“Seventy percent of authors don’t earn out.”
What does earning out mean?
When an author signs a book deal with a publisher, the publisher pays the author in the form of an advance on future sales, aka an advance against royalties, aka an advance.
Let’s be optimistic and say that your literary agent sold your book to a publisher for $100,000. That means that prior to your book having gone on sale, you will have made $85,000. Don’t forget: your lit agent gets 15 percent of what you earn. That number isn’t always the same for every agent, but 15 percent is typical.
That advance money may be paid in a lump sum, but it may also be doled out to you at specific publishing milestones, e.g., when you sign the contract, when you submit your manuscript to the publisher, and when the book is published. Let’s assume that it takes approximately two years for those three events to happen. At that rate, you’re paid $28,333 three times over two years.
Can you already see how even a sizable advance may not mean an author can quit their day job? We haven’t even accounted for taxes yet!
To “earn out” means that a publisher sells enough of that author’s book so that the publisher recoups their investment in the author.
In other words, the publisher needs to earn $100,000 before the author will ever see more money as a result of sales of their book.
Considering that an author stands to earn maybe $2.50 per hardcover book and less for other editions, at best, the publisher will have to sell 40,000 books for the author to earn out their $100,000 advance.
For a more detailed look at advances, see Chip MacGregor’s “Ask the Agent: What Does an Average First Book Pay?”
According to Jane Friedman, seventy percent of authors don’t earn out their advance. In other words, a majority of authors are paid anywhere between $5,000 and $1,000,000 in an advance and their book sales never match how many the publisher thought they could sell.
Fortunately for these authors, they don’t have to pay the advance back to the publisher. The advance is a calculated financial risk that publishers take on their authors. As far as I know, they can do this because of the small group of experienced authors who can’t help but to sell books, e.g., Stephen King, J. K. Rowling, etc.
Imagine a jar filled with 100,000 marbles. When you sign a book deal, you and your agent are given those 100,000 marbles. The publisher takes the jar back. Once they fill it back up with 100,000 marbles made through book sales, then the jar overflows and the author (and agent) “earn out” and begin to see royalty checks on top of what they’ve already been paid through the advance.
But that only happens 30 percent of the time.