Crouser & Associates Performance Group program helps printers prosper through
on-site assistance and twice yearly group meetings. For more information by Email or call (304) 342-5100. Crouser Report OnLine is the Copyright Thomas P. Crouser. Material may not be reproduced in whole or in part without written consent. Current reports are on the WWW at http://www.printusa.com.

Profitability: How To Get There.

Crouser Report OnLine April 4, 1996

Transmitted from Charleston, West Virginia

Dear Friends. . .

The following was originally written for the National Association of Quick Printers newsletter. But, I liked it so much that I wanted you to be sure to read it, so I am providing it to my friends on line.

Profitability: How To Get There.

George Rounds was the culprit during the New Orleans Owner s Conference. Why don t you write a couple of articles for our newsletter. . .about profits, how to get there and how to stay there? He then peered slightly over his glasses from above as only George can do while awaiting my response. I think I complimented him on the fine spread of food at the reception and made subtle references to seeing him in action on Bourbon Street, but nothing seemed to deter him from his goal: a couple of articles. A couple of articles! Gag. I write from sunrise to sunset and still don t get everything done. Okay, okay. I agreed knowing I would find something I could work over again. But, the leaning tower with pizza had planted a seed. If a print shop were not profitable, how would they get profitable? Interesting.

Profitability is measured on the income statement. So, in order to see why a shop is not profitable, we have to look here. (Duh, I know we know this.) Why isn t it profitable? No money is left. Okay, but why not? (Select one: not enough equipment; SOB printer down the street; can t get those kind of prices here; etc.) There, that s it. What? The reason there is no money left is the reason the shop is not profitable. And that s why! Huh? Most non-profit printers were not intended that way. They just don t know the real reason for the lack of profits and place the blame incorrectly. In other words, it s the analysis which is faulty.

So, how do you analyze profitability? All current costs should be separated into three categories.

Direct Materials: paper, ink, fountain solutions, etc. If nothing is printed then no direct materials are used. I also normally add, but I know printers who could print nothing and still have waste and spoilage. Ta dum. Include the variable part of copier expenses (click charges but not the base charge which is overhead). Include freight in and all costs of outside services, purchases and brokered items.

Labor: All wages (direct and indirect), contract labor, payroll taxes and employee benefits. Worker s Compensation, by the way, is included even though some consider it insurance. Do not include owner s compensation such as officer s salary (owner s draw) but do include the spouse s salary if the salary is commensurate with the job and would have to be replaced by an outside worker if the spouse quit (like a spouse can really quit).

Overhead: Rent, utilities and other period expenses including advertising, insurances, general taxes/licenses and repairs and maintenance of equipment. Include the base cost of your copier (amount you would pay if you copied nothing during the month), contributions, professional fees, Porsche delivery truck, dues/subscriptions and other such expenses.

Starting Point Strategy: Direct Material 25%; Wages 25%; Overhead 25%. I start with the assumption direct materials, labor and overhead should each equal approximately 25% of sales. That will vary depending upon the strategies used by the printer (sometimes direct materials will be 30%), but this is a good reference point. That leaves about 20-25% for income before owner s compensation. Okay, now what are the percentages in our unprofitable company? This is the first step in analysis.

Direct Material 30%; Wages 25%; Overhead 25%: This is within normal range. If this company is running out of cash, either it is due to very high note payments as compared to depreciation/amortization expenses or the owners are withdrawing more money than they are making. Don t do that and call me in the morning.

Direct Material 50%; Wages 25%; Overhead 25%: This probably is a classical case of underpricing. If so, increase prices. If you can t possibly increase prices, then you must reduce wages and overhead to obtain 20% owner s compensation. If you can t do that, increase prices even though I know you said you couldn t. If you can t do that, open a Laundromat.

This condition can also exist when there is a high degree of brokered (outside) sales of business forms, wedding invitations, etc. Subtract brokered sales from total sales and subtract cost of brokered sales from direct materials and pull new percentages on direct materials, labor and overhead. This usually ends up in the following condition: Direct Material 25%; Wages 35%; Overhead 35%. Now, you have a new ball game. Actually, you have a $400,000 business disguised as a $750,000 business, for instance. Ignore the brokered sales and cost of sales and reduce your wages and overhead so you have 20%+ owners compensation.

