FLASHBACK: Making Commercial Printing Pay

By: Jim Rosenberg Originally Published in Editor & Publisher March 29, 1997, p. 20

HERSHEY, PA. IN THE COURSE of his career's 16 relocations, Richard Wyckoff arrived at one newspaper with a million-dollar commercial printing business that just wasn't making the money expected of it.

Operations director at the Johnstown, Pa., Tribune-Democrat since 1993, Wyckoff recalled that the million-dollar business consisted of 10 jobs, each bringing in about $100,000 and requiring plenty of replating and rewebbing. After looking at all the numbers from the commercial operation, then dropping back to only nine jobs, said Wyckoff, the business really began making money.

It could have been worse. Without a good cost accounting system, said New England Newspapers Inc. production chief Gerald Simpkins, a newspaper company may think its commercial printing operation is profitable when in fact it is losing money. Those losses, he said, do not always show up right away.

Newspaper publishing and commercial printing share a major manufacturing process. But apart from certain industrial similarities in equipment and expertise, they should be recognized as the different businesses they are.

Panelists at this month's America East Newspaper Operations & Technology Conference warned against assumptions that commercial work can simply be piggybacked on existing newspaper operations and that the new business can be shoehorned into the more familiar publishing business.

A mainstay and committee member of the regional conference, Wyckoff earlier this month moderated a session at the annual gathering in Hershey, Pa., that focused on financial realities of commercial printing for newspapers.

"I've seen jobs where one page takes a whole barrel of ink," said Robert Sibley, sales vice president at Evergreen Printing in Bellmawr, N.J., where, among other publications, the Financial Times rolls off is web offset presses.

Tracking use of plates, paper and ink -- as the principal consumables - is obviously important to cost accounting, but estimating ink consumption, according to Sibley, is more art than science.

"When you have pumped ink and you don't have a meter on your pump, you're in trouble," said Sibley. Otherwise, he continued, estimating for open fountains is a matter of subtracting from the weight of a full tank or tote the weight remaining after a job (including unused ink returned from the fountain) -- essentially the inventory method of accounting.

The costs of pressroom labor, said Sibley, are more than just the rate of pay. Besides payroll taxes and social security, publishers should factor in nonproductive time, health insurance and other benefits. Profitable printing, he said, requires accurate estimates of time and staff required for each job.

Coordinating With Customers

If commercial printing is in the cards, Simpkins said managers must be sure to budget for everything they do not now do or have, right down to the fonts needed to satisfy individual customers. With respect to running jobs from a customer-supplied disk, "make sure you are coordinated with your customer," Simpkins said.

"Are you going to want to invest in a $600 software package that you'll use with just one customer?" he continued, suggesting that costs in such cases may be shared with the customer.

In prepress, said Sibley, the traditional method has been to use a flat price per tabloid page for film and plates, but managers must be sure to account for chemistry and environmental costs as well.

The business also must determine how customers will supply their materials and what that will mean for costs. Most of the time it is a question of camera-ready hard copy or an imagesetter-ready digital file on a disk.

In Sibley's view, the prepress portion of the business has become a digital "jungle." Ads once delivered as Veloxes are created in any of several applications and may arrive in various, often incompatible, storage media, file and transmission formats, and raise matters of available fonts, adequate resolution and suitable screening.

Commercial customers want jobs packaged and stacked to their liking. Unlike the simplest of newspaper post-press arrangements, said Sibley, "you can't just bundle the job and leave it on the truck."

This end of the business also may well require maintenance of mailing lists, plenty of storage for customers requiring inserting and the correct scheduling of those stored inserts.

Beware of overhead

Owing to complications in computing electrical power per job, Sibley recommended accounting for the cost of press power under overhead, along with the cost of blankets, fountain solution, maintenance and depreciation. To publishers contemplating commercial work, Sibley warned, "Your maintenance costs are going to skyrocket."

Other contributors to overhead include bad debt expense, accounting time and management time that includes customer hand-holding and seeing to corrections.

While publishers may be entitled to "a reasonable profit" on commercial sales, Sibley cautioned that publishing profits remain far more attractive.

