F irst some definitions.

Royalties are the author’s share of revenues on book sales, expressed as a percentage in the contract. This percentage depends on the publisher and typically ranges between 7% to 25% depending on the type of book: hardcover, trade paperback, e-book, audiobook, large type, foreign language rights, etc.  

Advance means ‘advance on royalties’. For easy math, let’s say your book retails for $10 and you get a royalty of 10% (or $1 per book). An advance of $2,000 means the book needs to sell 2,000 copies before it earns out.

Earning out means the published book has sold enough copies that your royalties equal the advance. Based on the previous example,  you earn out when 2,000 copies have sold. Going forward, every book sold earns you $1 in royalties. Your publisher tracks this information. Usually you will receive a royalty statement and payments twice a year. 

Commission OK, I lied. For the sake of easy math, I lied. In the example above, you don’t actually get $1 in royalties per book. The industry standard for literary agent commissions is 15%. So actually, for every $1 your book earns, your agent gets 15 cents and you get 85 cents. I wanted to keep the math simple up there. Sometimes the agent receives payment from the publisher and sends you your share; sometimes the publisher takes care of the split and sends your share directly.

What if you don’t earn out your advance?  Do you have to give it back? Nope. The only situations I’ve ever heard of when an author had to return an advance was when they didn’t submit a manuscript, blew past their deadlines, and showed zero signs of ever getting around to it. 

Do you get your entire advance all at once? Nope. They never mentioned this in creative writing class or maybe I wasn't listening that day. A typical publishing contract will pay 1/3 upon signing the contract, 1/3 upon acceptance of your manuscript, and 1/3 when the book is released. This creates a cash flow challenge for authors who rely on advances.

• Contract: what that says. Both you and the publisher have signed on the dotted line for a book contract that includes a brief description of what the book is about, a delivery date for the manuscript, and various financial things such as royalty rates. 
• Acceptance: the publisher accepts your manuscript when it has been through editing and gotten past the copy editing stage. It does not mean delivery of a first draft. Some of this timing is under your control and some depends on your editor(s). How soon do they come back with comments? How quickly can you turn around your edits? If your editor is swamped, it could take months before they can start editing your manuscript. If there are a lot of revisions needed, it could take you months to make those changes.
• Release date: these days, it can take 9 - 12 months after acceptance before your book hits stores. This is partly due to long lead times for production printing. The other challenge is internal resources: who can your publisher assign to do the marketing and PR for your book? These folks are busy and their time needs to get booked a year or more in advance.  

Cash flow: When my publisher bought my first novel, I'd already written it. It was a finished manuscript that needed editing; thus the time between Contract  and Acceptance was a few months -- the time it took to work with my editor to get the book into market-ready shape. Since then, my publisher has bought my novels based on a proposal. So after contract signing, I have to actually write the book!  Writing on contract means it could take 12 months or more before Acceptance. Then after Acceptance, it could take another 9 -12 months before Release. In terms of cash flow, again, for easy math, if the advance was $90K, this means $30K of book income approximately every 12 months (minus agency commissions).  

As advances increase, the payment terms often get stretched out. For example, 25% upon signing, 25% upon acceptance, 25% upon release and 25% twelve months after release. 

This milestone-based payment schedule is why career authors who rely solely on book advances will sometimes have two or more writing projects in their pipeline to keep their cash flow going — or they write very fast.

OTHER STUFF:

Do authors get paid when people borrow their books from a library?  In Canada, yes, but it's not a 1-1 compensation as with book sales. We are part of a group compensation plan. The Public Lending Rights Commission (supported by the Canada Council for the Arts) sends out annual payments to authors whose books are in public libraries. Authors must register their titles with the PLR program to be included. The PLR Commission takes a sample of titles in public libraries and calculates payment based on:  how many of your titles are in libraries and age of the titles. The older the book, the less it earns, until finally it doesn't. The more books you have in the library system, the more the PLR payment. Note that there is a payment ceiling per author, which right now is something like $4,500. Canada, the United Kingdom, Ireland, all the Scandinavian countries, Germany, Austria, Belgium, the Netherlands, Israel, Australia, Malta and New Zealand support PLR programs. 

What about movie rights? There are other sources of book-generated income - people often ask about film rights, which is such a different kettle of fish that literary agencies have specialists dedicated to dealing with film / stage / animation /multimedia / games, etc. -- or partner with agencies who can do this. I'm just gonna say that although I've had a couple of novels optioned for film, book-to-film is generally a long and unlikely road. Someone has to be willing to pay out tens of millions to make the movie. So as someone said to me once, just take the compliment and move on. 

But your book is a Bestseller. Aren't you set for life?  Bestseller lists reflect what's happened that week in book sales. The list is relative. There's no sales target to hit to make a Bestseller list. It doesn't mean your book sold a million copies. Let's say your novel sold 100 copies that week. If all other novels that week sold less than 100 copies, then your book is #1 on the Bestseller list. Plus, each Bestseller list (NY Times, Globe and Mail, USA Today etc.) uses slightly different criteria for ranking books. Some count e-books, others don't. Some survey a pre-determined set of bookstores, some only use data from independent bookstores. Authors like being on Bestseller lists, for sure, and the best scenario is when you're on that list for weeks and weeks. What we all hope for is that even after we drop off the list, the book keeps selling steadily, albeit below the radar for a long time, helping to earn out. 

Should I buy a book directly from the author?  If you're at an event and the author is selling books, yes. If the author has an online way for you to purchase directly, yes. Personally, I would rather have readers purchase from an independent bookstore or any brick-and-mortar bookstore or online. It matters more to me for bookstores to make money.