Calculating When Your Book Will "Earn Out"
Calculating When Your Book Will "Earn Out"
Book sales, publishing myths, and a new "earn out" web tool
There’s a whole lot that’s confusing in publishing, but not necessarily by design. Take “earning out” aka selling enough copies of your book that you pay back your advance—the money you get up front—and start earning royalties. Writers often have no idea how many copies of a book they need to sell to earn out. Publishers don’t tend to tell you. But partly that’s because the math itself is weird and complicated. If you’re an author wondering about it, you should check out this new online “earn out” calculator created by the writer Hana Lee.
Lee created the calculator “the spirit of financial transparency in publishing” and as far as I can tell it works well! Play around with it, at least if your author anxiety can withstand knowing these things.
Why is figuring out if you’ve earned out so complicated? Well, look at part 1 of Lee’s calculator:
it isn’t as simple as counting up the mere number of books sold. Books are sold in different formats—typically hardback, paperback, ebook, and audiobook, although other formats exist—and each has a different price point and a different royalty rate. In the case of ebooks, the price point fluctuates with publishers offering regular deals. With audiobooks, often your income comes from subscription services like Amazon Prime rather than direct sales. Etc.
On top of all that, royalty rates can “escalate” (i.e., rate increases in a given format if you sell enough copies) and book sales themselves are a bit confusing because publishers don’t really sell directly to customers but rather to retailers (e.g., bookstores) who have the ability to return unsold copies.
It’s just a lot of math.
If all of that wasn’t complicated enough, book sales aren’t the only factor for a book earning out. If your publisher owns and sells subrights—such as the foreign rights—then a percentage of that money is paid toward your advance. For example, if your US publisher sells the book to a French publisher for $10,000 and you get 80% of subrights sales then $8,000 would be added towards you earning out.
Lee’s calculator smartly includes this.
Since I’m talking about earning out here, I might as well point out that there are some myths. One is that—as I saw some say in response to the calculator—“virtually no authors earn out.” This isn’t true. I don’t know the exact percent who earn out and it certainly varies by genre and publisher, but plenty of authors earn out. Plenty more earn out on some books and not others. (I earned out both of my books. But I also didn’t get very high advances…)
It is true that some huge book deals don’t earn out. Yet that also isn’t necessarily a problem for publishers. Which brings me to a second myth: that a book is a failure (from the publisher’s POV) if it doesn’t earn out. A lot of authors assume if the book hasn’t “earned out” then that means the publisher isn’t earning money. That’s not true. A publisher starts earning money on a book well before it “earns out” for the author because they’re getting a bigger cut of the sale price.
Which brings me to my last myth—mostly popular in the self-publishing hustle world—that traditional publishers “steal” 90% of the cover price. That’s not right either. About half the cover price of a book goes to the retailer and the distributor. (It varies by format, but about half is close enough.) Authors can debate if their cut should be higher of course, but it isn’t 90%. And that ~50% is the income not the profit per se. The publisher is paying for printing costs, cover art, etc. Not to mention the salaries of their employees, which aren’t as high as they should be to begin with.
Those are all topics for other newsletters.
Anyway, what’s the bottom line? How much do you have to sell to earn out? According to Lee’s calculator, if you got a big $100,000 advance you’d need to sell 40k hardcovers (at $25) or 83k paperbacks (at $16) or 71k ebooks (at an average of $7). Or, more likely, some combination of those plus audiobooks and subright sales etc. etc.
Here’s that calculator again. Just don’t drive yourself too mad plugging in numbers.
If you like this newsletter, consider subscribing or checking out my recent science fiction novel The Body Scout that The New York Times called “Timeless and original…a wild ride, sad and funny, surreal and intelligent.”
Other works I’ve written or co-edited include Upright Beasts (my story collection), Tiny Nightmares (an anthology of horror fiction), and Tiny Crimes (an anthology of crime fiction).
As an indie author getting ready for my first release, I found this post extremely helpful. I used the calculator in a kind of opposite way, by plugging in what I've spent so far on my book (editing, cover etc) to give a realistic idea on how much I have to sell to pay myself back. It's kind of a daunting figure but also a useful "goal" (knowing full well I might not earn my money back on a debut) but it's healthy to be real, imo.
Earning out is, as you say, extremely complicated and involves a lot of math. And it’s going to be different for every author and every deal, thanks to the numerous ways rights and sub rights can work, discounts to retailers, and even special sales to subscription boxes.
And to add another datapoint for earning through -- of the fourteen books I’ve published, I’ve earned through my advance for three of them. My fourth book, my sixth, and my thirteenth.