The Ins and Outs of Offers
After you’ve written your proposal and sent it to publishers, the future of your book is in their hands.
If you’ve done your job effectively, you will receive an offer (or hopefully, offers) to purchase the rights to your book.
Almost all offers come in one of three ways:
- Preemptive offers
- Individual offers
Preemptive offers happen when one publisher wants to “preempt” (or knock out) the competition early. These offers will often be good for only 24 hours, because they don’t want you to shop the offer around to competitors. The good news is this means the publisher is really passionate about your book. It’s a sure thing and may be the best offer you’ll get.
The downside is that, if you accept the offer, you can’t use it to breed other interest. Someone else might have offered you more, but you’ll never know. Or, another publisher might have been a better match for you, even if they didn’t offer as much money.
If you get a preempt, ask them all the questions you can think of. Consult with your agent about the pros and cons of accepting. It’s tempting to want your agent to make the decision for you, but ultimately, the decision is yours.
There are two kinds of auctions: round-robin auctions and best-bid auctions. Both occur by phone or email at a predetermined date and time.
In a round-robin auction, all the participating editors (representing their publishing houses) make first-round bids. Whoever has the lowest bid in one round makes the first bid in the next round. Each new offer has to top the previous one by a minimum percentage of (usually) 10%.
So, if someone makes an initial offer of $10,000, the next bidder has to come in at $11,000 or above. But they can bid more than 10%, which is a strategic move to knock others out of the running early. The bidding goes on until one editor is left standing.
Price is just one factor in the auction. Others include format (hardcover vs. paperback), rights (worldwide vs. North America), royalties, publicity and marketing commitments, and more.
Here’s a play-by-play example to give you a sense of how it happens: Let’s imagine that Crown (a division of Penguin Random House), Putnam (another division of Penguin Random House), and HarperCollins are bidding on your book.
Their initial bids for the first round are as follows:
- Crown: $25K
- Putnam: $40K
- HarperCollins: $40K
Crown, the low bidder in the first round, then makes the first bid in the second round, which must be 10% higher than the last round’s highest bid. Since HarperCollins and Putnam placed the same bid, the agent typically contacts the person who called first and lets them know where the auction stands.
The second round goes as follows:
- Crown: $44K (the minimum bid)
- HarperCollins: $49K (they round up from the minimum bid)
- Putnam drops out
- Crown: $54K
- HarperCollins: $61K
- Crown: $75K
- HarperCollins drops out
You can see that Crown made a risky move in the fourth round, offering more than was required in order to try and knock out the competition. The strategy worked.
The beauty of the round-robin auction is that you can watch your money grow by leaps and bounds. Another is that the lowest initial bidder can come out on top. The downside is that money is the controlling factor. Sometimes the underbidder may be your first choice because of their values or enthusiasm, but you have to go with the winner. Another downside is that if one publisher was willing to pay a lot more than the others, they will discover this through the auction process and adjust their offer to be more in line with the others.
Sometimes an editor will make a preemptive offer before the bidding starts, but it’s typically not quite as juicy as you would like. You and your agent may then ask them to “take the floor” in the auction. Their bid becomes the starting point of the bidding, below which no bid can go.
There is another significance: The floor-holding editor sits out the auction and watches how things play out, but they retain the option to make the final, top bid, which is typically 10% higher than the last bid. Floors are great because they guarantee the sale of your book, but they also discourage other publishers from participating because no matter how much they offer, they can lose out at the last moment.
The main number to negotiate in your contract is the size of your advance. An advance is like a loan or investment. The publisher fronts you the money you need to write the book in advance of the book actually starting to sell.
Say you receive a $20,000 advance. And your hardcover book sells for a retail price of $20, and 10% of that goes to you. This 10% is your royalty.
But you don’t actually start receiving royalty checks in the mail until you’ve “earned out” your advance. In other words, this is when you’ve paid back the $20,000 the publisher fronted you. This means that 10,000 copies of your book will need to be sold (earning $200,000 gross) to earn out your $20,000 advance (10% of $200,000). Only after these 10,000 sales will you start to receive royalty checks for any additional sales. Incredibly, only 10% of books ever earn out their advance and pay out any royalties at all.
