With a lot going around the net about ebooks, piracy, advances vs. royalties and things of that nature, I thought it would be a good idea to lay out exactly how authors earn money and how much (or little). From what I've seen around and surveys I've read, there's a bit of confusion among authors and readers both.
Basically authors earn money BY THE SALES OF NEW BOOKS IN RETAIL OUTLETS (Borders, B&N, Walmart) OR IN RETAIL EBOOK STORES (e.g., Kindle, Fictionwise, B&N, Sony, etc..). With possible income supplements I outline below.
I could end my post here. But I like to talk so I'll do more explaining.
Here's where you can find print books and ebooks for sale and what each means to the author:
1. Retailers who carry NEW books ordered from the publisher (sometimes via wholesalers/distributors like Ingrams, Baker & Taylor, Anderson Merch, Levy, among others). These include: Borders, B&N, independent booksellers who stock new books (not just used), Target, Walmart, drug chains, grocery stores, and the like.
Authors make: Royalties on the cover price, anywhere from 4% to 8% on mass markets, 7.5% on trades, 10% or so on hardbacks.
Sales: Mass markets: anywhere from a couple thousand to a couple hundred thousand; Trades: anywhere from a couple thousand to 50K; Hardbacks: Anywhere from a couple thousand to 50-75K. (This is the average author. Huge blockbuster authors like Nora Roberts or Stephanie Meyer sell much more, but most authors never become blockbusters and sell more moderately.)
Benefits to author: Author gets paid royalties. (twice a year or yearly)
Drawbacks to author: Books, esp. hardback and trade are expensive for readers. Distribution might be spotty--her/his books might only make it to a few chain bookstores and indies, in which case the number of sales will be drastically lower.
2. Ebook retailers who order directly from the publisher: Amazon Kindle, B&N's new e-store, Fictionwise, Sony, and others.
Authors make: Well, there's a bit of fluctuation going on. About half the publishers right now are giving authors royalties on the cover price (percent varies wildly; I do mean wildly, not widely); about half publishers are trying to give authors royalties on the "net proceeds" (which means after all expenses are subtracted, authors get paid. Bad, bad, bad for authors. What if there's nothing left after expenses are subtracted?)
Sales: At this point, the percentage of ebook sales to print sales (from major print publishers) is small.
Benefit to author: Another area of distribution, and author gets paid royalties. (Twice a year or yearly)
Drawback to author: Ebook readers are expensive, not all readers are comfortable with the technology, readers dependent on the site having no glitches at the time they want to purchase. Not all publishers are making their books available as ebooks.
3. Ebook publishers selling new ebook originals directly from their websites (e.g., Ellora's Cave, Samhain, LooseId).
Authors make: Again, varies by publisher. Royalties are about 35-40 percent of cover price, but some try to pull that net proceeds thing.
Sales: In one month, anywhere from a handful (at the smallest pubs) to several thousand (at the larger epubs). Sales can continue at a lesser rate (from a handful to a couple hundred a month) for years.
Benefit to author: Author gets paid royalties, usually quarterly or monthly.
Drawback to author: Readers must go directly to publisher website. Again, glitches when reader tries to purchase will send reader elsewhere.
4. Print publishers (Penguin, Dorchester, Kensington, St. Martins, eHarlequin) selling directly from their website.
Authors make: Royalties on cover price (usually 4-8% on mass markets; 7.5 on trades; 10 and up on hardbacks.
Benefit to author: Author gets paid royalties.
Drawback to author: Print publishers don't get very many direct sales (from my royalty statements, I get only a handful.) Most readers purchase from larger online retailers or bricks and mortar retailers.
5. Book clubs (i.e., Doubleday, Rhapsody, publisher's own book clubs).
a) From their own publisher's book club, a royalty on cover price (usually a reduced royalty; 4% of price is common)
b) From big book clubs (e.g., Doubleday): A flat fee (usually small) that the big book club pays directly to the publisher.
