Publishers pay the author an advance based on the book's expected sales, and consequently the royalties the author can potentially earn. This sum is non-refundable, even if the book sales don't cover the amount of the advance. Typical advances range from $1,000 upward, with six and seven-figure advances reserved for writing superstars, such as Audrey Niffennegger who received $5 million for her second novel. Most publishers don't usually publicize what they pay as an advance, mostly because each book is evaluated individually.
An author with a $5,000 advance must "earn out" the advance before she starts to receive royalties. Essentially, this means the publisher needs $5,000 in sales. However, if the book costs $10, this doesn't mean that only 500 books need to be sold. Royalties are based on "Net" sales, which means the price the publisher gets for the book. Suppose, the publisher gets $5 and the bookseller gets the rest, then the author only receive royalties after sales of 1,000 books.
Average royalty rates are 10 to 15 percent on the publisher's net sales. However, this may only apply to domestic sales. Overseas sales are between 2.5 and 5 percent. Sales to book clubs also attract lower royalties, and in some cases none, even if the company is U.S.-based. Another method of calculating royalties is based on an escalating scale. This is when the publisher increases the royalties incrementally based on sales. For example, the publisher might pay 10 percent on sales up to 4,000, 12.5 percent on sales to 8,000 and 15 percent on all further sales.
Books with color illustrations, particularly ones with original photography, usually have lower royalty rates because they have a high production cost. Books aimed at professional, academic and educational markets also have lower rates because they don't sell in the same numbers as the general trade titles, which is how publishers refer to mass market fiction, autobiography and other fast-selling categories. Authors usually receive statements showing the numbers of copies sold, and in which country. It also shows the balance of the account against the advance. Payment of royalties is usually bi-annual or annual, although some smaller presses manage monthly payments.