An earnout is a performance-based bonus paid out upon selling the book. Often, it reflects a percentage of total book sales and can be distributed over time; for instance, an author might receive 10% after one year and 20% after that.
Publishers often give authors an earnout payment to align the author’s interests with their publisher’s and ensure each sale brings more revenue; this incentive helps ensure their book is promoted correctly and accepted by readers.
Second, earnouts help the publisher manage some of its risks. If a book doesn’t sell well enough to generate substantial sales volumes, earnouts enable publishers to avoid providing large bonuses as compensation; on the flip side, when bestsellers emerge, they share in profits, too!
An earnout can also be an effective negotiating tactic for lower upfront author payments. This strategy benefits both parties by allowing publishers to invest less upfront while offering authors the potential for significant rewards if their book is popular with readers.
An earnout agreement can provide authors with several vital advantages if they consider specific key considerations. It is critical that they fully comprehend how the earnout will be calculated and distributed, consider likely book sales and any risks involved, compare offers from various publishers before accepting one of them as their publisher;
Earnouts offer authors an effective means of supplementing book sales through earnings share agreements and earning additional income through earnings share deals. Before entering an earnout deal, however, authors must thoroughly consider its terms and any risks and rewards before agreeing to such a contract.