Ep 472 Publishing Nerd Corner: Earning Out

Hey all, Jess here.

Sarina and I both love these episodes where we, two certified nerds, get to hang out with likeminded individuals and dish. This week, we are going to talk about one of Jess’ most niggling worries: what does it mean to a publisher and an author to “earn out” a book advance and what does it mean to both if that never happens?

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Multiple Speakers

Is it recording? Now it’s recording—yay. Go ahead. This is the part where I stare blankly at the microphone. I don’t remember what I’m supposed to be doing. All right, let’s start over. Awkward pause. I’m going to rustle some papers. Okay, now—one, two, three.

Jess Lahey

Hey—welcome to the Hashtag AmWriting Podcast! This is a podcast about writing all the things—this is the podcast about writing short things, long things, you know. And specifically, where we’re going to focus these days is on a little episode we’re calling The Publishing Nerd Corner with Jess and Sarina. I’m Jess Lahey. I’m the author of The Gift of Failure and The Addiction Inoculation, and you can find my work at The Atlantic, at The New York Times, at The Washington Post, and at jesslahey.substack.com.

Sarina Bowen

And I’m Sarina Bowen, the author of many contemporary novels. My new one is called Thrown for a Loop, and it drops on November 4th , and I am so excited. And today’s topic actually pertains to what happens when you have a book that’s publishing and everybody has all these big expectations. We’re going to cover one of them, which is earning out your advance—or not—and how to frame your thinking around this.

Jess Lahey

Yeah, first. I mean, the way this Nerd Corner works is because Sarina tends to have more of the business acumen and the nerd acumen. I let her do a lot of teaching me. But one thing I would like to state at the very beginning of this—and apologies, I didn’t look up the stats; Sarina might know them—the number of books that actually earn out their advance if it’s nonfiction. For example, my book that we’re going to talk about today is nonfiction, and so I got a big advance based on a—and we’re going to talk about that. We’re going to talk numbers. It makes authors really nervous, but I think it’s important. The number of authors that actually earn out is really, really low—like, much lower than you expect. . So “earning out” can mean a couple of different things, and we’re going to talk about that today. But to set the scene, we’re going to use my book The Gift of Failure as the example for earning out. as the example for earning out. So I’ve sold a lot of books—like, this book was a success by any measure. It was on The New York Times bestseller list. I had Kristen Bell go on Instagram and say, “Buy this book, it’s so great,” and it sold out across the country. I am not complaining here; I am just saying that it makes me extremely nervous that technically I have not earned out my advance on The Gift of Failure. Again, to set the scene, The Gift of Failure was based originally—it came out of an article that went viral at The Atlantic on why parents need to let their children fail. There was a big auction for this book that lasted three whole days. It was very exciting, and the number kept going up and up and up. And I was freaking out, because now you’ve got huge expectations. I mean, I’m thrilled, but the expectations keep getting bigger and bigger. So where we ended up was Harper Books came back with the highest bid, and it was also for the editor that I was most excited to work with, Gail Winston, and it came in at $400,000, so that was wonderful. That was great. It was based on—I got five payments over five, essentially, five years, and I have not earned back that advance for my publisher. So, Sarina, what would you say to me—a writer who is stressed out because that means, you know, when they’re looking at purchasing other books like The Addiction Inoculation, I was able to sell to them, even though it’s a tough niche, that little—it’s a tough corner, that addiction corner—and they knew that this book was not going to sell as well. But on the strength of my sales of the addiction…excuse me, of The Gift of Failure, I was able to sell that book, but I hadn’t earned out. So why are they going to pay me to write another book if I hadn’t earned out?

Sarina Bowen

It’s such a great question. So the thing—the punch line of this episode—is we just want you to know that if you don’t earn out, you’re not a failure. And we don’t mean it in a nice way, like everybody gets a ribbon. We mean, like, you might not be a financial failure for the publisher, even though on your statement it says you still haven’t earned back your advance. And that’s because the advance that you’re paid is part of a profit-and-loss estimate that the publisher makes before they offer on a book. And just in case anybody is squishy about this—like, an advance means those royalty amounts in your contract, you’re getting paid an upfront amount, and then you have to, like, earn it back with those royalty amounts in your contract.

Jess Lahey

And for those who actually are not familiar with this at all, I don’t have to pay back the money if I don’t earn out. That’s not a thing.

