If you are thinking of becoming an author, of writing books as a career, then you will no doubt want to know how much money you are likely to earn annually. Will it be enough for you to support you and/or your family financially, to enjoy a comfortable --- or even a luxurious --- lifestyle?
Unfortunately, there is no single, easy answer to that question, because much will depend on how successful you prove at your writing career. However, there are some general guidelines that may assist you in developing a better understanding of how authors are paid and what their earnings potential actually is.
First and foremost, you should know that contrary to popular belief, all authors are not multimillionaires! In fact, the percentage of authors who earn their livings solely from their writing careers --- much less make huge amounts of money at it --- is exceedingly small.
Rather, the hard reality is that the vast majority of authors cannot earn even a comfortable --- much less a luxurious --- living from their writing careers, and, unless they have access to other sources of funding (such as a working spouse, investments and dividends, or an inheritance), are frequently compelled to take other jobs as their primary means of financial support.
All authors are self-employed, as opposed to being actual full-time, or even part-time, employees of publishers. This means they are subject to the exact same difficulties every self-employed person must face. They have no guarantee of either a steady income or work, no company-provided life insurance and health benefits, no company stock options, bonuses, profit-sharing plans, or pension plans, and no paid vacations, sick days, or maternity leave.
So, just like all other self-employed people, authors must assume all responsibility for providing all these things for themselves, as well as paying self-employment taxes (because self-employed persons do not have employers contributing to social security, they must pay a higher amount into social security than non-self-employed people do).
These are merely the first of the many important financial aspects of a writing career you will want to take into consideration, should establishing yourself as an author be your ambition in life.
So, just exactly how are authors paid? How does the entire process work?
All authors, being self-employed, are basically freelance writers. They conduct business by signing contracts with publishers for the production of one or more books, for which they agree to accept as payment for writing and delivering the book(s) either a percentage (royalties) of the profits from the book's or books' eventual sales, or else a straight flat fee (work for hire) for the book(s).
When a contract is negotiated between an author and a publisher, the author is usually paid an advance. Again contrary to popular belief, this is not a sum that is over and above any agreed-upon royalties, however. Rather, it is an advance against all future royalties, and it must therefore be earned out before any royalties are ever actually paid.
An author signing a first contract can expect to receive an advance of anywhere from $1,000 to $10,000, on average, per book. Naturally, there are exceptions to this rule. However, it would be unwise and unrealistic with regard to your financial planning to assume you will be that rare, unknown author who garners a multimillion-dollar advance. So, let us say the author receives a $10,000 advance, for a single book. That means the author would subsequently need to earn $10,000 in royalties from the sales of that book before receiving any additional income from it.
If the author did not subsequently earn at least $10,000 in royalties from the sales of the book, then the contract would be unearned, and no additional royalties would ever be paid to the author. Further, the publisher might well --- depending upon the terms of the contract --- also have the right to demand the return of that portion of the advance that was unearned. For example, if the author's royalties amounted to a grand total of only $3,000, then the publisher could request that the remaining unearned $7,000 of the advance be repaid to it by the author (although this rarely ever happens in practice).
So be sure to read carefully any contract(s) you may be considering (don't just rely on your agent to do so). Look for language like "All advances paid to the Author hereunder, to the extent unearned, shall not be repayable to the Publisher" to ensure any unearned advances need not be repaid to the publisher and cannot be recouped by it through any other means, such as a basketing clause.
If the author agreed to a basketing clause in the contract(s), then any unearned advances and/or other overpayments could be recouped by the publisher from any and all other contracts the author might have in force with the publisher (as in "Any advance royalties or overpayments paid to the Author may be applied in reduction of any payments due from the Publisher to the Author under this or any other agreement.").
Along these same lines, if the author sold three books to the publisher, each for an advance of $10,000, for a total of $30,000, and if the contract(s) were joint-accounted, then the author would subsequently need to earn out each $10,000 advance before receiving any royalties from the sales of any or all of the books.
Although there are exceptions to the rule, almost all traditional publishers issue royalty statements every six months. This means that almost all authors are paid only twice a year --- yes, you read that right...twice a year --- and then only if their advances have earned out and there are thus royalties owing to them. Further, even if their advances have earned out, authors still never know how much money, if any, they will receive during any given pay period. This is because, usually, until receipt of their royalty statements, they never know how many books they have actually sold, or what reserve against returns is being held by the publisher for that pay period.
What is a reserve against returns? Unlike most merchandise, creative works like books and CDs are sold on a returnable basis. That means that if a retail bookstore orders 100 copies of an author's book and doesn't sell any of them, then the bookstore can return all 100 copies to the publisher, for credit --- which the publisher then charges back against the author's royalties, as well. (Mass-market paperback books have only their covers stripped and returned, while the books themselves are required to be destroyed. Sales of these stripped books are illegal.)
