Your book earns out if/when it has earned enough in royalties to cover the advance the publisher paid you. Here's a bit of simple maths. Simple, I said. Don't hide behind the sofa, there. Maths is your friend - don't leave it to the publisher or your agent.
Stroppy Author gets an advance of £5,000 - hurray!
This means that to earn out the advance, the book needs to earn £5,000 in royalties
Stroppy Author's book sells for £10 a copy.
Stroppy Author gets a royalty of 10% - hurray!
This means that the royalty on each copy is 10% of £10 = £1
So to earn £5,000, the book would need to sell 5,000 copies at its cover price.
These are not real figures; this never happens - but that's the principle.
While we're on maths, let's do a spot of counting.
The press likes to shout about six-figure advances. This is to confuse people, who usually assume that a six-figure advance is a million pounds/dollars/euros. It isn't - a six-figure advance is one represented by a number that has six digits, so it is £100,000 (or $100,000) or more. Count the figures: a 1 and five 0s, that's six. Don't count the comma. So if you hear that an author has a five-figure advance, that means they have £/$10,000 or more, which is not necessarily very much. Obviously £99,000 is quite a lot; but $10,000 is not.
Some books never earn out their advance and are not even really expected to. If a publisher pays an advance of £300,000, this is largely to grab a lot of publicity. The book might earn out, but no one will be hugely surprised if it doesn't because a lot of these gambles don't pay off. To the author, the big advance seems to be a sign that the publisher is certain their book will be a bestseller. In fact, it's a sign that the publisher hopes their book will be a bestseller and thinks there's a pretty good chance it will be. But it's cheaper to pay an advance of £300,000 and get lots of free press coverage than to invest in posters all over the underground and buses. The publisher can still make a huge profit even if this book doesn't earn out.
How quickly your book earns out depends on the following factors:
- how large the advance was in the first place
- the royalty rate
- the price the books sell for.
I have books that will never earn out the advance. This is not because the advance was large, but because the royalty is pitifully small and it's a royalty on nett receipts (what the publisher actually gets, rather than the cover price) from books sold at massive discounts. I can think of a book that will have to sell 100,000 copies before I receive any royalties, and it's only sold about 40,000 so far in four years or so. It doesn't much matter, as I knew this was what would happen and was happy with the advance. In this case, you have to think of the advance as being a fixed fee and then if the book does earn out, the extra money is a bonus. Hooray!
On the other hand, I have a book that earned £1,000 royalties in the first two weeks - because it sold at cover price, had back orders and had a very small advance. Again, I knew this would happen - but it's more of a gamble because if the projections were wrong, or the publisher went bust or decided to discount the books, I'd earn very little from the book.
Understanding what you are getting is crucial. You might feel it's OK to accept a small advance if (a) you can live without the money for now and (b) you are confident you will get enough in royalties to make the deal worthwhile in the long run. Do the maths, though - how much will you really get?
Let's look at that hypothetical book at the start, the one with the £5,000 advance. Assume there is no advance. How many copies have to sell before you earn £5,000? Five thousand? No.
Cover price = £10; copies sold at (say) 40% discount, so nett receipts = £6 per copy
10% royalty = 60p per copy.
On that, your agent takes 15% + 20% VAT (in the UK) = 9p + 1.8p per copy = 10.8p per copy.
So for each copy sold, you get 60p - 10.8p = 49.2p.
That means it takes 10,163 copies for you to get £5,000.
(Of course, your agent would also take 15% + VAT of your advance, so your £5,000 advance comes to £4,100 in your bank. You need the book to sell 8,333 copies to make that.)
(You can use these sums in other territories. Swap £ for $ or Euros and p for cents.)
All this means that you need information in order to make a sensible decision about the contract you're offered.
In particular, you need to know the print run (how many copies the publisher will print), when they expect to reprint and how much they expect to sell the books for. Ask how long you expect it to take for the book to earn out the advance. A good publisher will be willing to tell you the print run and should be able to give you an estimate of the last two.
It's sensible to base your decision on the first print run - after all, if the publisher was certain the book would sell more copies, they would probably order a larger print run (but not necessarily - warehousing printed copies costs a lot, and there is cashflow to consider).
That book that earned £1,000 in the first for fortnight: I know that if the first print run sells out, and the average discount is 30%, the royalty will be nearly £9,000. The book will almost certainly reprint. I've written books that won't earn out, and have taken as long to write, for an advance of less than £9,000.
The lesson is, as always, ensure you have all the information you can get and make a decision based on it (and maths, if necessary).
- The advantages of a large advance are: you have money in the bank; you feel valued; the publisher is likely to work hard to sell the book because they have invested in it; the money you get (initially) is unaffected by the cover price/discounting.
- The disadvantages of a large advance are: it takes a long time to earn out; if the book doesn't earn out, the publisher will be less likely to commission your next book; people will be bitchy about you and assume your book is bad.
- The advantages of a small advance are: the book is likely to earn out, so you get some royalties, which always feels good when the book was written long ago; the publisher is more likely to commission your next book, especially if it sells better than expected
- The disadvantages of a small advance are: you don't have much money while you are writing the book; you feel undervalued (but that's subjective - work on your attitude!); people will be bitchy about you and assume your book is bad - but this time only if you tell them how large (small) your advance is, because the publisher isn't going to be shouting about it in The Bookseller.