How trade publishing works: agents, advances, royalties

The traditional route from manuscript to bookshop is still how most books in shops get there. Who does what, how the money flows, and what "earning out" means.

Last reviewed October 2026

"Trade publishing" means books sold to the general public through bookshops and online retailers, as opposed to academic, educational or professional publishing. It is the part of the industry most readers see, and it is organised in a way that can look strange from outside: advances that are not really payments for the book, royalties that are calculated in several different ways, and a supply chain in which shops can return what they do not sell. This article explains the main parts. For the alternative, see self-publishing.

The cast

Literary agents

Most large trade publishers do not accept unsolicited manuscripts. Writers reach them through literary agents, who find and develop authors, submit their work to editors, negotiate contracts, check royalty statements and manage rights. An agent is paid a commission, a percentage of the author's earnings from the deals the agent makes, usually higher on foreign sales where a co-agent is involved. A reputable agent is paid only from the author's earnings, never by upfront fees; the Association of American Literary Agents and its counterparts elsewhere set out codes of conduct.

Publishers and imprints

A large publishing house is usually a group of imprints, each with its own name, editors and character, publishing a particular kind of book. Imprints within the same group may compete with each other to acquire a book. That internal competition became an important issue in 2022, when the US government challenged a proposed merger between two of the largest groups.

Editors

An acquiring editor champions a book inside the house, acquires it, and then works with the author on the manuscript. Copy-editors, proofreaders, designers, production staff, publicists, marketers and sales representatives each take a part of the process from there.

From proposal to publication

1. Submission. Fiction is usually submitted as a finished manuscript; non-fiction is often sold on a proposal and sample chapters.
2. Acquisition. The editor presents the book to colleagues in sales, marketing and finance, often at an acquisitions meeting, with a projection of likely sales. If the house wants it, it makes an offer; if several do, the agent may hold an auction.
3. Contract. The contract sets the advance, the royalty rates, the rights the publisher acquires (formats, territories, languages), delivery dates and many other terms.
4. Editing and production. Several rounds of editing, then copy-editing, typesetting, proofs and the cover.
5. Sales and marketing. Sales teams present the list to booksellers months before publication; advance copies go to reviewers and booksellers; publicity is planned.
6. Publication. Often a year or more after the contract was signed.

Advances and earning out

An advance is a payment to the author against future royalties. It is usually paid in instalments, for example on signing, on delivery of the manuscript, and on publication. The author does not normally pay it back if the book sells poorly, provided the manuscript was delivered as agreed, but no further royalties are paid until the book's royalties exceed the advance. When they do, the book has "earned out", and royalties start to flow.

Advances vary enormously, from small sums for many literary and debut books to very large ones for expected bestsellers. Reliable public data on typical advances is scarce, because contracts are private; author organisations' surveys are the best guide, and they consistently show that most authors earn modest amounts from their books.

How royalties are calculated

Royalty terms differ by publisher, country and format, and are negotiable, but some patterns are standard enough to describe:

The difference between "list price" and "net receipts" royalties matters a great deal. A royalty on net receipts is calculated after the retailer's discount, so the same percentage produces less money. Authors' groups have campaigned for higher e-book royalty rates for years, arguing that the digital format costs publishers less to produce and distribute.

Royalty statements are typically issued twice a year, and publishers usually hold back a "reserve against returns", because bookshops can return unsold books and a sale recorded now may come back later.

Why the big publishers got big

Trade publishing has consolidated over decades through mergers and acquisitions, and in English the market is dominated by a handful of large groups, commonly called the "Big Five". One of them, Penguin Random House, widely described as the largest trade publisher in the world, was formed by a merger in 2013. In 2020 it agreed to buy Simon & Schuster, another of the five. The US Department of Justice sued to block the deal, arguing that it would reduce competition to acquire anticipated top-selling books and push down the advances paid to their authors, and on 31 October 2022 a federal judge agreed and blocked the merger. Simon & Schuster was later sold to a private-equity firm.

The case was notable because it focused on publishers as buyers of authors' work rather than as sellers of books to readers, and because it put on the public record how acquisitions, advances and auctions work at the top of the market.

Around the large groups sit many independent publishers, from substantial companies to tiny presses. They often take risks on books the big houses pass over, and they account for much of the literary fiction, poetry, translation and specialist non-fiction that gets published.

What changed in the digital era

• E-books and audio became standard formats in contracts, and audio rights became valuable in their own right; see audiobooks.
• Backlists became easier to keep in print thanks to print on demand, which changed the meaning of "out of print" in rights-reversion clauses.
• Self-publishing gave authors an alternative, and publishers began acquiring authors who had first found readers on their own.
• Discovery moved online, with reader reviews, social media and newsletters joining traditional reviewing.
• Data on sales became faster and more detailed, which helps publishers respond but also makes them more cautious about authors whose previous books sold modestly.
• AI raised new contract questions, such as whether a publisher may license an author's work for AI training; see AI and books.

Questions to ask before signing

• Which rights does the publisher acquire, in which formats, languages and territories?
• How are e-book and audio royalties calculated, and on what price?
• When, and under what sales threshold, do rights revert to me?
• What are the delivery and acceptance terms for the manuscript?
• Is there an option on my next book, and how is it defined?
• What does the contract say about AI training and synthetic narration?

Author organisations such as the Authors Guild in the US and the Society of Authors in the UK offer contract guidance to members.

Sources

• NPR, Judge blocks Penguin Random House-Simon & Schuster merger, 1 November 2022.
• Association of American Literary Agents (canon of ethics).
• Authors Guild (author income surveys and contract guidance).
• Society of Authors.