Sales: Varies depending on book club, etc. If you sell the book club rights for a flat fee, that means NO royalties, and you don't always know the sales figures. Publisher-owned book club: varies depending on publisher.
Benefits to author: Another distribution point to find new readers.
Drawback to author: Flat fee is usually small / smaller royalty percentage.
6. Secondary rights (movie options, foreign rights /translation sales)
Authors make: Fee, which is often split 50/50 with the publisher (unless the contract specifies otherwise). Fees can range anywhere from $1500 to five and six figures (but the top end is rare, even for movie options). Sometimes authors get royalties, depending on how contract is written.
Sales: Who knows? Much of this is flat-fee based--you are selling the rights to someone else to do with your book what they wish (within certain parameters spelled out in the contract).
Benefit to author: Income plus more distribution.
Drawback to author: Fees are usually smaller than you think. Even movie options can be $10K or less. (An "option" is an agreement for you to take the movie/TV rights for the book off the market. No guarantee the movie/show will ever be made. If movie/show is made, what authors make is dependent on how that contract reads.) Translation rights can be purchased but the book might never be published. Waters tricky to navigate without an agent.
7. Libraries: Public and school libraries that purchase books directly from the publisher or wholesaler (e.g., Baker & Taylor).
Authors make: Royalties on cover price of LIBRARY's purchase. Authors do NOT make royalties when the book is checked out. (E.g., if a library buys five books and each book is checked out 100 times (500 checkouts total), author gets royalties for FIVE sales only.)
Sales: Varies from library to library based on library budgets.
Benefit to author: Readers might "discover" an author in the library and then buy that author's books new. If books are popular, libraries will buy more copies of the author's next book.
Drawback to author: Not all libraries order an author's book (depending on genre, author popularity, and library budget). Potential loss of income.
8. Used book stores (including eBay): Stores that mainly sell books acquired through customers who bring in books for trade and from purchasing from other used book sellers.
Authors make: Zero (no royalties are paid to authors because bookstores do not pay publishers.)
Benefits to author: Readers might "discover" an author in the UBS and then buy that author's books new. UBS owners are usually avid readers and can be incredibly supportive to authors.
Drawback to author: Books might be difficult for readers to find. Loss of income when the book is still available new, and more copies are bought used than new.
9. Remainder bookstores: Publishers sell off remaining copies of new books from their warehouse to free up space.
Authors make: Zero
Benefits to author: Readers might "discover" an author and then buy that author's books new.
Drawback to author: Loss of income, loss of face (books are remaindered if they're not selling well), possible loss of career.
10. Pirate ebooks sites: Readers scan or decode ebooks/files and post them free on sites.
Authors make: Zero
Benefit to author: Possible that reader will read book free and "discover" the author.
Sales: None. Some sites post how many times the book has been downloaded.
Drawback to author: Files can be downloaded hundreds and thousands of times (one author reported 100,000 downloads of one of her books from one site). Loss of income. Copyright infringement.
As you can see, from the many places books are available authors make income from about half of them. Authors can make extra money from secondary rights sales, but many authors never get offered secondary sales.
Authors make most of their money ONLY from royalties on new book sales. Advances aren't salaries; they are advances against SALES. If a publisher offers an author 100K for 3 books (about 33K a book), then they are expecting the author to make enough sales to earn back $33K before the authors sees another penny in royalties.
(Note that an offer of $100K does not mean the publisher hands the author $100K. It means the author gets a little bit on signing the contract, another little bit each time she hands in a manuscript (which might be a year later), depending on the publisher, another little bit when the book is published. This whole process might take two years, three and more to finish the contract. So that's $100K that has to last the author for three years. Plus she has to pay her agent (if she has one) and income tax.)
I'm not here to whine about how little the average author makes or to whine about UBSs and pirate sites.
This post is meant to lay out pretty much where authors make money and how much. It does vary from author to author; each person's experience is going to be unique.
I like to say: The most consistent part of the publishing business is its inconsistency!!