Industry Benchmarks: Measuring Performance

For print shop owners, understanding their position vs. industry benchmarks is very important in order to improve key areas of their operations. Benchmarks can be used to measure straightforward financial ratios and aspects of the print operation, as well as where the company stands in terms of adoption of processes and technologies that enable new business. InfoTrends’ recent “Emerging Trends” survey, developed in conjunction with NAPCO (the publisher of Printing Impressions and In-Plant Graphics magazines), was designed to create performance and value innovation benchmarks for the production printing market. A total of 377 shops consisting of print-for-pay and in-plant shops completed the survey in February.

At the most practical level, it is beneficial to be knowledgeable of the direction of markets in terms of year-over-year growth, profitability and key cost ratios. At a higher level, it is important to understand which products and technologies production printing establishments are investing in. Operational and business development can be visualized along the two axes shown above. On the operating ratio side, there are a total of 10 data points developed from this survey that a company can use to evaluate its performance. While some of these ratios are straight off the income statement, others are designed to provide insights on how busy a shop is, or how productive its workforce and sales force are relative to its peers.

Year-over-Year Sales Growth

One of the most interesting findings from the survey of 226 print-for-pay shops was their year-over-year sales growth. Viewed in total, 2011 was a little worse than 2010, with average sales per shop down by 0.48 percent. However, by looking at the size of those shops it is clear that bigger shops actually did a lot better than small shops. Year-over-year sales in large print shops actually grew in 2011 by 0.5 percent, while small shops, with less than $1 million in sales, reported that sales in 2011 were down by 36.5 percent, on average.

Another interesting finding was that in-plant print shops overall reported 20 percent growth in the volume of production. These findings may be interpreted to mean that in-plant shops are taking in a greater share of the production volume, limiting the growth prospects for print-for-pay, in general, and for smaller print-for-pay shops, in particular. This is one of the most useful metrics to have because, unlike some of the others, it isn’t just a snapshot—it is a measure over time, which is a better indicator of the direction of the company versus the market.

Revenue per Employee, Revenue per Sales Employee

Key ratios like revenue per employee and revenue per sales employee are important to benchmark because it can give shop owners an idea of the level of automation they need to employ. A shop with a high revenue-per-employee ratio is likely going to be more automated than a shop with a low revenue-per-employee ratio. The average revenue per employee among all of the survey respondents was more than $123,000 in 2011.

It could be the same when it comes to revenue per sales employee. A shop that has a high sales-per-sales employee ratio is likely more automated when to comes to job estimating and order entry, so their sales force is spending less time on non-sales tasks and more time selling. The average revenue per sales employee was more than $2.5 million in 2011.

For both revenue-per-employee and revenue-per-sales-employee ratios it is better to compare companies of similar size. For example, when the responses were sorted by number of employees it is clear that the average revenue per employee is higher while the average revenue per sales employee is considerably lower than the industry average. Capacity Utilization

The average print-for-pay shop reported running at 60.5 percent of capacity. Capacity utilization, another key measure of how well a company is doing, requires some context. Intuitively one would think that a shop that is at a higher percentage of capacity utilization would have higher profits (the more a shop prints, the more it earns).

The survey data actually contradicts this theory, however. Companies that reported utilization rates of 80 percent and higher actually had a lower average net income rate than shops with a lower utilization rate. Perhaps this is because the shops with higher utilization rates are using older or slower printing equipment, or because the work they produce is mostly commodity print jobs. It is difficult to diagnose how higher utilization could equate to lower net income percentages without knowing the individual cases, but it’s worthwhile for shops to recognize these dynamics.

There are, of course, low-margin print jobs that shops produce for important customers or to try to win new business. These jobs keep the shop busy and, hopefully, pay off in the long run. But it is important to remember that these jobs have a negative effect on net income percentage.

Materials Costs, Labor Costs (as % of Sales) and COGS

Materials costs and labor costs are frequently two of the biggest costs of doing business for print service providers, so how well companies manage these costs can be critical. On average, print-for-pay shops reported that their materials costs were 21.3 percent of revenue and their labor costs were 28.6 percent of revenue. For the purposes of this survey, we asked shops to include all ink, media and finishing supplies in their materials cost figures.

Total cost of goods sold is a number that is typically reported right on a firm’s income statement; it includes all of the costs of materials and labor associated with production. Different firms calculate cost of goods sold a little differently. Some include items that others don’t, but the finding here is that the average shop reported that total cost of goods sold were 50.2 percent of revenue in 2011.

Net Income Percentage

The most important number for the individual shop owner is net income percentage. This tells the shop owner what percentage of revenue is left after all costs are covered. Among the most interesting findings from the survey is that average net income percentages increased modestly in 2011 versus 2010.

The 2010 average net income was 10.3 percent of revenues, whereas the average net income percentage in 2011 was 12.4 percent of revenues. Given the early findings on average shop revenues, it seems clear that the shops surveyed managed to improve their net income percentages through savvy management of costs.

While these findings represent some of the key metrics that print shop owners and operators need to use to manage their operations, it is important for each shop to build on these to help grow the business and improve their financial performance.

There is another set of issues, the side of the original diagram called value innovation and business development, which was also measured with this survey. Eight key enabling capabilities and certifications were chosen to measure the extent to which a company can enable the widest range of business opportunities. What the figure illustrates is how many of the total of 377 shops (229 print-for-pay and 148 in-plant operations) reported having different capabilities and certifications. Overall, what the findings suggest is that print-for-pay shops are routinely more highly invested in some of the more advanced capabilities that should enable new business. This is due to print-for-pay shops having a need for a wider range of capabilities. For example, many in-plant print shops have no need to allow retail style, online ordering, whereas many print-for-pay shops may want to invest in this capability even if it is seldom used.

From a benchmarking perspective, any company can compare its own shop with the reported penetration and adoption of these technologies and certifications to see where it stands in terms of value innovation and business development. The use of metrics to help manage a business can and should extend beyond financial metrics into the marketplace where print shop managers can develop an understanding of the competitive environment and the need to invest in key enabling technologies. PI

About the Author
Tim Greene is the wide-format services director at InfoTrends. He is responsible for covering all wide-format printing technologies and specialty media for these services. As director, Greene develops InfoTrends’ annual market forecasts and conducts primary research on these markets.