Printers today wonder if they will ever get past the low pricing roadblock leftover from the recent recession. Some causes of low pricing like overcapacity and competition are inherent in any mature industry. Other causes are situational and can be managed.
Consider these low pricing causes and their potential solutions:
• Competition: Know your competition and beat them.
• High Fixed Costs: High fixed costs push management to sell below all-inclusive cost just to cover their fixed overhead cost. Control your fixed costs; don’t increase your capacity until you’ve got your present customers paying the correct prices. Profit leaders produce products with more efficiency and a smaller staff.
• Not knowing costs: Calculate your Budgeted Hourly Cost Rates (BHRs) on a regular basis. Establish and adhere to a pricing structure to avoid selling below cost. Communicate to your sales staff why your pricing is appropriate to your product(s) and target market.
• Bad estimating: Use accurate BHRs for accurate estimating. Measure and verify the production standards used in your estimating software. Standards affect your selling price just as much as the BHRs. Lastly, give your estimators time to observe actual production results and feedback for estimating improvement.
• Poor salesmanship: Train your salespeople to sell the company, product, service, quality…not a discounted price. Don’t discount price just to get the job—there is always someone cheaper. Additional sales quantity without sales profitability will lose money. A print buyer recently told me that most print salespeople he encounters are so focused on price they forget to talk about product solutions and innovative ways to approach a need.
• Lack of sales management: Manage your sales force with planned annual, quarterly, and weekly goals. Make them accountable. Selling is a process. Each step gets you closer to the final sale. Tenacity must be encouraged. Monitor their performance and compensate them accordingly.
• Lack of focus: Have a three to five year strategic plan, supported by a marketing and sales plan that gives salespeople the best opportunity to make new sales or increase current ones. Refer to it often to keep on course; stay focused.
Two factors differentiate the more profitable printers:
• Price discipline: Printers who have established and adhere to a set price structure sell below cost less frequently than other printers. They don’t “panic price”, dropping their price to what the customer wants to pay just to keep their presses running.
• Efficiency in cost and productivity management: A profitable printer can produce $2 million worth of print with 12 employees to his competitor’s 15. Controlling labor costs increases profitability. Every time you implement new technology, re-examine your employee functionality. Ask the question, “Can labor be reduced due to better automation?” If the answer is yes, address it. In some cases, excess talent can be re-directed and assigned to more innovative work.
Recently, I worked with a client to develop a successful Web marketing initiative by using in-house talent that was displaced by automation. The result? Better technology helped to reduce current costs, but the big bonus was an increase in profitability due to the addition of the new Web services.
In another case, I recently implemented two parts of a profit plan for a client, asking him to reduce his payroll by 15 to 20 percent, and move his pricing up by 10 to 15 percent across the board. He was skeptical, but willing to try.
Four months later his production was the same, despite the 15 percent reduction in staff. Profitability is now above normal, with sales sustained at the same level. In the next phase of this implementation there will be a focus to increase sales levels, but only profitable sales.
Remember, increasing sales alone is not the answer to increased profitability. Sales should be increased strategically with a plan in place to proceed with a focus. All strategic elements should be considered, such as pricing, staffing, production automation/technology, along with goals for growth and goals to reach the owner’s personal objectives for success. The successful pursuit of increased profit requires a well coordinated combination of cost containment and focused sales efforts. Having it all is not easy, but time and time again, I can attest, people are doing it, and you can too.
Stuart Margolis, CPA and partner at MargolisBecker LLC, provides information that helps firms operate profitably. The company is the purveyor of the industry’s “Cash is King” and “Value-Added Principles of Management”, and compiles the annual Printing Industries of America Ratios, the industry’s premier financial benchmarking tool. More information at MyPRINTResource.com/10164246.