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Helping to Change the World…Word by Word

The Steve Laube Agency

The Steve Laube Agency

Helping to Change the World Word by Word

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Home » Economics

Economics

Author Accounting 101

By Steve Laubeon April 17, 2023
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You are a published author. You must be rich!

You are an agent. I know you are rich.

If it only were true.

Let’s attempt to explain some of the bottom-line basics of Author Accounting. Please remember this exercise is generic; your mileage may vary. I will use some simplified numbers, so we can all follow the math.

Let’s start with a $20.00 retail-priced book. The publisher sells the book for $10.00 to a vendor (like Amazon, Barnes & Noble, or christianbook.com). That creates a net receipt or net price for the publisher.

The net price is $10.00. The author’s contract dictates that the publisher pay them 15% of the net price. That would mean when this book was sold to the vendor, the author’s account was credited $1.50.

This particular author was paid an advance of $4,500 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 $1.50, then how many copies must sell before the $4,500 is earned out? The answer is 3,000 copies. On the 3,001st copy, the author earns an additional $1.50.

The additional money is paid to the author periodically, not as it is received. Most publishers pay the author twice a year. Some pay quarterly.

But because the royalty is based on a net price, the royalty paid will depend on each sale. Some books will be sold at $10.00, some for $12.00, and some for $6.00. It all depends on the situation. For example, the books you see on the spin racks in the grocery store or the airport 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.

Be aware that some contracts pay the author a royalty based on the retail price and some on the net price. So, if the royalty rate were based on the retail price (like a 7.5% of retail rate for paperback, which is a standard number among the “Big Five”), then the author would still receive $1.50 per book no matter what the publisher sold the book for. The majority of publishers in the Christian market use net receipts as their basis for paying royalties.

Out of that $4,500 advance mentioned above must come the author’s expenses: research materials, conference fees, travel expenses, etc. Some, not all, are deductible at tax time. (Tax time is tomorrow for those of you in the U.S.) And those are only the business expenses. If you are a normal person, you have housing, a car, food, clothing, etc., to pay for as well. But unless that advance is a lot higher, it’s going to be tough to pay your mortgage with the advance money you have received. (Plus, advance money rarely comes all at once. Typically, it is paid out over time. Some publishers pay on signing the contract, on the acceptance of an author’s “acceptable” manuscript, and later on publication of the book.)

When I teach this subject in-person, 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 will often 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 careers with a million-dollar advance and a legion of fans. They build them slowly but surely over time. In the beginning, they struggle mightily to make ends meet and justify the time and energy, just like anyone starting a small business.

The writing profession is a marathon, not a sprint.

Why is your percentage so small? Read Tamela’s article “Why is My Royalty Check So Small?” for a quick answer.

A number of writers are turning to independent opportunities by self-publishing via e-books and print-on-demand in the hope of 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 steady income from e-books but still works 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 writing in the hopes that revenue will increase because they will have the time to devote all energy to writing and marketing their books.

And if you are interested in Publishing Economics 101, see this post.

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Category: Book Business, Career, Contracts, E-Books, Economics, MoneyTag: Author, Economics, Money

Hidden Retail Economics

By Steve Laubeon October 18, 2021
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I find the world of retail and bookselling economics fascinating. Doesn’t make for scintillating party conversations, but I digress. Below is a video that you should watch first as I have a few thoughts related to its content below the video. (If you cannot see the video in your newsletter feed, please visit the blog on our website where it is embedded.) This particular video is a few years …

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Category: Book Business, Economics

Submission Mistakes of the More Subtle Variety

By Bob Hostetleron March 25, 2021
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I wrote a post on this blog a while ago (here) about some embarrassing and even disqualifying mistakes writers had made in submissions to me. One reader commented on that post, expressing gratitude and then adding, “What would be helpful to me is to hear the subtle or inadvertent mistakes aspiring authors make when sending a proposal to you. Can you help us with that?” Why, yes, Louise, since you …

