What does a publisher do? Manage strategically

What does a publisher do? is a series of posts designed to answer that question, interpreted not in the sense of ‘What functions do publishers fulfil?’, but rather ‘What operations do publishers (well, this publisher, at any rate) perform?’ This post is the fifth in the series.

In ‘What does a publisher do? Manage security’, I said that our management of our own interest in our business (as owners) resolved into three activities: (a) security management; (b) strategy management; and (c) brand management. The current post focuses on the second of these.

On our periodic review days, my fellow director and I review our current strategy to date and outline the strategy for the coming period. To do so, we use one very straightforward tool*. We plot a graph with share of revenue on one axis and profit margin on the other. From this we can derive a quadrant model:

Small share of revenue High share of revenue
High profit margin
Low profit margin

On this we can plot our revenue streams. Before doing so, however, we need to make one modification. Some of our revenue streams are services – editorial services and training on publishing – for which the cost of sale, in financial terms, is very low.

The problem here is that above model would fail to differentiate sufficiently: all such services would show up as ‘high margin’. To overcome this problem we treat time as an alternative measure of cost – our thinking being that services that soak up a lot of our time have a high opportunity cost.

For our strategic planning we merely apply the conventional wisdom  for this model. The low-margin, low revenue streams, we seek to eliminate. The high-margin streams that currently provide a small share of our revenue, we seek to boost through a  sales drive. Low-margin streams that provide a high share of revenue, we seek to make more profitable by raising the price. High-margin, high revenue projects – well, we look for more of the same. Thus:

Small share of revenue High share of revenue
High profit margin  Sales campaign  Focus
Low profit margin  Eliminate  Increase prices

The conventional wisdom here constitutes a kind or organised common sense. We find it helps to confirm what the right thing to do is. It can take a bit of courage to eliminate a revenue stream, but the above model makes it clear that it make sense.

As a result we curtailed the literary agency services (low-margin, low revenue) we once offered. We are raising the price of our editorial services (low-margin, high revenue). In the process we will no doubt lose some clients – but focusing on higher margin streams will make us more profitable.

* We didn’t invent this tool, but I regret I’m unable to credit its author because I have been unable to trace its source. Needless to say, any leads would be welcome.

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