This condition also could be resulting from a high degree of waste and spoilage which is the first thing most owners suspect. However, it isn t. Never has been in my experience, although, yes, it could be in a rare instance. I will grant you that, but it probably isn t.

Direct Material 25%; Wages 25%; Overhead 50%: You have built yourself a $500,000 print shop and you have filled it up with only $300,000 worth of printing. You have a classical sales problem. You probably also have a classical cash flow shortage, but that s another matter.

Successful Strategies: And so it goes. All situations can be described within the Direct Material/Labor/Overhead relationship such as 30/25/25. So, what is successful? I ve seen several.

I saw one successful printer with a 40/30/10 strategy. His prices were low, he paid his workers well and he was stingy on overhead. He had over $1 million in the company s various checking accounts even though his sales were only $400,000. That means he earned it and didn t spend it.

Another successful printer had a 35/15/20 strategy. Prices were a little on the low side, but wages were down dramatically. That is because he and momma worked their buns off day and night. They are the company and had no fear of getting their hands dirty doing real jobs. They re rewarded with 30% owner s compensation on $800,000 in sales.

Recently, I visited a shop with a 50/16/14 resulting from purchased products the printer would sell to his market niche. Once these were removed, he had a frequently seen normal strategy of 25/25/25.

Best Strategy: Which strategy is best? Any combination which produces 20%+ owners compensation. Can you have too much of a good thing? Yes. One owner asked me how to get more than his 35% owner s compensation. I suggested he start shorting the customer. When they order 1,000, deliver 950. That should eke out a percent or so more. In the meantime, he should spend more on sales activities. But, that s another pizza at another reception.

Profitability. How To Get There? Find out what is wrong and fix it. Now.

Peformance Group In Orlando Opening In The Fall

Okay, I give in. By popular demand, our only new Performance Group this year will open in Orlando, Florida instead of Chicago this fall. Our groups are a combination of on-site visitations and meetings which focus on creating a high level of performance.

The groups consist of non-competing printing companies who qualify for their position in the group via on-site evaluations and a desire to perform. Once qualified, the group meets twice a year (September and March) in Orlando, Florida. For the meeting, our staff prepares a complete financial analysis on each company and a report on each company s most recent evaluation is distributed to all.

Companies receive an evaluation rating based on the visitation. Companies rated in the highest category undergo evaluations once every eighteen months. Companies rated in the second group are evaluated yearly. Third and fourth category companies are rated every six months.

While the meetings have a strong component of reporting of performance and sharing of experiences, there are a number of educational sessions as well. Typically included are sessions on families in business; finance; sales; organization; data base marketing; quality management; supervision; and other topics. In addition, performance goals are set and participants are measured as to their accomplishment of their goals at the next meeting.

During the on-site visitations, much attention is paid to workers. Generally, most are interviewed to obtain their input on changes needed. Also, owners evaluate personnel and various personnel issues are addressed.

Performance Group participants also receive priority status for registration at the 1996 Production Manager Conference to be held in June and the 1996 Sales Manager Conference to be held in August. Additionally, all group participants are invited to our annual owner s retreat scheduled for January 1997 in Miami, Florida.

For more information, message TomCrouser@aol.com with your name and telephone number and we will call you to discuss more details or call (304) 342-5100. We currently have commitments for about half of the openings so don t delay.

Happy Trails..... Tom Crouser

P.S. If you can t measure it, you can t manage it.

P.P.S. We are investigating the feasibility of producing pricing for the Heidelberg GTO. If you are interested and would like to participate in our study group for developing estimating standards, please fax us at (304) 3542-5187 or message TomCrouser@aol.com.

Crouser & Associates - Helping Printers Prosper Since 1985

Crouser & Associates Performance Group program includes two on-site evaluations by Tom Crouser each year along with two group meetings. Management training is held during the group meetings along with participation in a meeting with non-competing printers. Join others who have decided to run their business instead of the business running them. Reply to by Email to Tom Crouser for more detailed information or call Clark Workman at (304) 342-5100. Or fax (304) 342-5187 or contact crouser@ibm.net.

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Tuesday, April 09, 1996 3:42:46 PM Return to PrintUSA home page WWW at http://www.printusa.com.