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Category: Book Proposals, Economics, Pitching

A Year in Review: A Look at 2019

By Steve Laubeon January 6, 2020
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It’s that time of year to reflect on the past year, to learn from our experiences, and to count our blessings. Here are some thoughts on the last tumultuous twelve months. The Industry The publishing industry seems to survive the bad press that loves to find the negative in everything. Each publisher continues to pursue the best content possible. The market is ever-changing, and some really smart …

Read moreA Year in Review: A Look at 2019
Category: Agency, Agents, Awards, Book Business, Book Sales, Christian Publishing Show, Christian Writers Institute, Contests, Conventions, Economics, Encouragement, Marketing, The Publishing Life, The Writing Life, Trends

Should I Write for Free?

By Bob Hostetleron February 27, 2019
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Writers write, right? Often, however, writers are invited, asked, pressured, or even hornswaggled (look it up if you have to) into writing for free. Sometimes that’s good. Often it’s bad. How can you know which is which? One word: strategy. What is your strategy? Do you even have one? Or, put another way, do you have a mission statement as a writer? When you define where you’re going and what you …

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Category: Economics, Money, The Writing Life

Good and Bad Advice on The Writing Life

By Dan Balowon June 19, 2018
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After graduation from college, I got an entry level job at a radio station, programmed with call-in talk shows. I carried out the trash, conducted regular “Frosty-runs” to Wendy’s for the news director, painted the sales office, screened callers for the shows during off-hours, took transmitter readings, got coffee for the hosts, and anything else the boss wanted. Once in a while, they let me push …

Read moreGood and Bad Advice on The Writing Life
Category: Career, Contracts, Economics, Marketing, Platform, The Writing LifeTag: Career, The Writing Life

Common Sense Publishing

By Dan Balowon May 22, 2018
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I will often use humor as a defense mechanism. It helps maintain my sanity, to some extent. However, I’ve noticed a number of times what might be considered a weak attempt at humor is actually true. I guess the common statement about most humor having a kernel of truth in it, might be accurate after all. I’ll frequently respond to someone questioning why something is happening by stating, “Oh, you …

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Category: Book Business, EconomicsTag: Book Business, Common Sense

The Minimum Wage Author

By Dan Balowon March 13, 2018
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Most authors earn less than legal minimum wage writing books. Most do so for their entire writing careers. (U.S. Federal minimum wage is $7.25 per hour. A full time person working 40 hours per week would earn an annual revenue of $15,000 at that rate.) In fact, they work for free for a long time before getting paid and once they do get paid, the amount earned almost never makes up for the long …

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Category: Economics, Money, The Writing LifeTag: Career, Money, The Writing Life

Three Significant Announcements Regarding E-books and Audiobooks

By Steve Laubeon January 29, 2018
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Last week there were three significant announcements from Apple, Google, and Walmart of interest to all authors. First the three bits of news and then a few observations. Apple Apple announced that their iBooks app is being renamed to simply Books. Accompanying it will be a complete redesign of the reading app, their store, and the addition of an audiobook tab to make it easier for users to access …

Read moreThree Significant Announcements Regarding E-books and Audiobooks
Category: Book Business, Book Sales, E-Books, Economics, News You Can Use, The Publishing Life, TrendsTag: Audio Books, Book Sales, ebooks, Technology

Retail is Dead! Or is it?

By Steve Laubeon November 6, 2017
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You’ve read the news. This calendar year bankruptcies or total closures were announced by Toys R Us, Gymboree, Bebe, American Apparel, Guess, Rue 21, The Limited, Gander Mountain, Vitamin World, and Family Christian Stores. Sears and Kmart announced last Friday that they were closing another 63 stores in January, on top of the 358 they closed already this year. And the watchful vultures are …

Read moreRetail is Dead! Or is it?
Category: Book Business, Book Sales, Economics, Publishing History, Publishing News, TrendsTag: Book Business, Book Sales, Publishing News
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