Production: Measuring Commercial Profits

by: Jerry Simpkins

Production: Measuring Commercial Profits

So, you’ve got a fancy Web press, dead time in your schedule, a crew on the payroll and that burning desire to increase overall revenue. Sounds like a perfect opportunity to open up your back shop to outside printing, sit back and shovel in the profits. It’s a simple concept, but not so easy as it might seem.

In the world of commercial printing, you can lose your shirt (and your profits) by going in with a half-baked plan and not properly tracking expenses and measuring profitability.

The good news is with basic business sense and skills you’ve developed as a newspaper professional, commercial printing can be profitable, fill open print windows and boost your overall bottom line.

I’ve steered stand-alone print shops in three states and started outside printing operations at several newspapers around the country. While each has its own unique challenges, we’ve been successful by incorporating smart business practices and hands-on management. Success happens when everyone from sales to production is a team and has a relentless desire to be the best.

 

Start with your sales team

Do they know what they’re selling? While this may seem like an obvious question, you’d be surprised how many companies launch into commercial printing without properly educating their sales staff on the capabilities of the back shop, how the press works and just what they’re supposed to be selling (or not) before they hit the street.

Selling the wrong product can not only result in losses, but can lock you into ongoing challenges hurting your reputation as a quality printer (when you start cutting corners on work and the quality suffers).

I’m going to briefly outline a series of processes that can lead to overall success, some perhaps more key than others.

If I had to pick out one that ranks near the top of the list it would be “train, explain and make sure they retain.” A salesperson can be your most valuable asset or your worst nightmare. Make sure you’re sending them into the field with the right skill set and that they will clearly represent the company’s abilities. If they don’t completely understand the printing process that’s all right, provided they have a strong manager who they can refer questions to before committing to a project that isn’t a good fit.

Look for a salesperson that is professional both in appearance and presentation, understands the basics of your operation and goals for the printing division, has basic knowledge of the principals of printing and is “hungry.” Tempting as it might be, do not work exclusively through existing retail sales forces or send out your production or ad manager. Serious goals require serious efforts, and if your goal is to succeed in making commercial printing profitable, the first step is having the right individual on the street.

One property I worked at started with a small customer base, but was able to develop 300 percent revenue growth over a six month period, adding significantly to the bottom line. My salesperson had no printing experience but was a quick study with a personality that wouldn’t quit. What he lacked in experience, he made up in his desire to establish us as the printer of choice.

Help your salesperson succeed by giving them the right tools. Provide press configurations for various formats (tabs, broadsheets, Flexi booklets, etc.); whatever your operation can produce. Clearly detail prepress processes, FTP sites/drop boxes, press color positions, page capabilities, paper grades/weights/brightness/sizes, etc., mailroom capabilities, bindery guidelines, schedules, deadlines, open print windows, what jobs fit the press well and what jobs to steer clear of.

Now you’ve got the right salesperson in place, trained them on what your press can and can’t print, given them the right tools, detailed goals and gathered potential publications, you’re ready to go, right? Not quite.

Let’s put some thought to how you are going to motivate that individual to sell. This is another key step in the process; do not hire a salaried salesperson, period. Compensate on a commission basis with a draw. Start out with a weekly draw so they can feed their families and pay the bills when the business is just getting started. This will buy you some loyalty and enthusiasm rather than a salesperson that is defeated before they start. This is a long-term commitment not only for you but for the revenue producer, and keeping them happy is critical to overall success.

Continue the weekly “no strings attached payment” (not to be confused with a salary) for a set period of time (plus or minus two months) while business ramps up and the sales efforts start paying dividends. After a set period of time, the jobs should be coming in and you can switch to straight commission with a realistic draw based on current sales. You’ll have to determine the program that works best for you and the salesperson.

Here’s one I’ve found fair and manageable.

All new sales, defined as an outside job that hasn’t printed with you in a year or more, will be paid at a straight 10 percent commission of the gross sale for the first three printings, after which a “maintenance rate” of 5 percent is paid. While I consider these generous commissions, I have found they motivate while allowing room for sustainable net profits. Basically it’s a win/win, and it works.

Now, set the draw. Take a look at current sales and what repeat/maintenance commissions are occurring; arrive at a weekly draw (repeat weekly dollars that are paid based on projected commission from sales). In this manner, the salesperson can rely on a set dollar amount for budgeting personal expenditures.

However, keep a close eye on draw versus commission. While it can be effective in retaining quality talent, it can also be a nightmare if the salesperson isn’t living up to expectations. You both can get quickly into a hole that’s hard to dig out of, so use hard numbers and know where your sales are before entering a draw program.

Now your sales force is ready to hit the street. You’ve taught them right, and the jobs they target and sell fall into open print windows complementing the abilities of equipment and crew.

Selling is moving along nicely and revenue is picking up. But reality will soon creep back in the second the publisher or business manager asks “How much did we make on that job?” Be prepared with the answer before it’s asked.

