Kind Of A Big Book Deal

Episode 14: How Book Advances Work

• Meghan Stevenson

Share episode

What if your book deal didn’t pay you the way you expected, but still made you rich in other ways? In this episode, Meghan Stevenson breaks down the financial truths of traditional publishing, answering listener Becky’s smart questions about advances, royalties, taxes, and startup costs. 

You’ll learn why writing a book is less about immediate profit and more about long-term ROI, like doubling your mastermind rates, landing speaking gigs, or scaling your brand. Plus, Meghan explains how tax structures (S Corp vs. sole prop) can affect your take-home income, and why your literary agent and collaborator will get paid before you do.

Whether you dream of a bestseller or a business-boosting book, this episode pulls back the curtain on the numbers that matter.

Episode Highlights:
(0:00) Intro
(1:25) Do you have to pay taxes on your advance?
(6:39) Why your advance might net $0
(8:25) How much to save before publishing
(12:01) Average advances and what’s left
(14:20) Where the real ROI actually comes
(15:34) Will your book actually sell?
(17:00) Do you repay the advance if you flop?
(19:03) Royalties explained with simple math
(21:15) Don’t let taxes stop your dream
(22:19) Where to ask your publishing questions
(22:29) Outro


Follow Meghan:

  • Instagram: https://www.instagram.com/megstevenson
  • Facebook: https://www.facebook.com/megstevenson
  • LinkedIn: https://www.linkedin.com/in/meghanstevenson/
  • TikTok: @meghan.stevenson.books
  • Website: https://www.meghanstevenson.com/


Have a great idea for a book but don't know where to start?MeghanStevenson.com/quiz


Traditional publishing expert Meghan Stevenson blasts open the gates of the “Big 5” – Penguin Random House, Simon & Schuster, HarperCollins, Hachette, and Macmillan – to share what every entrepreneur and expert needs to know about landing a book deal.

In episodes released every other Monday, Meghan shares wisdom and stories from 20+ years in publishing as well as interviews with authors, literary agents, and editors. She also answers questions from listeners like you.

Whether you are an experienced entrepreneur with an empire, or are just starting out – this podcast will help you understand what you need to do in order to turn your dream of being a bestselling author into real life.

Speaker 1:

even 100k. They would treat this way like very low stakes for them. But it does give us an opportunity to talk about royalties, which I'm going to run with and take. So you only receive royalties as an author when you do what's called earning out on your advance.

Speaker 1:

So I'm ready to go? I think this will be ready to go, so let's go and do it. Welcome to the Kind of a Big Book Deal podcast where entrepreneurs come to learn about traditional publishing. I'm your host, Meghan Stevenson. After working as an editor for two of the biggest traditional publishers, I started my own business helping entrepreneurs become authors. To date, my clients have earned over $5 million from publishers like Penguin, random House, simon Schuster and HarperCollins. In these podcast episodes, I blast open the well-kept gates to traditional publishing. I'll explain what every entrepreneur needs to know about landing a book deal. Without losing your mind, I'm going to share stories, answer your questions, interview the successful authors I've worked with and probably say platform more than a tech bro. So if you dream of landing on a bestseller list but have no idea how, this is the podcast for you, and I am so, so glad you're here.

Speaker 2:

Hi Meghan, is it true that you must pay self-employment tax on your advance and on your royalties and if that is true, is it possible to structure a deal with a publisher with your company instead of with you as an individual? If you're a company owner, can the publishing deal be between the publishing company and your company, therefore lowering your tax liability? Thanks a lot. This is Becky Sadek. I'm currently writing a book called Boss for early stage career folks who are looking to approach their career growth like a marketer and think like a marketer and their careers like a product. That is my background, marketing and I am writing my book from Nairobi, kenya.

Speaker 1:

Thanks, Okay, first of all, thank you, becky, for submitting this question. This is such a great question. So, first, I am that weird person who loves to talk about taxes. Seriously, I love talking about business and about money, including taxes. It is legitimately one of my favorite topics to chat about and learn about, so I'm excited to talk about that with you. And second, I love when authors ask me questions like becky's, because it reveals two very important things first, that they're serious beck Becky's obviously seriously considering writing the book and second, that y'all are jumping so fucking far ahead, so far ahead and you're likely not actually focusing on what would ultimately make or break your book deal, which is cultivating that engaged audience of readers.

