Let's talk about money...

How do publishers control their finances, and how do authors get paid?

Hello everyone,

Happy weekend! I wanted to talk in today’s Substack about the concept of money in publishing. It’s a big topic, so this will not be exhaustive (otherwise you’d be here all day!) but I welcome any questions, as always. I’ve split the post up into a few sections, in the hope that it is helpful…

So firstly, how does the financial side of a publishing house work?

Well, like any business, we have profit and loss reports (P&Ls). Each division usually has their own, and while the finance team are across them all, the head of each division has a responsibility to manage the P&L for their department. The CEO or MD would have visibility of all divisions, and of course has the overall responsibility for keeping the company in profit (or at least, trying not to make a loss!) In the P&L, the company spends money on things like overheads that are controllable by division (staff salaries, gifts to authors, entertainment e.g. hotels and transport for book fairs and trips, and more) and then of course things that are split across all divisions (could be the cost of renting or owning the building, group staff roles, warehouse storage costs, etc). We also spend on marketing - each book has a marketing budget, and the budget is set by the head of the marketing team. So that comes out of the P&L too. We also spend on making the books - this has got more and more expensive in recent years, and this includes the cost of paper, the cost of shipping the books, and the cost of printing the books at printers such as Clays or CPI.

Author advances also come out of the P&L, as do author royalties. We put money back into the P&L via book sales (home sales in the UK, export sales in the rest of our territories, and translation rights sales). Sales are usually split out into digital and physical (digital meaning audio and ebook), and into backlist and frontlist (so we can see, for example, if the frontlist is struggling but actually the backlist is doing well). Each month, heads of division see a pack containing everyone’s P&Ls across the company (usually - it might vary house to house but in most places I have worked this is the case) and we also can see where we are month by month against where we are budgeted to be, and how far we are from our actual budget. The finance team also will reforecast through the year - again it varies by company as to how often this is done - to allow for the fact that markets shift and books move in and out of our schedules. You can, for example, have a particular month be impacted by things such as: a big brand author not delivering and therefore the book moves to another month or year; warehouse issues mean a book runs out of stock on Amazon too quickly and therefore sales are lost; there is a book fair so overheads spend is higher; we have a strong month of ebook promotions so digital sales are higher - I could go on (but won’t!).

Sometimes, staff salaries are impacted by hitting or not hitting budget - some more senior members of staff might be on bonus schemes where the bonus is tied to you hitting your budget, and the company in general could decide to provide discretionary bonuses or all-staff pay rises if they have in general had a good year budget wise. This isn’t exclusive to publishing of course.

And how do author payments work?

Author advances are part of the overall P&L. If an author is predicted to sell 10,000 copies, that number goes into the budget for the year ahead, but of course, we cannot guarantee that they actually WILL sell that amount, so you might get to the following year and see that your sales numbers are down or up on budget depending on how accurate your projections were.

We calculate author advances by running P&Ls for the books (separate to the overall report for the division). These essentially add in what the sales team think they can sell, minus marketing and publicity costs, minus production costs. After you have worked in the industry for a while you start to get a sense of the market and the levels for genres and books, and we often will say that the costing (P&L) ‘works’ to a certain level, by which we mean it makes a decent enough margin (each publishing house will decide what that margin is - often there is an acceptable margin that one can live with, and an ideal margin that one aims for). We will make an offer based on what we think we can deliver, and what we think the book is worth to us, in the current market. Of course, as the market changes, genres become more valuable (e.g. the Science Fiction and Fantasy market is up 20% Year on Year, which is huge, and means broadly speaking that books in that genre are now ‘worth more’ to houses than they were 5-6 years ago, for example).

What can then happen is - the offer is accepted, or the agent negotiates, and we will usually have a top level in mind after which we have to walk away (that could be the first offer - negotiation is down to individuals and their managers advice, etc). In an auction situation, it is true that money can be pushed up - however, auctions can mean that some publishers drop out early because they know the money will go too high, and I believe personally that authors should consider every factor when choosing a publishing home, not just the money. It is also important to think about the reputation of your editor and the house itself, the schedule, the format, the royalty rates, the territories, and your gut feeling! Advances can vary, but you also want to feel that you are backed by good people and that you will have a supportive team around you (most teams are lovely so this isn’t pointed in any way - a neutral comment). I wrote more about how auctions work here, so if you are interested, please check this piece out.

And how do authors actually get paid?

Most big houses offer an advance and royalties deal, whereby you get an advance, and when that earns out (i.e. we sell enough copies that we have made your advance money back in house) you start to receive royalty payments on every copy sold. Royalties vary based on territory and format - I wrote more about how a book deal works here.

Advances are usually split into sections. You would get paid on the signature of your contract, delivery of a manuscript (often the payments for signature and for delivery of book 1 are combined, as you have already delivered book 1 - unless it needs significant edits in which case they might not be), and then on publication. Sometimes if the book is going to be a hardback and then a paperback you would get two separate payments e.g. one on first format publication, and the rest on the second. I know that for authors, this payment schedule can feel long and that when a small advance is broken down in this way, it ends up not being a huge amount of money at each juncture. From the publishing side, we are also having to think about the risk involved in each publishing deal, and we have to budget accordingly. I am not going to argue the case either way here as the aim is to just to lay out the facts!

If you have a two or more book deal, your deal will probably be jointly accounted. This means the overall advance is split across both books; again this is about risk mitigation and it helps protect the publisher - and the author - from things like lack of delivery, which can happen. If you are an author who accepts a large advance for two books and then does not write the second book, you could be liable to pay that money back, which can obviously lead to difficulties if you no longer have that money available. I am not saying this is common, but like with any deal, it is possible, and most publishers are not (contrary to belief!) actually rolling in money - as an industry we are fairly small, and though large corporations are owned by big companies, the numbers at play are small compared to, for example, the film industry. I very much believe in fair pay for authors and for publishing staff, and I do find it sad that the vast majority of authors cannot afford to write full time. There are many that do, of course, and this is a much wider topic about the arts in general, so I won’t go into it now, but I want to be clear to those reading that I will always be an advocate for fair pay!

Some digital first or smaller houses do not pay advances; instead they might pay higher royalty rates, and some authors prefer this as you start to see payments straight away, based on how many books you are selling. There is no right or wrong when it comes to these two models; it is your choice as an author as to which works better for you. Accounting wise, digital first publishers often pay you monthly whereas more traditional houses only pay six-monthly, so again, it depends on your individual financial situation and commitment as to which you prefer. Agents can help you discuss this.

Finally, a quick note on ‘worth’ as I used the term above. Your book might be worth different amounts to different publishers. But they are saying that based on sales and business factors, and your book might be worth the world to you, your loved ones, and your readers - books change lives, and for me I always think that if even one person reads one of my novels and it helps them (by entertaining them, taking them out of a bad place mentally, helping them to read, anything!) then it is worth something. So try not to place your self-worth on how a publisher values you, is what I am trying to get at. Worth is a complicated word (on that note I watched a fascinating film about this, nothing to do with publishing though, also be warned, it is sad because it is about 9/11. But worth watching! OK stopping now).

So, that is a very top-line overview of those three elements of money in publishing - there are of course other elements and conversations to consider and to be had, but this is getting very long! I am sure I have missed things out (probably someone will tell me so!) but I think that it is important to talk about these things, and as always, I hope this piece has been helpful and transparent. If you have comments or queries, do pop them below, and thank you for reading and subscribing. If you are enjoying this newsletter, please tell your friends.

Have happy weekends, and if you are tackling the blank page today, good luck! You can do it!

Phoebe x