You often hear talk of the advance as a sort of measuring tool to demonstrate which books or authors are “better” than others. But does everyone reading about an advance know what it is?

Advance is the short form of “an advance against royalties” and is an amount paid in a lump-sum to an author to persuade him or her to sign a contract with the generous publisher making the offer. It has become such a standard feature of trade publishing that we often forget that a book can in fact be published without an advance, as are the vast majority of books published today. To figure out the advance they can offer, publishers will guess how many copies could be sold in one year, at what price and discount, at what royalty rate, and work out the total. If the total doesn’t look big enough to tempt the author, you start again. Could the price be higher? Could more be sold? Could you include the sales from the second year, or the paperback rights or whatever?

Here’s an example. I will keep the numbers simple for ease of calculation. So you think you could sell 10,000 copies at $20. With a discount of 50% your receipts will be $100,000. If you are paying a royalty of 10% net (i.e. 10% of net receipts, as against 10% List, which would be 10% of the retail price — twice as much in this example) the author will be getting $1 per copy, or $10,000 after 10,000 copies are sold. So in a way you can think yourself into a belief that you have more or less already spent this $10,000, so you might as well give it to the author right away to steer her away from signing with the competition. Of course as you are probably having this thought at least two years before publication, it does require some faith in the forecast you have made. However the deal gets done: you persuade the author to accept an advance of $9,000, and everyone is delighted. What in effect you are saying to the author is “Your book will definitely sell 9,000 copies — so here are the royalties, up front.”

BUT, the majority of advances never earn out — what this means is that maybe you only sold 7,500 copies at $20, or that Amazon had forced you to give them more discount when the time came around to publish the book, or the book was a bit short, so you priced it as $18.95, or any number of other reasons. The most common problem though is an inflated sales forecast, or underperformance in sales terms. Publishers are optimists. “I love this book. I’m a good judge of books. Therefore it will sell well.” “This guy’s books have always sold well, so why wouldn’t this one?” “This guy is about to break out, so shouldn’t 10,000 be easy?” “A similar book from another author sold 35,000, so 10,000 should be a breeze, shouldn’t it?” So you end up having paid royalties, via the advance, for 9,000 copies, but selling 1,500 fewer. You cannot then go to the author and say “Sorry. We made a mistake. Can you give us the advance back, or part of it?” You’ve spent it (as no doubt has the author — in theory, at least, the advance is what the author lives off while spending all available time writing). It’s gone. And worse, you are going to do the same thing next week and the week after on other new projects. Publishers are even hesitant to ask for an advance back if the manuscript still hasn’t been written years after the due date. No wonder trade publishing is so dependent on the blockbuster — it’s just incredibly difficult to guess how any given book (especially one which exists only as an outline and sample chapter) will sell.

Most senior editors will have some sort of authority to offer an advance up to a certain level. The bigger the advance the more senior the person signing off on it will have to be, ending up at board level in exceptional cases.

See also the post on Royalties from 2010.