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To help the author develop and create the best book possible. Material that has both commercial appeal and long-term value.

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To help the author determine the next best step in their writing career. Giving counsel regarding the subtleties of the marketplace as well as the realities of the publishing community.

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Recent Posts

The Myth of the Unearned Advance

by Steve Laube

A common myth permeating the industry is that a book is not profitable if the author’s advance does not earn out. I would like to attempt to dispel this myth.

First let’s define the term “Advance.” When a book contract is created between a publisher and an author, the author is usually paid an advance. This is like getting an advance against your allowance when you were a kid. It isn’t an amount that is in addition to any future earnings from the sale of the book. Instead, like that allowance, it is money paid in advance against all future royalties, and it must therefore be covered by royalty revenue (i.e. earned out) before any new royalty earnings are paid.

The advance is usually determined by a series of assumptions that the publisher makes with regard to the projected performance of each title. The publisher hopes/plans that the book will earn enough royalty revenue to cover the advance within the first year of sales.

A NY Times essay a couple years ago casually claimed “the fact that 7 out of 10 titles do not earn back their advance.” Of course they did not cite a source for that “fact.” But I have seen it quoted so often is must be true! (and it isn’t.) The implication then is that a book isn’t profitable if it doesn’t earn out its advance. The publisher overpaid and has lost money. The author is the happy camper who is counting their cash gleefully celebrating the failure of their publisher to project sales correctly.

Let me try to explain why that isn’t always true. And to do so means we have to do math together. This may be a little complicated, but realize that these calculations are critical and each publisher runs these kind of scenarios on your books. To dismiss this conversation and claim you “don’t do math” is to ignore the lifeblood of your profession.

Realize that this is a generic model. Each and every number below fluctuates from title to title. That is the weakness of the exercise, but bear with me.

Assumptions:

Advance paid to author: $10,000
Retail price: $13.00 (paperback)
Net price: $6.50 (this is what the publisher receives when they sell the book – to dealers, big box retailers, distributors, etc. )
Copies sold: 10,000

Scenario one: Author earns 14% of net for each book sold. ($6.50 net x 14% royalty x 10,000 sold)
Thus, after selling 10,000 copies the author has earned $9,100.
Leaving $900 of the advance unearned.

Scenario two: Author earns 16% of net for each book sold ($6.50 net x 16% royalty x 10,000 sold)
Thus, after selling 10,000 copies the author has earned $10,400.
The publisher writes a royalty check to the author for $400. The amount above the original advance.

The myth says that scenario one equates a failed and unprofitable book , while scenario two is a profitable book.
But wait! Let’s do some more math.

New Assumptions. (remember these are all estimates based solely on this scenario.)

BOTH scenarios have the publisher making the same amount of revenue. ($6.50 net x 10,000 sold.) Both scenarios generated $65,000 in net revenue for the publisher.

To determine profitability we have to subtract costs.

Fixed costs

Editorial expense: $8,000 (includes all stages of the editorial process)
Design (typesetting/cover): $4,000
Printing and warehousing:  $15,000 (the approximate cost of printing 12,000 copies)
Marketing and PR: $10,000 (an average of $1 per book)
Administrative costs: $13,000 (20% of the net revenue)
Advance paid to author: $10,000
TOTAL COSTS: $60,000

Profit for the Publisher: $5,000 (or 7.7% of revenue before tax)
or the $65,000 in revenue minus the $60,000 of total costs.

Are you with me so far?

Now watch this.

Scenario one – (with the unearned advance still on the books) has a profit of $5,000 for the publisher.

Scenario two – (pays the author $400 for earnings beyond the advance) has a profit of $4,600 for the publisher.

In this comparison it is the book that didn’t earn out the advance that actually makes more money for the publisher!

Why? Because scenario one pays a lower royalty per book sold. The advance itself has NOTHING to do with it. The advance is a fixed cost that is covered by the revenue generated by the publisher.

_____

Pause and reflect on that for a moment.

_____

The advance is a cost of acquisition. If that cost of acquisition in the above scenario were $50,000 of course neither scenario would have been profitable because sales would not have been enough to cover all the costs. And it is likely, if there was a $50,000 advance, the publisher would have spent more on marketing and PR.