Sarina Bowen

Right. So the publisher said, “We like this book so much we are going to pay you $400,000, and we think that you will sell enough copies that we will be in the black on our P&L statement.” But they never show us the P&L statement. So let’s just say that they had a P&L statement that shows that they’re profitable on this book even if you only sell 70,000 copies—but you’ve sold over twice that amount. So when I worked on Wall Street, I was given a bonus every year, and the bonus made everybody feel like, “This is the amount of money that you’re worth.” But what it really was is “This is the amount of money we have to pay you so you won’t quit and go work for somebody else.” And an advance is exactly the same thing—it’s how much do we have to pay you to win, but also in a way that looks okay on our profit-and-loss estimate of what this book can do. And of course, you mentioned that we don’t have good data about how many books earn back their advances. And the truth is, even if you and I had done a deep dive prior to sitting down here today, we still wouldn’t know, because nobody publishes these numbers. And the only time that you get a glimpse of them is when some publishing executive is on the stand in a court case about, say, whether two Big Five publishers can merge.

Jess Lahey

Gotcha.

Sarina Bowen

And then, yeah. And then they tend to say various things—like, they’ll give a statistic, and then everybody in publishing will be, like, nailed to the transcript of this court case to see, like, how is everybody doing in there? Because, you know, nobody—nobody tells you. Nobody is obligated, even in a publicly traded company, to give these precise statistics about how often people earn out.

So earning out has some pros and cons. Like, so you said that writing this book—because you sold it on proposal, and then you had to write it, and you had this big amount of money that you had to recoup—and that is so intimidating. And I’ve been in this same situation. I sold The Five Year Lie to HarperCollins two years before that book was published, and I still had to write the book, because that book was actually also sold on proposal.

Jess Lahey

Which doesn’t happen very often, dear listener. Do—

Sarina Bowen

That’s right

Jess Lahey

—not think that you can sell your first fiction on proposal. That’s not how it works.

Sarina Bowen

Right—that will never happen. But, um, this was my, like, 50th novel, and then you can sell on proposal. But anyway, I also had to write something in a new genre with my own expectations built in, and that’s scary. But the reason we need this fear—the value of this fear—is that both of our publishers were invested in our success. If I had been offered a low advance and I had taken this deal, then, um, sure, I would be less stressed out about the success of the book—but so would my publisher. The more skin they have in the game, the better they’re going to see your project through.

Jess Lahey

Right.

Sarina Bowen

And that is valuable. So a little bit of our fear—or, okay, fine, a lot of it—is actually doing things for this calculation that we need, that we require.

Jess Lahey

And to decode that—what that can often mean is marketing budget. So The Gift of Failure had, you know, the amount that they’re willing to invest, including the number of hours my publicist at Harper is willing to invest in publicizing this book, comes down to how invested they are in the book. And given the number that I got, they’re pretty invested in this book. And, you know, I was pretty happy with some of the publicity stuff. And also, on top of that, you know, I requested bookmarks and postcards and all that sort of stuff, and I requested to have as many as they could afford in my marketing budget shipped to me. And honestly, for The Gift of Failure I’m just now finally running out of postcards, and I use a lot of those postcards still in my marketing. And they also have been in communication since then—been really appreciative of how much I invest in the publicity. But I will say, I knew—I knew when I was old news and that they were no longer really going to invest in my publicity—when the next big thing, the next big book that was coming out from Harper with this publicist, when I started accidentally getting that author’s emails about, you know—it was a total mistake, and it was very funny—but I’m like, oh, yeah, I see, I’m done now. This is—they’re on to the next book. Which was fine. But again—and we’ve said this a million times—no one can market you better than you can market you. So that was fine with me, and I also knew that that would be a big role for me with this book. But, yeah, the marketing budget is very much factored in when you look at how much they’re willing to spend on you.

Sarina Bowen

Yeah. So we should say a couple more things about [unintelligible]. One is, everybody’s first statement from the publisher—whether that comes quarterly, semi-annually, or annually—is always a little bit rattling, because they’re hard to read. They just are. Like, I don’t know any publisher who has, you know, beautiful, easy-to-read statements. And so the befuddlement one can have on there is, you know, not to be underweighted. But also, if you—so, we have this double-edged sword. Like, we want a big advance because it reduces our risk, and it increases the publisher’s risk, so they’re going to invest in it. But, as you said before, then if you don’t perform—like, if you dramatically underperform your advance—and this happens in publishing all the time—it will be maybe a little bit harder for you to sell the next book, and maybe you have to switch publishers, because maybe idea number two is really fantastic and more saleable. Then you have to find somebody with a clean slate—like, that they see the value of your new idea. They’re not intimidated by the fact that your first book didn’t sell a kajillion copies. And, you know, that editor doesn’t have, like, a wound from having, you know, failed the first time. So these things happen.

