjective. I can tell you that the majority of advances are five figures. Many are four figures, while the top tier of advances are six and seven figures. I’ll delve into this again, but if a book tanks and a published paid top dollar for it, they can write it off as a loss.

I don’t think I’m overstating anything when I say that almost everyone who has a book on submission with publishers wants a good advance. We all want to get paid for our work. We want to feel like our work is valued. The reality is that your work is valued, and if the stars align, a publisher will acquire your book. The publisher must predict how much consumers will love your work and whether they will pay for it if they do. Publishers often look to the publicity folks for guidance on the scope of possible media for specific titles. But, again, it is nearly impossible to predict this. Whenever I was asked to create a pie-in-the-sky publicity plan for a book an editor was trying to acquire, I’d scoff a bit because not much of said plan was realistic. This happens when a few publishers are involved, and the agent wants a dog and pony show for their client. It doesn’t mean the publicity plan is set in stone.

The upside to an unreliable method to determine author advances is that they are paid whether or not the book sells. On the other hand, if a book doesn’t earn out, your royalties are affected, and the chances of another book deal diminish. If you get another book deal, the advance will probably be less than what you received for your previous book. If this sounds depressing, that is because it is. I rarely encounter an author who doesn’t have another job.

You might be thinking: What about authors who receive millions to write books? When a house is on the market, and a few buyers are bidding, the highest bid usually wins. The same thing happens in publishing. Some people receive high advances because a publisher wants to take the book off the market and therefore makes a high offer—probably higher than they’d like. But, again, it’s the cost of doing business.

How do we fix this?

Something I’ve been thinking about is a publishing model where there are different tiers for author advances. The monetary amount would be based on specific criteria, and the requirements would have metrics (KPIs—key performance indicators—if you will). For example, a publisher could assign a flat fee to authors in each tier with the same royalty system. Of course, agents will not like this idea because it would affect their commission. But hear me out: I bet more projects would sell if there were a system like this. This is also a way to create a more equitable industry for authors. For example, a BIPOC author in tier two is paid the same amount as a white author. Remember, each book must meet criteria set forth by the publisher so the quality is just about equal. Further, each tier is given a budget for marketing and publicity, so no book in a particular tier is given more or less promotion.

Does this sound crazy? Maybe, but so does pulling numbers out of the sky to calculate a P&L.

Afterword

What I’m watching: I’m so happy Somebody Somewhere (HBOMax) is back for its second season. That show is a balm for the soul. I’m also watching Tiny Beautiful Things (adapted from Cheryl Strayed’s book). It’s great. I love stories about messy, complicated women (because I am one).

What I’m reading: My new MBA class has started, so a lot of case studies and my textbook.

What I’m listening to: Music has been more prominent than podcasts. I listen to the song Pink + White by Frank Ocean a lot. Also, I’ve recently started listening to Labrinth (he has some music in the show Euphoria—I am a hip 50yo, what can I say).

As always, please send feedback to publishingconfidential@gmail.com