By the way, don’t let anyone suggest to you that increases in your cost of goods (COG) is somehow an inevitable consequence of the current recession and there isn’t much that can be done, or that it just has to be accepted as another reason for declining profits. Hogwash! The fact is that COG has remained almost constant in this industry for more than 25 years, staying in the 29-30% range during this entire period. If yours has suddenly gotten out of a very tight range, then do something about it.
Once again, the leaders do a better job than the laggards when it comes to managing their businesses. The top companies in this industry have been able to maintain a COG ratio of 27.5% for more than 25 years, while the COG for those in the bottom quartile has hovered in the 30.6% range for that same period of time.
For printers to suggest, as they seem so inclined to do so these days, that many of their costs are rising (paper, energy, ink, other materials) and they are powerless to do anything about it is simply ludicrous. Other than shopping for the best prices and reducing spoilage, the best way to bring COG under control is to raise prices in your computerized pricing systems. It can be done; it must be done. It is as simple as that.
Everything said above about COG applies to overhead expenses as well. Overhead costs as a percent of sales have actually declined slightly in the past 25 years. There is also a very noticeable difference in overhead expenses reported by those at the top (21.9%) as opposed to those at the bottom (30.8%).
The root cause of most financial problems facing this industry is the same as it has always been—the inability of owners to make difficult choices when difficult choices need to be made.
Instead of making the truly difficult choices involving the termination of long-term employees or raising prices in a price sensitive economy, even when financial and productivity ratios dictate that this must be done, too many owners choose instead to close their eyes, hoping against hope that things will somehow turn around next month or next quarter.
For the Next Industry Survey
Just once, the next time someone decides to conduct a survey and lists things such as healthcare costs, government rules, rising costs, and the inability to raise prices as potential obstacles to profits, I would like to see the addition of one more choice that could be checked: “Most of my financial problems are of my own making, and I accept full responsibility for my own stupidity for not having dealt with the situations when they were small and still manageable.”