Speaker 1:

We've talked about that a lot, including in episode 12, where I talk about Googling a bitch or Googling a bro, so I'm going to leave that there. But money is such a big part of publishing a book that I want to answer Becky's question in this episode, because it's a question I get a lot, so I'm going to allow you, I'm going to allow you to jump ahead and answer the questions I get about how money works in traditional publishing, because y'all are asking them anyway, or at least Becky's questions. At the time she was the first one to ask me a question. There's been a few of you that asked me questions so far. Y'all are in the queue. So if you're listening to this and you've left me a voicemail, don't worry, I've got you in the queue and if you didn't know, you can leave me a question. You can. You can go to the show notes or to meghanstevensoncom forward slash podcast, where a disproportionate number of you are listening, and you can leave me a voicemail with literally any question related to book publishing and your future as a published author. So if you're nervous about leaving me a voicemail, you can also send me an email at hello at meghanstevensonbookscom that's H-E-L-L-O. At M-E-G-H-A-N-S-T-E-V-E-N-S-O-Nbookscom. I know voice actors and I will happily hire one to call in and leave a voicemail on your behalf, right? Or ask someone on my team to do it, or my husband or something.

Speaker 1:

But anyway, back to the topic at hand. So let's answer Becky's question, which was do you have to pay taxes on your book advance and royalties? Great question. So this is what I call a rich person question, because it gets into understanding how taxes work and how you or anyone else actually can navigate the tax code to save money. So, in short, the answer to Becky's question is yes, but there are a lot of variables.

Speaker 1:

I'm also going to give a general disclaimer that I'm not an accountant or a financial advisor and you should definitely consult with professional to get the best advice for your exact tax situation, because tax situations vary a lot. So now that we've collectively acknowledged that this is a podcast, that I am primarily um, an entrepreneur and a book collaborator and everything I'm about to say here is entirely hypothetical, let's continue on. So first, the first thing to know is are you a sole proprietor who is subject to self-employment taxes, or have you created an LLC that is taxed differently For our sole props out there? You probably already know that self-employment taxes are at least 15% above your normal tax rate for income, so that income tax in itself can be anywhere from 10% to 37%, based on how much you make in gross income annually and, to some extent, what state you live in as well. So your tax bill could vary widely, anywhere from roughly 25% as a self-employed person to whopping 52% of what you earn as a self-employed person. What you earn as a self-employed person, the tax hitch is different if you have both filed for an LLC and are elected to be taxed as an S-corp. In that case you tend to only pay taxes on the profits that your business makes, or at least an estimate of said profits.

Speaker 1:

So this is where paying for help starts to really make a lot of sense. And the reason for that is, let's say, I'm running an LLC and I've opted to be taxed as an escort, which is actually how I run my business. That's what we do here. So as an author, let's pretend that I receive a hundred thousand dollar advance from a traditional publisher. So I'm going to have to pay my literary agent a 15% commission, and that is standard. So that is $15,000 out of that 100K advance. So now my taxable income on my book deal is only $85,000. But let's say I decide to hire a publicist. That usually costs at least $25,000. So now I'm down to $60,000. Add in additional help, maybe a collaborator like me, or even a research assistant, a new computer, and pretty soon I'm down to zero profit in my S-Core on my book deal and therefore zero tax liability. This is why I work with entrepreneurs and experts, because when a book is a business investment right, when a book is a product in your business, everything is different.

Speaker 1:

It's also worth mentioning here that you won't get your whole advance at once or upfront. That would be silly of the publisher, because then you could literally like, presumably walk away with the money without ever writing your book. What's just dumb. They wouldn't do that. Instead, they're going to, you know, pass that risk off over time. So they are going to, you know, split that $100,000 over multiple payments, maybe even multiple calendar years, which makes all of this trickier. But the general principles and general math still apply, okay. So next question, also from Becky.

Speaker 2:

Hi, Meghan. My question is how much should a first-time author have saved up and plan to invest in the process from start to finish? Obviously they need to pay for a collaborator like yourself, a literary agent and other associated costs with writing a book. But what's a good benchmark or range for how much they should plan to invest up front, before the book even gets published?

Speaker 1:

Okay, another great question from Becky y'all. So there are actually two different questions going on here. The first is how much should you expect to spend from start to finish on your book and how much should you save up to even get the book deal at all? So let's start with the amount that you should have saved um to write the book proposal, because that's the first step. Right when you're ready to write a book proposal, you have to pay somebody to do that. So I'm going to say 30,000. And the reason I'm going to say that is it's because our it's our current rate for proposals and I know that most people whether it's me and my team or anyone else that's legit is going to ask for that much in proposal fees. If you shop around, you can often find someone that charges less than that, but your results are going to vary. So I can only tell you what our results are, and last year, 90 of our clients got deals. We've gotten over 6.5 million dollars in advances, which is constantly growing. We just got 100k for somebody last week.

