How an Author Makes Money

The MFA Program, which ends this weekend, has brought in several interesting speakers on the subjects of writing and publishing. One presentation that I found particularly interesting was agent Sharlene Martin‘s. In the Q&A section, she answered the question: how exactly does an author make money?

This sounds like a basic enough question. After all, who hasn’t heard of advances and royalties? But I didn’t actually know how it all worked, so her answer was eye-opening. Here’s the gist of what she said.

An advance is money the publisher gives an author ahead of publication. However, the author actually has to pay back the advance through book sales. The first money from royalties goes to the publisher, not the author, until the advance is earned out. The author still has the advance money in her bank account, but if all goes well, the publisher actually earns back that money at the author’s expense.

More interestingly, on a hardcover edition, the royalties percentage changes according to the amount of books sold. Using the numbers Sharlene gave as an example, for the first 5,000, the author earns 10% royalties off the list price of every book sold. From 5,000 to 10,000 books, the author earns 12.5%. Finally, after 10,000 book sold, the author earns 15% royalties. So the more books are sold, the more the publisher has to pay the author. While the publisher obviously isn’t going to hinder the books from selling, it is actually betting that fewer than 5,000 books will sell so that it earns more money off those book sales. If the cap on the 10% royalties is 1,000 more books than the number needed to earn out the advance, that means that just by selling 5,000 books the publisher earns back the money paid to the author and makes a profit. There’s no real need for the publisher to sell any more books. So it makes sense that the publisher isn’t going to invest much money in marketing. It’s the author who benefits most from selling more than 5,000 copies so it is the author’s job to market and sell those books!

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