How authors make money

Yes, yes, we all want to write books that move people and change the world. But, uh, how exactly do authors get paid? Read on, friends. Here’s how authors make money.

In this post I’m going to cover all the different ways authors make money from their books:

• Traditional publishing
  • Advances
  • Royalties
  • Subrights (through a publisher)
  • Subrights (direct)
• Self- and hybrid publishing
  • Direct distribution
  • E-book distributors
  • Hybrid publishers

Note that this won’t cover other ancillary ways writers may make money like “freelance gigs” and “scrounging for spare change in the couch at your parents’ house.” It’s going to focus on the books part.

How authors make money through traditional publishing

Before we get to fun things like advances and royalties, let’s start with a word about literary agents.

In order to secure traditional publication, chances are an author will need to find a literary agent. Agents do not charge authors until their work is sold, except for ancillary expenses like photocopying and postage.

When an agent sells a book or other rights on behalf of the author, they receive 15% of the proceeds in perpetuity in the case of domestic rights, and 20% of the proceeds for foreign rights, which is split 10% between a primary agent and 10% between the subagent.

So when you’re doing your book economics calculations, be sure and lop 15% off the top if you work with an agent (which, you should. They earn that commission).

How book advances work

When a book publisher is interested in a book project, they will offer the author an “advance,” which is a sum of money in exchange for the right to publish the book. (Here’s more on publishing contract terms).

An advance is the author’s to keep regardless of how many copies the book sells, as long as the author fulfills the terms of the publishing contract.

Advances are typically paid in installments tied to benchmarks in the publishing process, such as signing, delivery and acceptance of the final manuscripts (D&A), hardcover publication, and paperback publication.

Agents will try to negotiate for the author to receive as much of the money up front as possible, but this will still typically result in a $50,000 advance being split up something like:

• $25,000 on signing
• $15,000 on D&A
• $10,000 on hardcover publication
• $5,000 on paperback publication

Splits on the advance vary wildly. Advances may also be for multiple books, in which case there may be further benchmarks as those books move through the publishing process.

A publisher will pay the advance directly to the agent, who will take their commission and send the balance to the author.

How book royalties work

Royalties are the proceeds from book sales, stipulated as certain percentages in the agreement. Some royalties are based on the list price of the book, some are based on “net amount received” by the publisher. Here’s what that means:

• List price royalties – Let’s say a hardcover book has a list price of $25.00 and the hardcover royalty is 10%. This means the royalty will be $2.50 regardless of the actual price charged for the book.
• Net amount received – In this case the royalty is based on the amount the publisher receives from the retailer for the copy sold. Note that this still may not relate to the actual price charged to the customer for the book, but rather is based on whatever split the publisher has agreed upon with the retailer or distributor. (For instance, if the publisher receives 50% of the list price for every copy sold by the retailer, the “net amount received” is based on the publisher’s 50%).

Royalties first go to toward paying down the author’s advance. An author only receives royalties above the advance after the book “earns out.” So if an author receives a $25,000 advance, they have to earn $25,000 in royalties and/or subrights proceeds before the publisher will pay them additional money.

Another wrinkle with “earning out” for multiple book deals is separate vs. joint accounting. Let’s say there’s a two book deal for $100,000.

• Joint accounting – the author has to earn combined royalties/subrights proceeds of $100,000 before they receive additional income.
• Separate accounting – the books are accounted separately so that one book might be accounted as $60,000 and the other as $40,000, and each book’s individual proceeds counts to that book’s earn out threshold.

There are many different types of royalties, including:

• Hardcover (typically 10-15% retail)
• Trade paperback (typically 6-7.5% retail)
• Mass market paperback (typically 8-10% retail)
• E-books (typically 25% net)
• Special sales (definitions and splits vary)
• High discount sales (definitions and splits vary)

Good agents have “boilerplate” arrangements with publishers for standard royalties by format. (Yet another reason to get an agent).

