Cash flow

Back when I was just out of college, I remember laughing at one of my friends who was complaining about the effects of her promotion on her budget. “Sure, I get more money now,” she said. “But I only get it every two weeks, not every Friday! It’s really hard to remember not to spend it all right away, because it has to last longer!”

I laughed then because as an office worker, I was “staff,” and therefore got my meager paycheck once a month. Nowadays, I would laugh even harder. Because a writer’s income isn’t just a long time coming; it’s unpredictable in ways a lot of people have a really hard time coping with.

You see, there are two kinds of payments you get as a writer: advances and royalties. Advances are a dollar figure that’s set in the contract you sign; royalties are based on your sales numbers (usually 5-6% of cover price for mass market paperbacks and 10% of cover price for hardcovers, sometimes with escalators that raise the percentage if you sell an astronomical number of copies. Royalties on e-books vary all over the place, but they’re usually MUCH higher).

Royalties are paid twice a year, spring and fall (e-books, again, can be different), and you don’t actually collect any until the advance has been “earned out.” In other words, your first royalties go to paying back the advance, and you don’t see any more money until that’s taken care of. Once the advance has earned out, you start getting checks…but you have no idea how large the checks are going to be until you actually get them, because they depend on how many copies your book sold in the six month period the royalty statement covers.

The amount of your advance payment, on the other hand, is fixed in the contract. The payment dates, on the other hand, depend on events and processes that are only partly under the writer’s control. Generally, an advance is paid out in two to four equal parts, the current possibilities I know of being: on signing, on delivery, on publication/release (hardcover), on publication/release (mass market paperback). And it can take up to three months (though that is VERY unusual) for a publisher to actually cut the check when one of those milestones is reached.

To clarify things a bit, here’s an example:  Jane Q. Newwriter has finished her first novel, The Best Thing Since Sliced Bread, and joyfully signs a contract with a publisher for a hefty first-time advance of $10,000 and typical royalty rates. Delighted by her good fortune, she immediately quits her day job, figuring she can live on that $10,000 for quite a while, if she’s careful. A month later, her rent is due, and there’s still no check from the publisher, so she takes an advance on her credit card and complains to her editor. The editor explains that they’re still processing the paperwork.

Another month goes by; Jane is living on her credit cards and starting to rack up the debt. Finally, her copy of the signed contract arrives from her agent, along with a check for $2,125 – barely enough to pay off the debt she’s already got, and nowhere near enough to keep living on. What happened?

Well, Jane’s contract divided the advance up into four payments of $2,500 each, and her agent gets 15% of every check. That $2,125 is Jane’s “on signing” payment, minus her agent’s 15%, and it got paid fairly promptly (Jane’s signed contract has to also be signed by someone at the publishing house, reviewed by legal, and then the check has to be cut. This generally takes six weeks minimum, and as I said, up to three or four months if anybody is on vacation). Jane won’t get her “on delivery” part of the advance until she delivers an acceptable manuscript (and it’ll take another three to six weeks for that check to get cut, too); then she’ll get 1/4 when the book is actually published (one to two years after she delivered it) and the final 1/4 will come when the paperback comes out (generally at least one year after the hardback is published.

So that $10,000 that Jane was counting on to live on for her first year as a full-time writer is actually getting spread out over a minimum of three years, probably longer. Since the book is already finished, she may be able to get the editorial revisions done fast and get her second $2,125 this year, but the “on hardcover publication” chunk isn’t going to come until the book is published, and that will take one to two years after she turns in the finished manuscript. One year after that, when the paperback comes out, she’ll get the final “on mass market paperback” part of the advance. Assuming, of course, that the publisher doesn’t delay publication of either hardcover or paperback for any of half a dozen reasons.

Basically, what I’m saying is that when you’re a writer, you either know exactly how much money you will get (the advance), but not exactly when it will arrive, or you know when it will arrive (the royalties), but not how much they will be. This makes long-term budgeting and cash flow management a critical skill for writers.