Advances are typically paid out in multiple payments over time, not in one big chunk. Typically, you get the first payment when the manuscript is accepted and the last one when your book is published. Other payments are commonly made upon the signing of the contract, delivery of the manuscript, and publication of the softcover version.
Do whatever you can to get more of the advance earlier. For example, by changing a ⅓, ⅓, ⅓ payout schedule to ½, ¼, ¼ or adding a clause that you will be paid upon softcover publication or within 12 months, whichever is earlier. If something should happen and your book doesn’t reach publication, you usually get to keep whatever money has been advanced to you.
In any case, it can often take three to six months or longer to actually have the cash in hand. Here is a typical payment schedule:
- January 1, 2015: offer made
- July 1, 2015: payment due on signing of the contract
- October 1, 2016: delivery and acceptance payment made
- October 1, 2017: publication payment made
So your final check will not be in your hands until almost three years after you received the offer.
Making the choice
Eventually, assuming you have more than one offer, you’ll need to accept one. Talk to the editors over the phone to get a sense of their enthusiasm and commitment level. Here are some signs that indicate a publisher is highly committed to your project:
- A track record of publishing your type of book
- Enthusiasm from the top of the organization to the bottom
- An established reputation in prestige, attention, design, or anything else that matters to the success of your book
- A desire and ability to go the extra mile to get your book into readers’ hands
Sometimes a publisher that seemed uninterested shows up at the last minute with the biggest check. Or, a publisher with a lower offer turns out to be the best option because of their intense commitment to the idea. Or, one of the bidders makes a compelling pitch, a big commitment to spend on marketing, or a large first payment.
If you can, talk to authors who have been published by the editors making you an offer to try and get a sense of what it was like to work with them. Think about the publishing company as a whole – are they all committed to your book? Have you heard from the marketing, sales, and publicity departments? Do they understand online sales and have the resources to make an impact there? You want to have as much of the house behind you as possible.
Whatever happens, be hyper-polite and send thank you cards or at least emails to everyone you meet with, in person or virtually. This isn’t only the right thing to do but might make an impression so that they look out for your next book.
Don’t assume that a big advance automatically means a publisher is committed. As strange as it may seem, big publishers sometimes shell out big bucks and then pay little or no attention when the book comes out. This could be due to a change in leadership, a lackluster final manuscript, or slow pre-orders.
Don’t be afraid to ask tough questions and negotiate for the best deal. For example, you could ask:
- What are the highest royalties you’ve given in a contract?
- What range of advances do you give?
- Will you have an advertising or publicity budget?
- Will you build a website for my book?
You can also make a budget, which will often help justify the advance you are requesting. Spell out how much you estimate you’ll need for research, content licensing, permissions, and travel. Maybe you need an assistant to check your sources or a babysitter to look after the kids while you write. Include that in your advance budget.
When you arrive at a deal, be sure to get it in writing as a “deal memo.” It can take months to execute and sign the actual contract, and you don’t want them “forgetting” what they agreed to. This memo should include the advance, royalties, payout, rights, delivery date, bonuses, options information, and anything else that’s relevant.
Here’s an example of such a deal memo:
- Territory: North America.
- Advance: $75,000.
- Payout: $37,500 on signing, $18,750 on delivery and acceptance, $18,750 on publication.
- Royalties: Hardcover: 10% for the first 5,000 copies, 12.5% for the next 5,000 copies, 15% thereafter. Paperback: 7.5% flat. Ebooks: 25% of net.
- Sub rights: Publisher retains audio and first serial. 80/20 split on British rights, 75/25 on translation. (Note: The first number in those ratios represents the author’s take.)
- Bonus: $10,000 earn-out bonus. Must earn out within one year of publication. Bonus applied to advance.
- Option: 30-day option on the next proposal, to begin after delivery and acceptance. No matching clause.
- Title: Mutual agreement on the title.
- Cover and jacket: Consultation on the cover and jacket copy.
In the next post, we’ll examine the contract details you’ll need to understand and sign off on for the offer you accept.