Even the best-run companies have hidden margin

In our experience there usually is hidden margin, even in the best-run companies but you’re going to have to look a bit harder to find it and this will involve looking in many different areas.  This is why we developed the RAISEITUP methodology to help look for these pockets of extra profit. Think of it a bit like a road map which guides you where to look and what to look for.

To see how this works, take a look at just one area of the RAISEITUP roadmap, ‘Unplanned Activity’. In simple terms, this is work you’ve  done or costs you’ve incurred that you haven’t built into your selling price and probably aren’t being paid for.

When we carry out this work for our client we have the luxury of ‘fresh eyes’ and so we see things many company managers sometimes miss because they are too close to their own business. This is why we are proficient at finding things that print businesses do but don’t necessarily get paid for.

What are the causes? Sometimes it is unforeseen work or can be expensive activities or costs that just don’t get passed on.  Extra costs for transport, amending poor artwork, rescheduling due to late clients, unplanned overtime worked and even paper cost increases are all examples of these and you’ve guessed it. They all add up

Why isn’t the customer charged?

It’s an obvious question we ask all the time and we hear recurring answers, “The client won’t pay extra”, “We’ve always done this without charging so we can’t start now”, or how about “We didn’t even know we were doing this extra work”?. More alarmingly, a common reason is that the client hasn’t been approached “In case they say No!”

We all know that there are times when customers expect these little extras or favours without charging as ‘part of the overall service’ and this is all fine provided that you know how much you’re giving away and why. Maybe, you choose to score the relationship ‘brownie points’ to use at a later time or will remind the customer that you may ‘have to charge the next time’ or maybe you just won’t charge because it’s a difficult conversation. There are strategies that help to deal with these scenarios that deliver cash results and without losing clients but these are only easy if you know how.

You could be missing out on much-deserved profit

What if the client has done nothing wrong and the extra costs are caused internally? This is the time to take a closer look and decide whether a better process is needed or this is just a one-off event to be written off.

Whatever the reason, there is one certainty. If you’re not looking at these unplanned activities then these questions will go unanswered and you could be missing out on some much-deserved profit.

This is just one of 9 areas you can look at. Find out more about unlocking the hidden profit in your business .

Click Here to find out how

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Two of the main ways you can improve your profits are to reduce your costs or increase your selling price. It’s not complicated but the latter is often seen as a risky option and companies rely instead on reducing costs where every penny saved drops straight to the bottom line.

This might seem like the easy option but when your business has already made cost reductions, efficiency gains and investments to produce faster, better and leaner; finding that extra gain becomes increasingly difficult.

Many companies are reluctant to increase their sales prices for fear of losing business and, as result, find themselves selling at the same price – sometimes for a few years.  But labour, energy, rates, and general costs have all tracked inflation during that time and it doesn’t take an economist to know that this margin erosion cannot continue indefinitely.

It is not unusual for print companies to have strategies around productivity, investment, sales and growth and yet little or no strategy on pricing. If this describes your business you should read on.

The good news

The good news is that clients do accept higher prices over time. For example, your business already supplies at a higher price than you were ten years ago – otherwise you would almost certainly no longer be trading. Maybe these price increases have taken place through need, paper increases,  change of product mix or even different clients but the result is the same. Your clients are paying higher prices. This is indeed good news.

Overcome the fear – manage the risk

Recognising that most clients pay more over time, it becomes a much smaller step to decide how you can take more control of how your business is rewarded for its efforts. What stops most businesses from increasing prices is the fear of losing business to a ‘cheaper’ competitor – a common symptom of an industry that has endured over-capacity for many years. It is easy to forget about the risks the client may face if they choose to switch supplier and you can  balance this against the fear of losing business.

Strategy and confidence are key

Having a robust strategy and confidence are critical to make the right pricing decisions whilst managing any risk. Part of this strategy is understanding the value of what you do for your clients and it is difficult to have this perspective from within your business. This is where we come in.

Using proven techniques, we help you to manage this balance by developing a strategy, tailored to your business, that allows you to make sound decisions on pricing. A sound strategy manages risk and, in turn, boosts confidence. Do this well and your business will see an increase in its margins.

Contact us to find out more.