Jess Lahey

Because—keeping in mind that that editor has to go, you know—any editor that wants to acquire your book has to go before, you know, their peers, their colleagues, and say, “I really want to buy this book, and here’s how much I think it’s worth, and there’s going to be an auction.” And then, you know, I could imagine that an editor might feel like a bit of a doofus if their book doesn’t perform the way they’ve predicted in front of that room of their colleagues.

Sarina Bowen

Because they would. You know, it’s just not fair for them to come back and say, “Yeah, we’ll give you the same schlubby advance on the second one.” So, so there’s emotions on either side of this. And one thing about earning out that can happen is that sometimes, if you have a two-book deal, you will have a clause in your contract that calls for joint accounting between those two books. And this is a clause that I always ask to be taken out, because that means if you didn’t earn out—if you earned out the first book but not the second one—then they’re going to hold on to your royalties until you’ve earned out enough money to cover both advances. And that’s obviously unfavorable to the author.

Jess Lahey

Yeah, you also reminded me that there were some things that happened with The Gift of Failure, where, for example, I narrated my audiobook. And I think—I think that my flat fee for narrating that audiobook went against my advance.

Sarina Bowen

Advance. Mmhmm.

Jess Lahey

Yeah, I didn’t get a check, like a flat-out check for that. It went against my advance. And I think the same for my Spanish edition. I think that because the Spanish edition was also part of Harper—it’s Harper Español—that that went against my advance as well, as opposed to, you know, “Here’s another chunk of money for the Spanish edition.”

Sarina Bowen

Well, that was actually a really unusual scenario for you, because you sold North American rights generally on this book, right?

Jess Lahey

Yeah. Mmhmm.

Sarina Bowen

In English. You sold English only? Or World English? That would mean that…

Jess Lahey

Actually, I didn’t sell World English. It was just North American, because there’s the different North American short books, and there’s—

Sarina Bowen

Right. Okay.

Jess Lahey

—the British version.

Sarina Bowen

So North American rights means that your advance really only covers those books that sell in the U.S. and Canada and territories of the U.S.—and sometimes the Philippines, for reasons that nobody has ever explained to me. But if you’d sold world rights instead, you would have the entire world to help you pay down that advance and then start earning royalties. And I did have a moment last year where I asked my agent, like, “Why didn’t we sell world rights on this book?” Because now we’re scrambling to place the book with a U.K. editor. And she said—and it made so much sense—she said, “Because if the U.K. branch of your publisher is not fired up about the book and is not motivated, then we won’t get the placement you want anyway.”

Jess Lahey

Got it!

Sarina Bowen

Like, it won’t work. And of course, that made lots of sense—like, they’re busy acquiring titles that they feel they can sell in the U.K. to their audience, and they know best about that. So I needed to be reminded why that is. But, yeah—so lots of things can go against our advances. And the point of today’s discussion was to make sure that you understand that there’s an emotional load for the way that we do these things. And your publisher might be very happy with you even if you didn’t earn out your advance.

Jess Lahey

I can tell you, though, where The Gift of Failure is concerned—I have earned out in one spot, and that is China. In China, I have earned—not only did I earn out, they decided to renew my contract early because they were so pleased with sales there. So that’s good. I do get small royalty checks for my Chinese version, so yay!

Sarina Bowen

(Laughing)

Jess Lahey

Giddy up.

Sarina Bowen

Giddy up.

Jess Lahey

All right, have we covered everything we want to cover on this topic?

Sarina Bowen

We have, and we hope that our listeners are out there getting the best advances they can and then not worrying about them too much.

Jess LaheyExcellent. I like that answer. And until next time, everyone, keep your butt in the chair and your head in the game.

Narrator

The Hashtag AmWriting Podcast is produced by Andrew Perrella. Our intro music, aptly titled Unemployed Monday, was written and played by Max Cohen. Andrew and Max were paid for their time and their creative output, because everyone deserves to be paid for their work.