How is money paid on a book contract?
Cherice wrote in to ask, "Can you explain how money is paid on a book publishing contract? I've got a contract in front of me, and I don't understand it."
Happy to, Charice. First, most authors are paid an advance against royalties when signing a book contract. There's a long tradition of publishers paying advances to authors, since it allows the author to survive while he or she is working on a book. This isn't free money — it's sort of a no-interest loan that will be earned back after your book releases. Let's say the contract calls for a total advance of $20,000. Typically you'd get one-third of this on signing, another third upon turning in the completed work, and the last third upon publication. (That said, there are a million ways to divide the advance. Some pay half on signing, some pay a percentage when the author completes the bio and marketing forms, etc.) So when your book releases, you're now in the red $20,000 to the publisher. You've been paid that amount, but you haven't earned anything back yet.
Second, as your book sells you are credited with money for each sale. That's your royalty money, and with each sale it slowly reduces that $20,000 debt. Most trade publishers in the general market (that would include Random House, HarperCollins, Penguin, Simon & Schuster, Hachette, etc.) pay a standard royalty on hardcover books: 10% of the book's retail price on the first 5000 copies sold, 12.5% on the next 5000 copies sold, and 15% thereafter. Royalties for most trade-paper books are 7.5% of the retail price, and mass market books pay a bit less than that. (Be aware: Most CBA publishers don't pay on the retail price of the book — they pay on the net price, which is the amount of money the publisher actually receives from the bookstore. And you negotiate royalties on each book. Though CBA royalties may seen higher, you'll have to do some math to determine which method will pay you more money.)
If your book is a $25 hardcover, you'd be making $2.50 for each of the first 5000 books sold. (Did you see how I got that figure? $25 x 10%.) What happens is that the publishing house keeps track of that figure, and applies that as a credit to your account. So if you sell one book, you no longer are in the red $20,000 — you're now in the red $19,997.50. After the first 5000 copies have sold, your earnings jump to $3.12; and after 10,000 copies have sold, you are earning $3.75 per book. With every book sold, they credit your account the appropriate amount. Eventually you erase the $20,000 debt, and you begin making money that will be sent to you a couple times per year. Once you've passed the $20,000 mark (or whatever your advance was), it's said that your book has "earned out." Now you're in the best possible situation — a company is going to send you checks on a book you finished a year or two ago. There's no better feeling than getting a healthy royalty check and remembering that you're making on a project you're no longer working on.
Some publishers pay once a year, some twice a year, and some four times per year. Whether or not your book has earned out, you should be receiving a royalty statement from the publisher with each pay period, stating exactly how many copies of your book sold, what your earnings are, and either (A) the amount of money you are being paid or (B) the amount of money you're still in the red. And by the way, I've used the terms "debt" and "in the red," but an advance is really not a loan, in that you're not generally required to pay back an unearned advance. Does that make sense for the basic economics of getting paid? Feel free to ask me follow-up questions.