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.
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.