Running Your Business By the Numbers

I am constantly amazed at how many print owners don’t keep score of their business. Sure, they usually know what sales were last year and last month, but they don’t have other numbers at hand which are the key to managing a profitable business.

We are past the days when sales will just grow by osmosis—not only is the general economy weak, but more importantly, the printing industry has changed dramatically. Our clients can still buy from us or they can do work in-house or order printing on the Internet.

If your sales or profits are down or flat, do you really know where to find out why? It’s easy to blame the economy or our competitors, but how does that help improve the situation? By continuing to operate your business as you have, you will continue to trend in the same direction. Without keeping a scorecard, it is very difficult to figure out how to grow your sales or increase your profitability.

What numbers should you track? I have grouped them by the different aspects of your business.

Sales

Sales per month, sales year to date, plus comparisons by percent to the previous year. Most print owners know these numbers. Do you share them with your staff? Your employees like (and need) to know how you’re doing, plus they can have a direct influence on improving these numbers.

Orders. Track incoming orders vs. your sales goals. In my company, we used to have a daily sales report that showed total orders for the day by salesperson, location, and CSR. We showed how the orders compared to both the company and personal sales goals per day, and if we were on target meet our sales goals. I am constantly amazed by how few printers establish solid sales goals and that even fewer share them with their staff.

Sales by sales center. Track your total sales by the sales type. Typical sales types are process color printing, one- and two-color offset printing, high speed black-and-white copying, color copying, bindery, mailing, graphics, signs and buyouts (you may even want to separate these into certain categories like four-color buyouts, business cards, invitations, rubber stamps, foil stamping, etc.). All of the major printing management programs make keeping track of these sales easy, although they do take some setup or modification on your part. Monitoring the sales in each category helps you see the trends, helps in pricing, and in deciding on future equipment and personnel needs.

Marketing

New customers and their sales year to date. Without new customers being continually added, your business is doomed. A large majority of your marketing dollars should be spent in pursuit of bringing new customers into your business. This calculation is usually easy to do using your print management software. Growing printers bring in 15% or more in new customer sales. Good customers are not around forever, so you must always be prospecting for new ones.

How you got the new customers year to date by marketing category. Using the new customer list and their sales, list how you obtained the new customers. Use logical categories like Yellow Pages, direct mail, referrals, networking, outside sales, trade show, etc. Group the new customers by category and add up the sales per category. In another column, estimate what you spent on that category, year to date. The knowledge you get from this exercise will show you where you need to continue spending and where you should be cutting back.

Profitability

Earnings per month, year to date, plus comparisons by percent to the previous year. These numbers will help you keep track of seasonal changes and trends and, most importantly, show you approximately where your breakeven is and how profitability goes up or down based on sales volume. I believe that a print owner should target at least a 10% return on the total sales, based on the risks of owning and operating a small business.

Payroll as a percent of sales per month, year to date, with comparison to last year. Include all payroll costs including benefits paid by the company, workers compensation, commissions, payroll taxes paid by the company, etc. Include a fair compensation for the owners if they work in the business. The number one reason why profits go up or down is the payroll costs. This is the most controllable cost a company has in the short term. Fixed costs cannot usually be trimmed quickly and cost of goods sold (COGS) is usually consistent as a percent of sales.

What is the ideal percentage? It depends on your business philosophy and what type of equipment you have. If you want to produce almost everything in-house, then it will be higher (with, hopefully, a lower COGS). If you have large presses (20” and up) or high-volume copiers (like Digimasters, DocuTechs, or iGens) then your percentage should be lower, as an employee can produce much more. My experience shows this usually ranges from 30% to 40% for shops with less than $10 million in sales.

Sales per Employee. This is a very popular measurement in industry studies for quick printers. I would caution you to use payroll as percent of sales as a better guide, but I would also use this number to help guide you in figuring out the best number of people to have employed. Part-time employees should be counted based on the how many hours they work (e.g.: 10 hours per week = 0.25 of an employee). Profit leaders in the industry have sales per employee over $125,000. Again, this number can be dangerous to use if you send out a high proportion of your work or you have very large production equipment because, in either case, your sales per employee should be very high compared to the industry average.

Cash Flow

Current ratio. Banks favor this ratio as a measure of your ability to pay your bills. It should be used by all print owners to monitor their cash flow. The ratio is simply calculated by dividing your current liabilities (accounts payable, amount of loans payable in the next 12 months, accrued expenses, etc.) into your current assets (cash in the bank, accounts receivable, inventory, work in process completed, etc.). This number should be more than 1.5. Anything over 2.0 is very healthy. If the number is over 3.0, you may want to look to find ways to take money out of the business or invest in more equipment or space.

Accounts receivable aging. Monthly, you should track your accounts receivables aging by current (under 30 days), 31-60 days, 61-90 days, and over 90 days. Note the percent of the total for each category. A healthy aging should show 90% of your A/R less than 60 days. Of course, there may be reasons in any given month for it to be different, but over time if you allow your over 60 days to be more than 10-20% of the total, you could be headed for danger, especially if sales dip for a few months.

Accounts receivable days outstanding. This number is tracked by many printers as it tells them how many sales days are your total receivables. It is based on average sales per day; e.g.: if sales are $1.1 million per year, that equates to $3,000 per day. If, for example, the A/R is $150,000, then you have 50 days outstanding. The larger this number is the better, but only if you have a small portion over 60 days outstanding. By tracking this number monthly, it will help predict cash flow for the coming month. If you do a lot of cash and carry business, this number should be low and probably will not be as useful as a measurement tool. Most printers, though, have their larger customers charge their jobs, therefore this number can be a great tool to measure cash flow.

Production

Work in process. Record your total work in process at the start of the month. Compare this number to your sales goal for the month. Since we turn over most jobs within 30 days, the beginning work in process will help predict whether you will make sales goal for the month.

Value added. Value added is measured by adding your direct COGS and your production payroll and subtracting that number from your total sales. Then take that number and divide it into the sales to get the percent of sales value added represents. Direct COGS includes paper, inks, toners, copier click charges, plates, buyouts of jobs, etc. Production payroll costs should include the related payroll costs such as insurance, benefits, taxes paid, etc. Ideally, this number is more than 50%. The value added shows not only your production efficiency, but also has a profound effect on your bottom line.

Overtime. Track your overtime to make sure it correlates to sales. Too often, overtime is unwarranted or expected, regardless of the workload. Keep in mind that overtime can be very healthy and most businesses find that when overtime is monitored well, the most profitable months include substantial overtime. Usually, it’s better to have overtime than to add employees—especially in the current uncertain economic conditions.

I am not going to suggest that you track all of these numbers, but I would start with the most relevant to your business. These key performance metrics are essential to managing your business. Our peer groups track most of these metrics and share them each month for comparison purposes. Many peer group members are now making educated decisions based on solid information.

Mitch Evans is president of Mitch Evans Consulting, which is targeted to meet the consulting needs of the quick and small commercial printing industry. His areas of expertise are in strategic planning, valuation, mergers and acquisition, financial planning, new technology, and “1-2-1” coaching. Contact him at 561/351-6950 or mitch@mitchevansconsulting.com.

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