A book earns out when the portion of the book that is allocated to the author exceeds the advance. To make the math easy, let’s assume a $20 hardcover book with a 10% royalty rate. That means each book is worth $2 to the author. So the author will earn out a $10,000 advance when 5,000 books are sold. But let’s say there were only 4,000 books sold…The break down would go something like this:
- 4,000 x 20 = 80,000 total income
- Distributors and retailers will get 50% of that or $40,000
- The publisher will pay about $2 a book for printing and warehousing so that’s $8,000
- The publisher will pay $3,000 for editing and cover design
- The author is paid their full $10,000 advance
So the publisher will earn: 80,000 - 40,000 - 8,000 - 3,000 - 10,000 = $19,000 in profit (which is almost twice as much as the author earned.
Now, if the book were to sell 6,000 copies the author would have “earned out” and made an extra $2,000 in royalties which are in addition to the $10,000 advance they received to license the book in the first place.
Mostly right. In the old days when print ruled, most books earned 95% of their lifetime sales in the first 6 weeks, so if you didn’t earn out by then, you never would. With the advent of audio and ebook, there is a “longer tail” to income. The print will still fall off that quickly, but the audio and ebook sales (will continue - at a much smaller amount). Because of that, some books wil eventually earn out but if it takes 8 to 10 years to do so, that’s a failure. The publishers want a book to earn out in the first 24 months (and some in the first year) after release.
My books have unusually long legs, and even books that came out in 2011 are still selling quite well, so my “sales profile” doesn’t resemble most books. But I’d say there are definitely a lot of books that essentially earn peanuts after that first 6 weeks and so they are still selling in a profile that follows the traditional model.