Simpkins contended that commercial printing can work well and be profitable for a newspaper when properly managed and with all costs known. The panel estimated that a well-run commercial operation can net 5% to 15%, depending on its market.

"Use good math" to arrive at the correct markup, said Sibley, pointing out that a true 12% markup is not the product of cost times 1.12 (1 plus 12%) but rather the larger quotient of cost divided by 0.88 (1 minus 12%) -- making the markup 12% of the customer's price, not 12% of the producer's cost.

Get it wrong and the accountants will come looking for the missing $163.64 on a $10,000 job.

Importance of scheduling

Simpkins wished operations good luck in fitting customers' needs into newspapers' schedules. Before joining MediaNews Inc.'s New England Newspapers, where he oversees production at the Berkshire Eagle, Pittsfield, Mass., and at two dailies and a weekly in Vermont, Simpkins was responsible for production and plant at the New Haven (Conn.) Register and parent Journal Register Co.'s Imprint Printing in North Haven.

Scheduling is but one aspect of the added management duties that come with commercial work. Among other things, Simpkins said a production manager should consider the implications of estimating and possible new roles as sales manager, customer relations manager, cost-accounting manager.

"While all this is going on," he asked, "who's watching the daily production for your franchise?"

Pointing to the importance of local businesses' and advertisers' perception of "the newspaper itself if you attach its name" to a commercial printing operation, Simpkins said publishers considering the added business may want to create a separate company or give the business its own name.

But before expanding from one or two jobs into a full printing business, he counseled, "identify your niche and focus on that" -- while at the same time diversifying or broadening the customer base enough to protect the business against the loss of a single large customer.

A fundamental consideration is whether to accept all jobs even when a newspaper's commercial shop cannot handle special bindings, coatings or other aspects of the work. Taking all jobs, said Simpkins, turns the print seller into a print buyer, who must shop among other commercial printers, usually jobbing out all but the coldset printing.

Owners, he continued, should determine just how big they want their businesses to be, then map out a growth path, set up zero-based budgeting and examine all costs. And make no assumptions about costs or lack thereof. Just because a crew is in the pressroom eight hours a day, said Simpkins, "they're not free."

Simpkins made the following recommendations:

• Advertise the business in the newspaper.


• Utilize rep firms' knowledge of printing needs among other newspapers that are unable to print or stitch some products themselves.


• Establish consistency in quality.


• Don't assume employees have the necessary attitude. Train staff to do different work for a different kind of customer.


• Maintain a competitive price structure while delivering a quality product in a timely manner. Pricing means knowing all costs, and high on the list is determining whether a job is on straight time or overtime and including that in a bid.


• Institute effective cost-control procedures.


• Establish rational shifts and staff sizes commensurate with the volume of business.


• Stick to credit policies. Some customers can be slippery or slow to pay.

While panelists pointed to commercially available cost-accounting software, Simpkins recommended that a newspaper build its own using a Lotus spreadsheet for cost-gathering and estimating, and Sibley said a newspaper's commercial work would be compatible with a spreadsheet-based home-grown system.

Pushing up costs will be the probable need for a separate commercial printing director and a possibly larger sales staff. Before launching a commercial operation, said Simpkins, owners also should determine if the sales staff will be salaried or on commission.

If the latter, will it be based on gross sales or net profit?

Staffers whose commissions are based on gross sales, he said, "will sell anything," regardless of whether the business can print it.

"If it's based on net profit, it increases their interest in the outcome of the job."

But salespersons have no control over production personnel's performance, which affects quality, and therefore commissions.

Simpkins said to watch for sales staffers who spend too much time in the pressroom.

Simpkins said managers also need to determine if commissions will be paid when the sale is made or when payment is received from the customer. A company may lose twice if it pays a commission upon sale, then never receives a customer's payment.

Some customers, too, will show up at press time, occasionally creating friction with the press crew.

Expect arguments over credit on jobs, Simpkins advised. Was the quality really poor? Who is responsible?

He urged managers to think about how far they will go to back subordinates in arguments with an unhappy publisher or customer.

Because the publisher's support is so important, Simpkins said it is necessary to decide in advance if the production director or the publisher alone can authorize reprinting of a job.