If you don’t have a reliable system in place for tracking expenses and measuring profitability, do not go into the commercial printing business. You’re providing a disservice to your customer base, employees and the company. Knowing where your margins are for each customer is essential. This allows you to do a better job quoting future work, maximizes profits, and presents areas for improvement.

A quick Internet search for commercial printing software management will provide a bevy of formidable options, most at a somewhat formidable price. There are systems that can effectively cover all aspects of a job from cradle to grave, but my preference has been a homegrown approach, specifically designed around in-house capabilities and the particular details of the operation.

 

A realistic and accurate quoting system

This one area can make or break any commercial operation. We easily become blinded by the “need to sell that job” and make misguided assumptions relying on wishful thinking. Probably not the best way to quote jobs, but we’ve all done it. An effective system can be as basic as a well designed spreadsheet that takes all major factors into account.

Raw materials: Ink, paper and plates (film if you’re still using) are major contributors. Most vendors can help you to establish usage formulas if you’re unclear in this area.

Miscellaneous materials and supplies: Fountain solution, blanket wash, packing, wear items (blanket replacements, socks, etc.). Again, vendors can often help you with a “plug number” for these items, or you can track them over a period of time and arrive at a number based on particular habits.

Labor: Obviously another big dollar item, one you can easily estimate if you understand printing processes and abilities of your crew. Don’t forget benefits, management time, and salaried supervisors. Step through each area to determine hours, pay rates and supervisory expenses based on complexity of the job.

Waste: If you’re not cringing now, you should be. Waste can make or break a job. Be realistic! Meet with your supervisors and operators. Discuss the job and arrive at a reasonable waste percentage. If you shoot low, you could easily end up losing money on the job; if you’re high, you may not even get the chance to try. It’s a competitive business, and while we’re in it to profit, the next guy is always ready to do what’s necessary to get that same sale.

Overhead: The “everything else category.” Electric, gas, water for the press, propane for the forklift, capital expenditures, building rental/ purchase, equipment maintenance, software upgrades, etc. all the expenses that you pay and in fairness your customer needs to share in.

Last but certainly not least…margin. Not what you’d like to make on the job, but what you can realistically make, still sell the job and not regret that sale down the line. The days of 30 percent-plus profits are all but over. Things need to be right for both sides for a successful relationship.

 

Measuring profits or loss

Here’s where some more homegrown accounting will give you all the necessary information to measure performance with virtually no financial investment outside of time.

As your job jacket passes through production, have a well-crafted spreadsheet on a common server which allows each area to enter labor hours and material usage. In lieu of an electronic system, a well-designed accounting sheet that follows the job jacket through the cycle works just as well and sometimes better.

This form will capture hard costs of the job, start-up waste, press counter start/stop/paper consumption, plates and labor hours in each area. Overhead and other costs that were figured into the original quote also will need to be taken into consideration.

The secret to determining your P&L is in a well-designed spreadsheet that allows factual comparison, line by line, expense by expense, between the original quote and actual end cost. With this tool, you can measure the results of each job and determine their contribution to the overall success of your operation. A properly designed system will allow you to measure profits, pinpoint strengths and weaknesses in both your quoting system and operational performance, track waste, and maximize profits within your commercial division.


Jerry Simpkins is the general manager at Hi-Desert Publishing in Yucca Valley, Calif. Contact him on LinkedIn.com or at simpkins@tds.net

 


Basic guidelines to follow once the job enters your shop

An effective communication system, including informative job jackets, well-planned production schedules, management oversight and guidance. Managers can’t be afraid to get their hands a little dirty. You cannot properly manage a successful commercial print operation from the back of a desk.

Equipment maintenance to minimize downtime and insure reliability. Set up programs for all production equipment and have printed check lists requiring sign off on each maintenance process outlined. Audit those processes to insure accountability.

Production check systems. Pull check copies throughout the run to monitor quality and ensure customer satisfaction. Establish an acceptable amount of pull copies based on overall run quantity, number copies and file them so if there is an issue later you can pinpoint where that issue started and stopped, limiting customer credits and provide a learning tool for your crews.

 

Some basic checks for your prepress area (provide this checklist on job jacket):

Check customer files against run sheet and dummy
Print color proofs checking for position and quality
Confirm color pages for correct placement
Check page numbers/folios
Check for low-res images or poor reproduction quality
Check publication date
Check proofs/files for “tic marks” and “proper trim”
Check register marks and proper alignment of images within template
Check for cut-off type or misaligned images

Press Checks:

Before you hang plates…

Check customer files against run sheet and dummy
Confirm color pages for correct placement
Check all page numbers/folios/publication dates
Check for any low-res images or poor reproduction quality
Check proofs / files for “tic marks” and “proper trim”

On start-up…

Check register marks and proper alignment of image within template
Check for cut-off type or misaligned images
Check quantity needed confirm with supervisor or mailroom
Check start-up copy against proofs

The final step is measuring actuals against projections. Does your end result reflect your original quote?

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