Royalty Advances 101 – A Comprehensive Guide 

A royalty advance, sometimes known as an advance against royalties, is a standard feature of author payments in book publishing. It may also be used in other media, entertainment, and licensing industries, when creators are paid for a work that is acquired and sold by a publisher, studio, distributor, or other business entity. 

In this Q&A, we will define the term “royalty advance” and answer other related questions, including: 

1. What is a royalty advance? 
2. Why do companies pay royalty advances? 
3. What is the amount of a royalty advance? 
4. How are royalty advances negotiated? 
5. How are royalty advances paid? 
6. What is a royalty advance earn-out? 
7. Do authors or other royalty recipients need to pay back a royalty advance? 
8. When do publishers NOT pay royalty advances? 
9. How do royalty advances factor into royalty calculations? 

To learn more about the definition of “royalties,” see our article “Book Publishing Royalties Made Easy.”  

What is a royalty advance? 

A royalty advance is an upfront payment from a publisher or other licensee to an author, creator, or other licensor. 

The advance payment is then deducted from future royalty earnings. 

The amount is negotiated and established in the acquisition or licensing contract. 

Why do companies pay royalty advances? 

Since a royalty advance is paid before the product goes to market and begins to generate sales income, it supports the writer or creator during the creative process. This gives them time to work on the project without also needing to generate other income. 

In the unusual event that multiple companies are competing to acquire a certain work, they may each attempt to win the deal by offering a higher advance than the other bidders. 

What is the amount of a royalty advance? 

Since the advance is against future royalty earnings, the amount is based on a reasonable estimate of what those earnings might be. Often it is based on the expected earnings within the first year of sales. 

Since projected earnings can vary vastly from one product to the next, there is no “typical” royalty advance amount. Advances can range from nothing, or next to nothing, to millions of dollars. For most book authors, a royalty advance amount is likely to be somewhere in the 4 to 5 figures.

To estimate the amount of an advance, it may be helpful to research recent deals for similar products. But it’s important to remember that there are dozens of factors that influence sales, the market changes rapidly, and every situation is unique. 

In addition to the acquisitions point person, other departments within the licensee company may be involved in determining the advance amount, including the marketing, sales, and sub-rights departments. 

Many consider the amount of an advance payment to be an indicator of the licensee’s confidence in the product, or of their commitment to marketing it, since the advance is, in a sense, a “bet” on future sales. 

How are royalty advances negotiated? 

In book publishing, the publisher will negotiate the advance, as well as the other acquisition terms, with the author or the author’s agent 

Factors that will play into the negotiations include the author’s previous sales (if any), the public stature of the author (whether they are a well-known celebrity, have a high level of social media engagement, or are widely known and admired within their field or community), the topic and genre of the book, the target market, the size of the publisher, and the skills of the negotiators on both sides of the table.

Similar factors will be at play during negotiations in other industries. 

The publisher or licensee’s sales projections will always be a decisive factor in the final amount of the royalty advance.

How are royalty advances paid? 

Royalty advances are often paid in multiple installments based on deliverables or milestones such as the contract signing, manuscript delivery, and final publication. 

What is a royalty advance earn-out? 

The “earn-out” is the point at which the amount of the royalties earned reach the same value as the amount of the advance. Another way of saying this is that the advance has been “recouped.” 

The earn-out point is when the author will begin to receive additional royalty payments, on top of the advance. 

Not all products achieve the sales level required to reach the earn-out point.

Do authors or other royalty recipients need to pay back a royalty advance? 

No. A royalty advance is effectively a minimum guaranteed payment from the publisher or licensee. If royalties never reach the earn-out point, the advance does not need to be paid back. 

When do publishers NOT pay royalty advances? 

With the rise of non-traditional publishers, there are more instances of deals in which there is no advance. Instead, some publishers offer profit sharing deals. In these situations, the publisher will agree to pay the author a percentage of all profits that are accrued after the costs of publication are covered. Since the author bears more upfront risk in these scenarios, the royalty rate is often much higher than it would be in a traditional publishing agreement.

How do royalty advances factor into royalty calculations? 

Once product sales have begun, the company’s royalty team (often an office of the accounting or finance department) will begin calculating the royalties earned and owed to the creator, copyright owner, or licensor. They may do this on a monthly basis, but it is not uncommon for them to do this quarterly, twice a year, or annually.  

At that point they will also compare the royalty earnings to date against the royalty advance. Once the earn-out point has been reached, they will begin issuing royalty payments from that point forward. 

Until that point, they may or may not produce and distribute royalty statements, which show the product’s sales figures and royalties earned, in addition to other factors that enter into royalty calculations. (Those factors may include subsidiary sales, discounts, returns, and royalty escalators. For more information about these terms, see our “Rights and Royalties Definitions – Glossary of Terms.”) Once the advance has been recouped, the licensee should begin issuing royalty statements and payments on a yearly or more frequent basis.

Further Questions? 

If you are responsible for managing royalty advances, calculations, payments, and reporting, you may benefit from using MetaComet’s royalty automation tools to ensure efficiency and accuracy throughout the process. Our products typically save customers 90% of the time they previously spent on royalty management. 

Contact us if you’d like to learn whether royalty automation is a cost-effective solution for your business, and to see a demo of our products in action.