Speaker 1:

I could get into why ghostwriters, collaborators in the whole publishing industry undervalue proposal writing, but I'm trying to make these episodes around 20 minutes and it would take me much longer than that to explain why people are trying to pay me the same amount money today as 10 years ago. So we're not going to get into that. What I will say is that $30,000 is an investment that you can and will earn back. A lot of people don't think about it that way, but it is. And here's what comes next. So once you have a proposal, it's time to get a literary agent. You also do have to pay literary agents, but they work on commission, so they get paid when the publisher pays you. So the only money that you're actually going to spend before you get an official deal is paying for the proposal, which is pretty good, actually Pretty awesome, right? So next, once you get your deal, you will likely have to pay your collaborator before you get payment from your publisher. There are so many reasons for this, but essentially it comes down to the fact that publishers and publishing contracts take a long time. So you might need another $15,000 to $30,000 in the bank to cover that expense as well. Right, to pay your collaborators to start writing before you get your contract. If you think, oh, maybe I should wait until I get paid, there's a big risk in that because you lose time. So if you had a year to write your book and it takes you six months to have a contract to be finalized, now you only have six months to write your book. I've had authors wait for the contract only to have us raise the price on them because we have to, you know, do more work faster, when all of that could have been avoided if they had reached out to us as soon as they got their deal.

Speaker 1:

Okay, so here's a chance to talk more broadly about money and how we get paid as collaborators, right? So how somebody like I get paid as a collaborator and how you get paid as the traditionally published author. So I'm literally taking this from clients we've worked with in the recent past. Within the last year or two. So in 2024, authors earned anywhere from 40k on the low end to $350,000 on the high end. Those are clients we worked with.

Speaker 1:

The average advance for our clients is around 175,000, which I'm going to use for our math today. So let's say you hire a collaborator for the whole process proposal and manuscript. For us, the current price of that is about $120,000. At our current pricing. It varies, but it's between $100,000 and $120,000. So that means you've got $55,000 left at minimum of your advance. So your agent is going to take 15% of that, or roughly $26,250, which means you roughly have $28,750 left over.

Speaker 1:

If you want to take that as profit in your business, you could, but most of my clients use that to hire a publicist or to otherwise spend on promoting their book and their business. So they use it somewhere else, right? So, circling back to that tax question, you wouldn't really have to worry about the tax implications so much because it would all sort of zero out on your P&L. Or you could work with your accountant to make sure that it does right, to make sure it does that. So, unless you're going to get millions of dollars which does happen occasionally but is rare, first of all that's going to be really spread out for the publisher to manage their risk and their financial obligation to you. But then, second, you can work with an accountant to funnel that through your business and by doing so, um, you know, make it work so that you don't have a huge tax bill when you get a book deal. So you might be thinking you know what the fuck, Meghan? I have to pay you and all your stupid friends.

Speaker 1:

My whole advance Isn't the whole point of writing and publishing a book for me to make money, right as the author, isn't the whole point for me to get paid? Maybe that's my answer, but maybe not right For a lot of my clients. The money they earn as a result of their book deal isn't in the book itself, but it isn't literally everything else they sell. I had a client a couple of years ago. She quadrupled the cost of her mastermind as a result of publishing her book. Similarly, I've had clients raise their speaking fees, book more, keynote speaking generally make more money on what they're already doing and the platform they've already built prior to their book.

Speaker 1:

So what you really need to remember is that the ROI isn't simply in the book advance, right, it's not. When you invest in writing a book, you shouldn't just be looking at the advance as what you're going to earn on that book. That's honestly the biggest thing to know about all of this. You also need to know that you should not ever stop yourself from earning more or aspiring to earn more in order to avoid paying taxes. There's lots of reasons for that. My client, jamie Troll, addresses that really well in her upcoming book, hidden Profit, but it basically the TLDR version of that is like you're shooting yourself in the foot when you do that. So one more question from Becky. That's actually three separate questions because you know there's a lot to ask here. So I get it All right. Here's Becky.

Speaker 2:

Question number one Is it true that 4% of books sell less than 1000 copies?

Speaker 1:

Okay, I'm stopping there at question one Because, like I said, she has a lot of questions. It's all good, becky. So I'm not sure you know the 4% of books sell less than 1000 copies. There's a lot of stats like this floating around. I'm not 100 if this particular stat is true, but it is true, and I have looked this up, that the majority books sell less than 500 copies because of two things that can happen at once number one, a smaller, non-existent author platform for the author, which inhib inhibits sales. And number two, and or self-publishing, where people tend to have magical thinking around how their book will sell and that people will magically find it, which also results in few sales. So there's the two things right, like not having a big platform and thinking that your book magically sells itself, which isn't a thing. Okay, question, I guess number like five from Becky. Here we go.

Speaker 2:

Is an author on the hook for repaying their publisher for the advance that they received, even if their book sales are not enough to cover that cost.