So this is not an argument for bigger advances. Instead it is an attempt to show, albeit using controlled statistics, that an unearned advance does not necessarily equate the failure of a book!

So when is a book profitable if there is a bigger advance?

Let me do one more set of numbers to illustrate:

Assumptions:

Advance paid to author: $75,000
Retail price: $13.00 (paperback)
Net price: $6.50
Copies sold: 45,000
TOTAL REVENUE ($6.50 net x 45,000 sold.) = $292,500.

Fixed costs

Editorial expense: $8,000
Design (typesetting/cover): $4,000
Printing and warehousing:  $55,000 (the approximate cost of printing 50,000 copies)
Marketing and PR: $75,000
Administrative costs: $58,500 (20% of the net revenue)
Advance paid to author: $75,000
TOTAL COSTS: $275,500

Profit for the Publisher: $17,000 (or 5.8% of revenue before tax)

If you are an experienced person from the publishing side of the table it is obvious that this is a very generic scenario that has only an echo of reality. For example, the net revenue for a publisher is usually less than the 50% of retail that I used above. That is because distributors and specialty vendors (like the book racks you see in the airport) command a much higher discount off the retail. Thus the true picture is highly complex. And we don’t even touch on ebooks or ebook sales or royalties here. This exercise is merely to show a business model where the advance is a fixed cost. Not a cost that has to be earned out for the book to be profitable.

In the above case, a book with a $75,000 advance makes money after only 45,000 copies are sold.

So what do you think? Is the math realistic? Does it make sense? What are the implications (either to the publisher or the author)?

 

 

 

 

 

 

 

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Writing that Sings

As I’ve started the work of being an agent and building a client list, I’ve had a number of folks in different venues ask me what I’m interested in representing. So thought I’d address that here.

First and foremost, you need to know that I’m looking for books that share God’s truth. I want to work with authors whose books will change lives. Who bring the depth and wealth of their own spiritual journeys to whatever they are writing. I long for books, whether fiction or nonfiction, that are filled with authenticity, vulnerability, and powerful truth.

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Happy to be Here!

HAPPY TO BE HERE!

I am thrilled to be a part of The Steve Laube Agency and to post my first blog entry. I have been asked lots of questions about my new venture. I’ll answer a few here.

Will you continue to represent Christian romance novels?

Yes, I will! Steve was familiar with my client list when I joined the agency and we both believe Christian fiction is a vital part of publishing.

I am passionate about Christian romance novels. The talent of my clients, the dedication of the editors, and the support of the publishers make this endeavor worthy and God-honoring.

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The Passing of a Friend

My friend Bill Reynolds, known as “Mr. Bible,” has passed away. In his career as a Bible salesman he sold over one million copies! He was one of the first sales reps to ever sell to me when I first started in the industry as a bookseller with The Berean Christian Stores. He was always cheerful and took a sincere interest in my life and development as a Christian, a father, and a bookseller. I will always treasure our friendship.

After reading of his passing, a number of memories flooded back.

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More Great News for the Agency!

In the final step of our current expansion we are excited to announce that Karen Ball is joining The Steve Laube Agency as a new literary agent for the firm.

Karen is one of the most widely respected editors in the publishing business. For nearly 30 years she has built  and led successful fiction lines for Tyndale, Multnomah, Zondervan, and, most recently, the B&H Publishing Group. She’s had the honor of discovering several of the best-selling CBA novelists, including Francine Rivers, Karen Kingsbury, Sharon Ewell Foster, Liz Curtis Higgs, and, most recently, Ginny Yttrup (a Steve Laube Agency client), whose debut novel Publisher’s Weekly declared “a masterpiece!”

Karen has also worked with numerous top novelists, including Angela Hunt, Robin Jones Gunn, Robin Lee Hatcher, Brandilyn Collins, and many others. In addition, Karen is a best-selling, award-winning novelist and a popular speaker. She will work out of her office in Oregon where she lives with her husband, father, and two four-legged, furry “kids.”

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