Author Accounting 101

by Steve Laube

Roll of money

You are a published author. You must be rich!

You are an agent. I know you are rich.

If it only were true.

A couple weeks ago we peered at the bottom line for the brick & mortar bookstore, now let’s attempt to do the same for the author. Please remember this exercise is generic, your mileage may vary. As before we will use some round numbers so we can all follow the math.

Let’s start with that $10 retail price book we dealt with before. The publisher sells the book for $6.00 to a store. That creates a “net price” for the publisher. Be aware that some contracts pay the author a royalty based on the retail price and some on the net price.

The net price is $6.00. They author’s contract pays them 15% of the net price. That would mean when this book was sold to the bookstore the author’s account was credited for 90 cents.

This particular author was paid an advance of $9,000 to write the book. That money is like an advance on your allowance when you were a kid. You must pay back the advance before you earn more money. So if each book sold earned the author 90 cents then how many copies must sell before the $9,000 is “earned out?” The answer is 10,000 copies. On the 10,001th copy the author earns an additional 90 cents.

But because the royalty is based on a net price the royalty paid will depend on each sale. Some books will be sold at $6.00, some for $5.00, some for $3.00. It all depends on the situation. (For example the books you see on the spin racks in the grocery store are sold to “rack jobbers” at a very high discount to enable them to pay each person in their distribution chain. The author gets less money but sells more copies.)

If the royalty rate were based on the retail price (say a 7.5% of retail rate for paperback, which is a standard number among the “Big Six” [soon to be Five]), then the author would receive 75 cents per book no matter what the publisher sold the book for.

Out of that $9,000 advance mentioned above must come the author’s expenses. Research materials, conference fees, travel expenses, etc. All are deductible at tax time (April 15th is next week folks!) And those are just the business expenses. If you are a normal person you have housing, car, food, clothing, etc. to pay for as well. But unless that advance is a lot higher it’s going to tough to pay your mortgage with the advance money you have received.

When I teach this at conferences I usually stop here and ask, “Is this making sense?” “Are you following the math?” Most will answer yes, but the room is deathly quiet because I’m talking about money.

I also ask the room “Can you make a living as a writer?”
D.Q.Y.D.J. is the correct answer.

Don’t Quit Your Day Job.

That sounds grumpy and negative, but it is a reality. Most authors do not start their career with a million dollar advance and a legion of fans. They build it slowly but surely over time. In the beginning they struggle mightily to make ends meet and to justify the time and energy. Just like anyone starting a small business.

I heard one highly successful author say during a keynote address that her hourly wage for her early books worked out to less than 50 cents an hour. Now, of course, she writes full time and speaks full time. But in the beginning it was a struggle.

The writing profession is a marathon not a sprint.

Why is your percentage so small? Read this article for the short answer.

A number of writers are turning to the new opportunities by self-publishing via e-books and see the potential for greater income. There is no debate from me as to the potential for success. A number of writers find this as the solution to their money problems. But just like every small business venture there are successes and failures. Your mileage may vary…. There is no single solution for every writer. One writer I know has a very steady income from ebooks, but still works part-time at a day job to make ends meet. This writer would be considered successful by any standard, but still has to supplement their income. The writer has grown the writing side of their world to the point that they must now decide whether to make the jump to full-time in the hopes that revenue will increase because they will have the time to devote all energy to writing.

And if you are interest in Publishing Economics 101 see this post from October 2011.

8 Responses to Author Accounting 101

  1. Avatar
    lisa April 8, 2013 at 5:32 am #

    Great way to explain this, thank you. I’m ready for the marathon!

  2. Avatar
    Chester Mitchell April 8, 2013 at 5:53 am #

    Thanks for the reality check. Great information!

  3. Avatar
    Meghan Carver April 8, 2013 at 6:16 am #

    Weren’t we just talking last week about how we writers don’t like numbers? I’m grateful there are agents like you, Steve, to figure these things out.

  4. Avatar
    Rick Barry April 8, 2013 at 6:20 am #

    At one of my first writers conferences, a faculty member supplied my first reality check when he said, “The great majority of published authors do something else to earn a living.” True, a few become wealthy from their writing, but that percentage is very low.

    Thanks for keeping the vision real, Steve.

  5. Avatar
    Ed Hird April 8, 2013 at 7:55 am #

    Very insightful, Steve. It is good to face hard realities, and not let them put us off. We need to be disillusioned of our illusions so that we can receive God’s Kingdom dreams for our writing. Iron needs to sharpen iron.

  6. Avatar
    Nancy B. Kennedy April 8, 2013 at 8:02 am #

    This is why many authors also speak at writers conferences and offer critique and editing services. Unless you have a blockbuster book or a personal patron of the arts (AKA, a spouse with an income), you almost certainly have to do more than write. It’s unfortunate, because writers like to write!

  7. Avatar
    J.D April 8, 2013 at 1:24 pm #

    I appreciate and literally get giddy when reading posts like this. Negative and grumpy? Nah. It’s all about perspective and I see hope. I’m sure the ones who write for a higher purpose do too. It’s quite fantastical to enjoy a passion for story telling even if it’s not a *career* yet. How blessed are we?! Like Lisa said bring on the marathon, our work will benefit from the gradual and steady pace making it more in shape when it reaches the finish line. Keep running the race people!

  8. Avatar
    Ron Estrada April 9, 2013 at 3:03 am #

    There’s also the Dave Ramsey end of the equation. I would never start my own business until I was debt-free (including the mortgage) and had one year of expenses saved up. Once you’re going and sure it’s going to work out, you can back that off to the standard 3-6 month emergency fund. I’m 46 now, so I see writing as a hobby first (though one I can’t live without!) and then secondary income. In retirement, I hope to earn a little extra from it. At the very least, it will keep me from walking around the mall every day with my cronies and giving free advice. Okay, I’ll still give the free advice. Maybe I’ll write a book about it.

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