Friday, January 27, 2012

What's more important to authors: Royalties or advances?

One of the strongest arguments for writers to self-publish their works is the potential to earn much higher royalties: Major publishers typically pay 10% to 15% royalties on the suggested list price of hardcover books, and 20% to 25% of their net revenue (wholesale price, or agency price minus 30%) for other formats. Self-publishers, on the other hand, can get as much as 70% of the sale price from Amazon and Barnes & Noble if they comply with those companies' restrictions. However, these numbers don't take into consideration the advances paid by publishers.

At the Digital Book World Conference that ended this week, Publishers Lunch Deluxe reported on a session on "Changing Author-Publisher Relationships" that shed some light on the question of advances vs. royalties. Madeline McIntosh, Random House's President of Sales, Operations and Digital said that over the last five years, for fiction titles, the company has paid 45% to 65% of its sales revenue to authors. Little, Brown Publisher Michael Pietsch said that, across all of Hachette Book Group's titles over the past 15 years, the share of the company's revenues that has gone to authors has risen from 30% to 40%.

Both companies' payouts are substantially higher than any standard royalty rate, suggesting that many, if not most, books fail to earn back their advances. The result is the same as a higher royalty on the actual number of copies sold. On the other hand, self-published books don't get advances, and the authors have to pay editorial, design and conversion costs themselves. As a result, self-published books start out much further in the hole financially, at least so far as the author is concerned.

The question for authors then becomes: Is it better to work with a publisher or to self-publish? If you know with absolute certainty that your book will sell more than it needs to in order to earn back any potential advance, you might make more money by self-publishing. However, if a publisher could sell at least two to three times as many copies as you could sell yourself, you're better off working with a publisher, since the increased volume will compensate for the lower royalty.

But what if you have no idea how many copies your book will sell? In that case, you probably should work with a publisher, because you'll get your advance no matter how many copies of the book are sold. However, there are two risks:

  1. If the book earns out its royalty but doesn't sell many copies beyond that point, you might have made more money if you'd self-published it.
  2. If your book doesn't sell well at all, the publisher will be much less likely to offer to publish your next book, and if it does, the advance will be substantially lower.
As a practical matter, the "publisher vs. self-publishing" question is often a moot point: If a book is rejected by multiple publishers, self-publishing may be the only option available. But, for those authors who can get a publishing contract, the decision may well come down to your confidence in the publisher vs. yourself.

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