Michael Shatzkin reveals an interesting statistic here – large publishers estimate that they spend between 36 to 42% of their revenues on royalties (including both advances and royalties). This shows that publishers, as a percentage of revenue, pay a lot more to authors that don’t earn out than those that do.
How much more? Since standard royalties are 10 to 15% of cover price on hardcovers, 7.5% on paperbacks, and 25% of net revenues on ebooks, I’d estimate that standard New York royalties pays authors around 24% of revenue (the actual number depends on the ration of hardcovers, paperbacks and ebooks sold).
So authors that earn out receive somewhere between 57% and 66% as much as the average author. Authors that don’t earn out very possibly earn, on average, over double what authors that earn out make.
Many authors and agents believe that earning out is good, as it means the book is exceeding expectations, and the next book will be eagerly welcomed by the publisher. I’ve always thought this was a sensible attitude.
Some agents (I’ve heard it attributed to both Andrew Wylie and John Brockman) feel that they “aren’t doing their job if a book they sell book earns out.” I’ve always thought this was a bit curmudgeonly, but the numbers show they have a point.
This applies most strongly to the non-superstar authors, as very big names presumably earn royalties that are higher than the standard model.
So do you want to earn out? It’s hard to say. You certainly don’t want your publisher losing money on your book. But it doesn’t seem fair for authors that the publisher thought (incorrectly) would do well to make more than the authors that actually do well. But that is the system.
As I’ve discussed in other posts, profit-sharing deals are a way around this problem, although they certainly aren’t a good fit for all authors. At BenBella we do a mix of profit-sharing and traditional deals. We have minimal unearned advances, but we still fall into the 36-42% range Shatzkin talks about, because many of our most successful authors often earn a lot more than standard royalties.
As an entrepreneur, I like our system. It’s painful to pay out a large advance and have a book disappoint, but it’s a pleasure to write a big check to an author whose book is selling like crazy.