“The fact that a typical printing job is composed of 40 percent fixed costs and 60 percent variable costs allows considerable discretion in pricing,” the two note. “Too many printing companies focus on costs and continue pricing as they have in the past. Raising prices by just 1 percent raises profits by a higher percentage than decreasing materials cost by 1 percent, reducing payroll cost by 1 percent, reducing administrative and selling cost by 1 percent, or increasing sales by 1 percent.”
[perfectpullquote align=”right” cite=”” link=”” color=”#ff00ff” class=”” size=””]Raising prices by just 1 percent raises profits by a higher percentage than decreasing materials cost by 1 percent, reducing payroll cost by 1 percent, reducing administrative and selling cost by 1 percent, or increasing sales by 1 percent.[/perfectpullquote]
Expressing cautionary advice, Ronnie and Tai say, “Oftentimes, printers over-rely on their estimating systems. Those systems should be the starting point of the price-setting process, which should focus on getting the order for as much as the client will pay. All pricing decisions should be customized and based on the three Cs by simultaneously focusing on costs, the customer and the competition.”
Educate, Train, Coach
Profit-leading printers have a much stronger focus on human resources management, particularly training and education, according to the economists. A state-of-the-art, high-performance work system should:
- Be all-inclusive in benefits, awards, profit sharing and bonuses. Employees should perceive equity in sharing gains in good years and pains in bad years
- Be transparent in sharing information on financial status, business plans, strategies, etc.
- Invest in education and training opportunities for employees
- Reward employees based on individual performance, their team’s performance and the firm’s performance
Capital & Labor
According to Ronnie and Nat, “The profit gap between profit leaders (printers in the top 25 percent of profitability) and profit challengers (the remaining 75 percent) averages 10 percentage points—a whopping difference of $1 million in profits for a $10 million-per-year printer. Since roughly 40 cents of every dollar of a typical printer’s sales is expended on people (wages, salaries, benefits and payroll taxes), managing people and their costs is a key determinant of profitability.”
Quarterly GDP Change, 2016-2017
[infogram id=”january-2018-economic-outlook-chart-3-1hdw2j07kg5o6l0″ prefix=”E91″]
Data courtesy of Printing Industries of America’s Center for Print Economics and Management
The pair maintains that, “Profit leaders are able to use less labor per sales dollar because they abide by the classic dictum of substituting capital for labor. Profit-leading printers employ an average of more than $15,000 in net assets per factory worker employed, compared to average printers.” They ask, “Are you keeping up with profit leaders in investment?”
Recruitment & Retention
[perfectpullquote align=”right” cite=”” link=”” color=”#00ffff” class=”” size=””]Execute the three Cs of pricing—cost, customer and competition. Profits result from some combination of lower costs, higher prices and/or increased sales. Too often, printers focus on costs and sales, and ignore pricing and utilization rates. Profit leaders have higher earnings for two core reasons—lower costs or higher prices. Develop a more nuanced and complete view of the relationships between costs, price and utilization rates.[/perfectpullquote]
Additional advice the PIA economists offer stresses this point: “Prepare for tighter labor markets, higher compensation costs and tougher recruiting. Our forecast for the economy and print market points to significantly tighter labor markets. This means printers need to be prepared for:
- Increased wages and salaries to hold on to your workforce
- More labor turnover as employees take advantage of increased job openings
- Tougher recruiting to fill vacancies
They say, “Remember, money isn’t everything! Surveys show employees highly value non-money issues such as flextime, recognition, training opportunities, social events and other options.”
Tax Reform
In wrapping up their economic outlook, Ronnie and Tai emphasize a few related points. “Take advantage of any tax law changes. Keep an eye on any changes to both personal and corporate tax laws and evaluate your business practices accordingly. Be ready to take advantage of changes in investment and depreciation rules, pass-through options and other aspects of tax changes.”
The resounding message: “Don’t wait until the end of the year to see how your business might be impacted.”