In order to avoid overpaying the author, the publisher will therefore withhold a percentage of the author's royalties against returns. If, for instance, unsold books are being returned to the publisher at a rate of 50% --- meaning that out of 100,000 books shipped to retail bookstores and wholesalers (who also stock outlets such as supermarkets), 50,000 books have already been returned unsold, then the publisher may withhold 50% of the author's royalties, as a reserve against returns.
"So, what?" you may say. "New books cost a lot of money, so even if half of them are returned, the author is still making a big bundle!" Unfortunately, however, that's not the case, because again contrary to popular belief, the author's royalty is not the cover price of the book, but only a percentage of the cover price.
Generally speaking, hardcover books pay standard royalty rates of 10%, 12%, and 15% of the cover price --- 10% on the first one to 250,000 copies sold, 12% on the next 250,001 to 500,000 copies sold, and 15% on anything sold above 500,000 copies. So if an author's hardcover book has a cover price of $25.00, then the author will earn only a $2.50 royalty on every copy sold, up to 250,000 copies.
This means that if only 10,000 copies of the author's book are ever sold, then the author will earn only $25,000. This sum may indeed be fairly lucrative if the book took only a short time to write. However, if the author spent several years writing the book, then obviously, it was not very financially productive.
You would think the standard royalty rates for hardcover books would also be the same for mass-market paperback books, since because the cover prices for paperbacks are much lower, the royalty rates would be comparably much lower, too. However, this is, in fact, not the case.
Generally speaking, the standard royalty rates for paperback books vary from a low of 1% to a high of 10%, with the average royalty rate falling at 6%. So if an author's paperback book has a cover price of $6.50, then at a 6% royalty rate, the author will earn only a $.39 royalty on every copy sold.
This means that if only 10,000 copies of the author's book are ever sold, then the author will earn only $3,900. At that rate, a paperback author might have to write three books a year, just to earn an annual income of less than $12,000!
"But don't all authors have millions of books in print?" you may ask. The answer is a resounding "No!" Nor should in-print figures be confused with the number of copies actually sold. Even though a publisher may print and ship a million copies of an author's book, 999,999 of them could eventually wind up being returned. Thus, to guard against just this kind of occurrence, most publishers carefully calculate just how many copies of any particular book they believe they can realistically sell, based on the author's name, sales history (if any), the type of book to be marketed, and the current state of the marketplace at any given moment.
Authors have had contracts canceled because initial orders for their book didn't amount to even 25,000 copies. For a mass-market paperback book with a minimum first printing of 25,000 copies, an average return rate of 50%, an average $6.50 cover price, and an average 6% royalty rate, an author would earn only $4,875 on the sales of that book --- and 15% ($731.25) of that sum would go directly to the author's agent, leaving the author with a gross (before taxes) profit of $4,143.75. If, as is not at all unusual, the author had worked all year to produce that book, then the author would have achieved an annual income of less than $5,000!
Sub-rights (licensing a book for foreign markets, magazines, movies, etc.) will increase an author's income for it. However, there is no guarantee that a book will ever produce any sub-rights income at all, so, as an author, you can never count on this.
Please also note that royalties are paid only on the sales of new books. Under current copyright law, authors earn no royalties whatsoever from the sales of used books, no matter how many times the used books are resold.
Last but not least, most royalty statements do not begin arriving in an author's mailbox until six to twelve months after a book's publication date, so the publisher has at least one full pay period (six months) in which to obtain a general idea of how well the book is selling and what the rate of returns is going to average before delivering a first accounting to the author.
These are the kinds of financial facts with which you should arm yourself if you are considering a writing career. The vast majority of authors do not achieve megastar status. Many struggle financially and simultaneously hold down other full-time or part-time jobs just to try to make ends meet (see Will Write for Food) while they pursue their dream of writing the Great American Novel and wait for what they hope will be their lucky break.
Writing is a creative art, yes --- but it is also first and foremost a business. So chase it as you would any other dream you hope to attain --- with your head in the clouds, but your feet firmly planted on the ground!
For other writing perils, see The Pros & Cons of Being a Published Author.
For author Sabrina Jeffries's take on how writers are paid, see The Big Misunderstanding about Money. She also has a good chart, showing how royalties and sales translate into actual dollars.
For author Brenda Coulter's take on how authors (not only in the U.S., but also in Canada) are doing financially, see If it's this hard, why write?.
For how U.K. authors are doing financially (over 60% earn less than half the national average wage), see ALCS Announces £10 million Distribution to UK Writers.
For author Morgan Hawke's take on writing erotic ebooks for profit, see $Money Fact$: Ebooks & NY Print Publication.
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