This is the second part of our earlier post on the world of the publishing contract. With that in mind, we have called this post, The Publishing Contract – Part 2. It has a certain ring to it. As mentioned previously, what we are really looking at here is that significant tier of authors whose books are going to publishers directly, without the involvement of an agent.

With that in mind, the aspect we are going to look at here is the advance, that bejewelled, elusive, dancing elephant at the end of the negotiating table. When you hear of a deal being stuck for a first-time author on the news or in the trade press, the figure that is being mentioned will always be the advance. If it’s in the news, it’s probably significant, and for some authors it is the thought of these often life-changing amounts of money that keep them driven in the small hours.

But, without stating the obvious, what exactly are they, why are they paid and how is the amount reached?

What?

To start at the beginning, the advance is an advance payment of the royalties that will be earned by the author. It is not an additional payment and, after it is paid, no royalties will be paid until this sum has earned out.

In the event that sales of the book are not high enough for the advance payment to earn out, nothing happens – at least to the author. It is generally accepted that this is the publisher’s risk and they won’t look for the money back.

There are a limited amount of circumstances in which an advance may need to be repaid, but the most common one is non-delivery of the finished work. If you don’t deliver the book, or are so far over your deadline that it no longer makes sense for the publisher to release the book, it would be fairly standard to have a legally binding facility built into the contract for the advance to be repaid.

To limit the publisher’s exposure, amongst other things, advances are often split into 3 parts: one third becomes payable on signature of contract; one third becomes payable on delivery of the final manuscript; and the final payment is made on publication of the work. There would be nothing unusual at all in a contract that was structured in this fashion, with or without an agent.

The question of how much this advance should be is intrinsically linked to the question of why an advance is paid at all, so this is what we might look at first.

Why?

So why is an advance on royalties ever paid? The answer to this depends largely on your perspective, and each answer partially explains the process.

One of the reasons often mentioned is that the payment of an advance can often allow an author the time and space, free from financial constraint, to finish a work. There may be expenses involved in the author’s research, and the advance can mitigate those. There is an element of truth in this, and for some particularly high advances this is true, for instance if it’s a very high-profile non-fiction author with a strong publishing track record, whose work will involve significant travel or investigation. But this is relatively rare and not a complete explanation in itself because it so rarely applies.

From a second perspective, the payment of an advance can be construed to show a commitment on behalf of the publisher to the author. Skin in the game, and so forth. This is an argument often made to try and influence the payment of an advance, rather than being a reason for an advance in itself. The publisher will, in fact, already be showing a significant commitment to the author by taking on their work and investing in it, through providing editorial, design and marketing support. So, while this argument is used by all parties to justify the decision to pay an advance, it doesn’t fully explain why an advance would be paid.

The third perspective, and possibly the most compelling, looks at simple market forces. If an author is choosing between a number of publishers, all offering the same royalty rate and the same level of editorial quality, it can often be the size of the advance that sways their choice. Fairly obvious, really. Complexities come with this, however. If as an author you are presented with a choice of a publisher offering a low royalty but a high advance, a publisher offering a medium advance but you are unsure about how well your book fits with their list, and a third option where a publisher offers no advance and a low royalty but their books are amazing and sell well, what do you do? This essentially depends on how much you value the cash in hand.

How Much?

This is a big question, and unfortunately there is no definitive answer. The publisher will tend to take into account the factors mentioned above, eg how much they would need to pay to know the work will be completed, how much they would need to offer to secure the rights, and, of course, how much they have to spend.

Most publishers will tend to work out the costings of a book based on the first print run, which might be enough stock to last 6 or 12 or 18 months. They will look at what these costs might be, particularly editorial, design, marketing and print. They will look at the net revenue that the sales of that print run will generate, net revenue being the amount they receive after bookshop or online retailer discount. Once they have these worked out, they will have a relatively clear idea of what level of royalties will be earned by the author if the first print run sells out completely. The advance will have this amount as the upper limit. How much of this will then be offered as an advance will depend on the factors mentioned above, together with how much risk they are prepared to take on, and what the business model of the publisher is. After all, nobody ever knows 100% of the time if a book will sell out 100% of the print run. If they did, it would be an easy business. And if it’s a publisher who is taking a chance on new authors, for example, they might be unlikely to be able to couple that aspect of risk with the risk of an advance of any size.

The idea of this post, of course, was to clarify rather than complicate, so what we should say here is that the real point is that the advance is only one factor to bear in mind. Some of the most important and valuable books being written today have had no advance at all, and may even have paid a subsidy to the publisher, as can happen in the case of academic works with a small market but of fundamental importance in their field. For every author who has been offered a major advance there are hundreds who have had none at all, and it can just as easily be a book from this second pool that ends up changing the world.