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We explore the common challenges that face many print businesses and share with you some concepts that help you to take much more control of the profit levers within your own businesses.

“That’s it. You’ve closed the month on time. All those last jobs completed on the system, price issues resolved, Purchase orders chased, prices checked and the invoices all raised. The monthly routine of the final push has paid off and you’ve beaten the sales forecast. The month’s profit figures should be a great result – so long as you don’t get caught out by the product mix again. “

Does any of this sound familiar?

Is your main barometer for profits based simply on the volume you produce?

If your answer to either of these questions is “Yes” then this article will share with you some concepts to help you gain more control.

So, what’s the problem?

Too many companies continue to trade on the basis that if they reach a certain sales revenue they can cover all fixed costs and the business makes a profit but if the sales drops below a certain level then the business makes a loss. This leads to a degree of desperation when sales volumes look light and where this gets really dangerous is when this influences the prices that are quoted for new projects.

Surprisingly, many businesses still have only basic commercial information on the jobs they produce, what they cost to produce and whether they could have sold them for a higher price. At the other end of the spectrum, many businesses aren’t totally certain that there weren’t some jobs produced in the last month that cost more than they were sold for?

This worked out fine in the heady days of high print prices but it doesn’t work so well in more recent times and this ‘race to the bottom’ has ruined many a good business.

There is a better way!

There are three key steps to begin to taking commercial control in your business. Firstly, simplify the problem, then identify where you need to focus and, only then, can you look into the detail.  We will explain this in more detail.

1. Keep it simple – Focus on the Contribution

Monitoring sales, productivity and revenues is the just about the easiest thing you will ever measure in your business and that’s why so many companies do just that.  Distractions such as protracted assessments of apportioned overheads, amortised capitalisation, depreciation rates and other accounting protocols can cause confusion, consume time and energy and often end up in prompting decisions that just don’t help. For example, it’s not much help to know that your finishing department needs to increase its hourly rate by 20% if charging more will cause you to lose orders.

It’s a fact that some of your clients pay a high price and some pay a low price for the products or services  they buy from you. You probably have an idea which clients fit into these categories but you probably do not know to what extent this costs your business.

This is the time to become more analytical with the data that passes through your business so that you can understand how much each product contributes to the fixed costs of your business. Having this information and then knowing what to do with it is extremely liberating and, in all cases we have encountered, had a profound effect on the future profits of the business.

2. The good, bad and the ugly

Once you know what these products or services are in your business you can start to make pivotal decisions. For the ‘Good’ products, the big question is what can you do to win more sales like these?

For the ‘Bad’ jobs, what can you do to correct these in the future no you know which ones they are? There are often options open to you to redress poor margin jobs.

And as for the ‘Ugly’ jobs – the ones that are bad but can’t easily be resolved. There are other options you can take to stop these being such a drain on your business which we will cover in future articles

3. and now it’s all about the data

Now that you have put to one side for a moment all thoughts of depreciation, energy bills, business rates, labour increases etc. it is easier to then focus on contribution from everything that your business does. In simple terms, adding your prime cost (material and outwork) to direct labour (machine and manual) will tell you all you need to know about roughly how much is left from the selling price that contributes towards your general overheads. This does not need to be 100% accurate but will give you a clearer and simple view.

So, if you are producing jobs with a 45% contribution then it’s likely that this is a good product for your business. Conversely, if a product has a contribution of 20% then, in all probability this is not contributing sufficiently, although decisions will need to be made about whether, in the short term, it is better to have 20% of something rather than 45% of zero.

Some advice

If your business is already down this path and ready to re-think your selling prices it is really important to overlay any actions you take in conjunction with your overall commercial strategy. This strategy takes into account many aspects such as your customer relationships, size of customers, dependencies, loyalty, contract terms, nature of your service etc. We will cover this in future articles.

If you are just starting out on this journey it is important to avoid some of the mistakes others have made such as looking at inaccurate data, misjudging the market rates, underestimating the client’s options and convincing yourself a particular product fits your business when maybe others are better suited to produce it.

What you can do right now

You can start today by taking control by implementing a robust commercial strategy that is right for YOUR business.

Click Here to find out more 

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