Speaker 1:

Okay. So that was do they have to pay back the advance if they don't sell enough? And that the answer to that is not within traditional publishing, except it's a big exception when contractual terms are violated. So you see, that happen sometimes with what's called moral rights. So that's when, like the fiction author um, this was in the news a couple months ago the fiction author this was in the news a couple months ago she refused to take out mentions of Elon Musk and immigrants. That made her book unsaleable in the current market. Right, that would be a moral right conflict.

Speaker 1:

Or when an author, straight up, you know, lies or defames somebody or also makes the book unsaleable, right? So this is like there's very famous cases about this, like James Frey and things like that, but in other words, like in most times, no, right. If you are a good faith author who delivers a manuscript and then it fails to sell, that's simply the risk the publisher is taking. And 99% of the time, unless you're in violation of the contract, unless you did something to make the book unsaleable like, unless you went on a racist rants on social or you didn't deliver the manuscript at all or any of that like, you're not going to have to pay back the advance and basically, if you, unless you lie, cheat, steal or fail to deliver, those are the only things where you're gonna have to pay back the advance.

Speaker 2:

Okay, last question from becky and number three in the hypothetical scenario that someone received a ten thousand dollar book advance and their book sales ha are less than that amount, are they not yet making any money off of their book? Thanks a lot.

Speaker 1:

Okay. So to recap, right, let's say you get a $10,000 book advance, but you haven't sold enough books to generate any additional revenue yet or even make up that 10 K that the publisher gave you. So within traditional publishing, this isn't going to be a big deal because it's $10,000, right, it's very low stakes for them. Um, even a hundred K, they would right, it's very low stakes for them, even 100K, they would treat this way like very low stakes for them. But it does give us an opportunity to talk about royalties, which I'm going to run with and take. So you only receive royalties as an author when you do what's called earning out on your advance. So you know what does that mean, right? Once again, we need to do a little math. So let's use 100K advance to make that part easy. So as an author, let's say, you receive $100,000 as your advance, but that's only part of the publisher's overall investment. So an editor at Penguin Random House told me a few years ago that for every book that PRH acquires the rights to publish, they invest $150,000 in that book in addition to the advance. But let's make the advance simple and say that all the publisher's costs, like paying your editor and printing the book and keeping the lights on in Manhattan cost your publisher $100,000. So, to recap, your advance is $100,000, costs your publisher $100,000. So, to recap, your advance is $100,000, their overhead is $100,000. This is just an example. Now the publisher is their P&L on your book is in the red for $200,000. And also, to make the math easy, let's say that your book retails for $20. So in this example, in order to earn back their investment, the publisher would have to sell 10,001 copies of your book. But this is a big but on that 10,001st copy, so on 10,001, everybody starts making money. So, that being said, the money on royalties is small, and it's really small, anywhere from 7.5 to 15% on retail. So, that being said, the money on royalties is small. It's really small, anywhere from 7.5% to 15% on retail. So for that same $20 book, you'd be earning anywhere from $1.50 to $3 a copy, which doesn't seem like a lot. It seems kind of unfair. Right, out of the $20, you're only earning $1.50, maybe $3. And that doesn't seem like a lot at all. Right, it seems kind of unfair.

Speaker 1:

But when you sell 50,000 or 60,000 or even 100,000 books, you do earn a lot of money, right? And yeah, you're gonna have to pay taxes on that. But so fucking what? We complain all day, but our taxes go to schools and sidewalks and all sorts of stuff we like and use every day, and maybe some stuff we don't even use, right, I don't use the school down the street, I don't have kids, but I'm happy to pay for those kids to get an education. Someday those kids are going to be the ones protesting in the street about the government. So I'm here for it, okay, so don't let taxes get in the way of your dreams, please, again, really, if you have questions like this, I made a little bit of fun, becky. I poked a little fun at leading me three voicemails with like six questions, but I loved it. Thank you so much, becky.

Speaker 1:

Literally leave me more voicemails. I love hearing from you. I love hearing what you don't know, what you're appreciating, what you don't like about the podcast, what you do like about the podcast if these episodes are working for you, if they're helping, what you're't like about the podcast, what you do like about the podcast if these episodes are working for you, if they're helping, what you're learning. I want to know all those things. Again, you can email me Hello at MeghanStevensonBookscom is always available to you. Leave me a voicemail. It's at MeghanStevensoncom backslash podcast. We've got tons of resources for you on my Instagram, at meg stevenson and elsewhere on the internet. And until next time I will see you in two weeks, but until then, cheers to your success. Thanks for tuning into the kind of big book deal podcast. Want to see where you're at on your book journey? Check out my free quiz at meghan stevensoncom forward slash quiz. That's m-e-g-H-A-N-S-T-E-V-E-N-S-O-N dot com forward slash quiz. See you next time.