Subrights through a publisher

Royalty rates apply when a publisher chooses to exercise rights and publish themselves. However, publishers may also choose to sell certain rights to third parties who will be the ones to publish. These are called “subrights.”

Subrights are allocated as percentages of proceeds. So for instance, if the publisher’s territory is “world English” (worldwide rights in the English language) or “world all languages” (worldwide rights in all languages), a US publisher may sell publishing rights in the British Commonwealth to a UK publisher and the subright split would apply.

The author will then receive a percentage of the proceeds of the advance and royalties of that deal, which, again, goes first toward paying down the author’s advance until the book earns out.

Subrights may include:

• Film (agents will try to retain these rights for the author)
• Audio (agents will try to retain these rights for the author)
• Foreign publication
• Translation
• First serial (excerpts published prior to publication)
• Second serial (excerpts published after publication)
• Merchandise, video games, theme parks, you name it

Sometimes agents may request that subrights payments “flow through” to the author when they are received, rather than being held to the end of a royalty period.

Subrights retained by the author

Good agents will try to hold onto as many rights as possible, especially audiobook and film. When the author retains these rights and the agent sells them directly on their behalf, the author does not have to split the proceeds with the publisher and instead receives all the money after the agent’s commission.

Many agencies either have dedicated film and foreign rights departments or work with film/translation subagents to try to place those rights.

These rights can be extremely lucrative, which is yet another way agents earn their commission. Authors going direct to publishers without an agent may give up too many rights and not even know they’re missing out on this potential income.

(Subrights may also be a way self-published authors earn income, but it’s rarer for them to sell these rights, which is why I have it in the traditional publishing section)

How authors make money through self-publishing and hybrid publishing

Self-publishing book income tends to be a bit more straightforward.

Self-publishing direct distribution

When self-published authors go directly to the platforms that are publishing their books, they receive a percentage of every copy sold.

Here are the current splits from some of the major platforms when you publish through them directly. There are some additional wrinkles, but here are the basic terms:

• Amazon Kindle Direct Publishing:
  • Paperback: 60% of proceeds
  • Ebook: 70% of proceeds if it’s priced between $2.99 and $9.99, otherwise 35%
• Audible:
  • Audiobook: 40% exclusive, 25% nonexclusive
• Barnes & Noble Press:
  • Paperback: 55% list minus printing costs
  • Ebook: 65% of proceeds if it’s priced above $2.99, otherwise 40%
• Ingram Spark:
  • Varies: See their comp calculator
• Kobo:
  • Ebook: 70% of the list price if it’s priced about $2.99

In addition, Amazon also offers KDP Select, which is a program that confers additional benefits if you exclusively publish through Amazon, such as earning the 70% royalties in more territories.

Self-publishing via a distributor

In addition to going direct, there are also ebook distributors that will facilitate publication across many distributors. The two most prominent ones as of this writing are Smashwords and Draft2Digital. (These are also called “aggregators”).

These distributors will make your ebook available in places that may be tricky to reach yourself. It’s also easier to manage changes in one place.

Here are the current splits:

• Draft2Digital: 10.5% of list price
• Smashwords: 10% of list price

Hybrid publishing

There are many, many new publishing models proliferating, and it would be really tricky to capture them all. Many of these are now being categorized under a new umbrella: hybrid publishing.

Some of these models skew more toward traditional publishing and some skew more toward self-publishing, but you usually receive a royalty that’s more than traditional publishing but less than if you were to self-publish on your own.

Here’s what to know if you’re considering hybrid publishing.

The Independent Book Publishers Association has a set of criteria for evaluating hybrid publishers. Make sure the hybrid publisher you’re considering is reputable and offering a fair rate.

Questions?

So that’s an an overview of how authors make money. Do you have any questions? See anything I missed? Reach out to me or let me know in the comments!

Need help with your book? I’m available for manuscript edits, query critiques, and coaching!

For my best advice, check out my online classes, my guide to writing a novel and my guide to publishing a book.

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Art: Earthbound by Evelyn de Morgan