Book Publishing's Profitable Model
Christopher Steiner, 08.19.09, 06:00 PM EDT
Forbes Magazine dated September 07, 2009
Clint Greenleaf lets confident authors shoulder more of the risk.
Fresh out of college in 1997 and counting beans at Deloitte & Touche, Clint Greenleaf told his friends that writing books wasn't that hard. They called him on it, at which point the ROTC Marine cranked out a 30-page grooming primer called Attention to Detail:A Gentlemen's Guide to Appearance, and posted a single free ad for it in Bottom Line/Personal magazine. In a few months he was collecting a hundred $5 checks in the mail daily, eclipsing his accountant's salary, and by the following year had launched a publishing company out of his parents' garage.
The book industry is in bad shape now. U.S. publishers have seen sales shrink in four out of the last five years; they were off 5% to $27.9 billion last year. But Greenleaf Book Group, headquartered in Austin, Tex., is thriving. Revenue was up 37% to $8.1 million in 2008 and looks likely to top $9 million this year. Greenleaf has hired 15 of his 30 staffers in the last year and a half and plans to bring on 8 more--including marketers, salespeople and editors--by year's end.
Traditional publishers bank on having a few big hits to offset a lot of flops. Greenleaf's model shifts risk to the authors, who forgo their advances and even pay some of the publishing costs, for a far fatter slice of the royalty on each book sold. That bet hasn't scared off big names such as musician Kanye West and New York Times bestselling authors Tim Koegel (The Exceptional Presenter) and Ivan R. Misner (The 29% Solution), all in Greenleaf's stable. "Our arrangement works out well for guys who know they can sell books," crows Greenleaf, 34.
Say a typical publisher wholesales 10,000 copies of a new business book at $12.50 apiece. Marketing, printing and editing expenses might eat up $60,000 and the author's advance another $20,000. As for royalties, the author might take home 20% of the wholesale price; however, he has to earn out his $20,000 advance--by selling at least 8,000 books--before getting any more.
If all 10,000 books fly off the shelves, the author makes his advance plus $5,000, for a total of $25,000, and the publisher bags a gross profit of $40,000. If the booksellers move fewer than 6,400 copies, the publisher loses money, but the author still gets his advance. Hence all that risk.
Greenleaf flips the equation. The company pays none of the production expense while the author chips in $60,000. This time, though, the author gets 70% of the wholesale price. On the same 10,000 books Greenleaf has a gross profit of $37,500 while the author clears $27,500. If the book flops, the author, not Greenleaf, swallows the production costs.
This game is less about losing money than not making enough of it. (Greenleaf won't disclose profit margins, though he says the company has been in the black since 2000.) The other challenge: not ruining brand equity with booksellers by stuffing the channel with uninspired volumes. When Barnes & Noble ( BKS - news - people ) chided Greenleaf for inundating the chain in 2001, Greenleaf slashed his 500-title inventory by 80%. These days he accepts only 6 of the 200 submissions he gets a month. The average Greenleaf title sells 5,000 to 8,000 copies in its first year. The $5 grooming treatise has sold a total of 30,000 copies, and Greenleaf is preparing a fresh release.
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