Happy, Profitable New Year --Morgan

ONCE FORCES to be reckoned with, countless printing companies have gone out of business by under-pricing unprofitable work. In these harsh economic times, it is more tempting than ever for print suppliers to drop prices and lowball the cost of print projects. But printers that do this inevitably end up shooting themselves in the foot. The words of Paul Nathan of the Lotus Press ring as clearly today as they did when he published “How to Make Money in the Printing Business in 1900.” He wrote: “How many printers we see spending half their time figuring how cheaply they can print this or that job, whereas their true object in business is not to see how cheaply they can do work, but how much they can get for the work they do. The way to charge is to make the price as high as a customer will pay without being driven away, and not to make it as low as can be afforded.”

Well said. I would add to that by saying the way to be able to charge more is to have an intrinsic value attached to the product or service. Of course, the greatest benefit for your customer is when you can offer advice on how to increase their return on investment.

But don’t forget how important it is to keep an eye on your balance sheet. A printer’s prices should provide for the recovery of all operational expenses (rent, taxes, equipment costs, payroll, overhead expenditures, etc.). If they don’t, it is time to rethink company strategy—and what better time to do so than at the dawn of a new year? Think about what measures you can take to ensure that your company becomes/remains profitable. Here are some guidelines that may be worth your time to revisit:

Don’t lowball. Several of our members have strong opinions about this subject. “I manage a small print shop and work as a freelance graphic designer after hours,” said Jeff, of The Printing Source. “I see this sort of attitude within the printing industry, as well as the design industry. When printers lowball prices, they create a misunderstanding with buyers that their service has no value—when, in fact, it is more valuable than a buyer realizes.”

Print buyer Lynn Hamilton concurred. “I do not have time to play price games with my vendors. I want the best price on every quote, every time. I value my vendor relationships and have the luxury of not being pressured to take the lowest bid, when I know it is a one-shot deal offered to win my business.”

Today’s print buyers are savvy, educated and wise to the games. Give them some credit, and create customer loyalty by doing so.

Know your costs. It is critical to have accurate costing and estimating standards. If your hourly rates are not calculated correctly, you are not recovering your operational costs. Many printing companies are long overdue regarding adjusting the rates of their equipment, materials, overhead and labor. If it is time to update yours, don’t forget that there are many programs and experienced consultants available to assist with this task.

Tell your buyers how much you make. Last year, we asked major print buyers: “How much net profit do you believe the average printing company makes?” You might be surprised by the results. Of the 82 survey participants:

• 1 percent of print buyers said “more than 60 percent net profit.”

• 29 percent of print buyers said “about 25 percent net profit.”

• 49 percent of print buyers said “7 to 12 percent net profit.”

• 21 percent of print buyers said “1 to 3 percent net profit.”

As you may know, industry studies have consistently shown the average printer’s net profit is between 1 and 3 percent. (If your company is in double digits, congratulations; you are ahead of the game.) According to our survey, almost 80 percent of print buyers believe printers are making more than 7 percent net profit. But what—or who—drives print buyers to believe this?

Here is a typical scenario: Let’s say a print buyer receives two quotes for a project and chooses Company A. Company B calls the buyer and is informed that Company A provided a better price. Company B immediately asks if they can match or lower the price. Because this happens so often in our industry, print buyers simply assume the cost difference comes out of the printer’s net profit.

Because print buyers assume printers are achieving much higher profit margins, they may attempt to negotiate in an inappropriate manner. This, in turn, generates more and more competitive prices in the industry, and creates the impression that printing has a low value.

Be consistent with quotes. In 2008, Print Buyers Online.com asked our members: “When you bid out print projects, on average, how much do your suppliers’ quotes vary in price?” More than 100 print buyers responded as such:

• 27 percent of print buyers said “less than 10 percent.”

• 55 percent of print buyers said “10 to 25 percent.”

• 18 percent of print buyers said “25 to 50 percent.”

If your price quotes continually fluctuate, print buyers begin to expect that there is wiggle room. “Don’t start that game, because it is a slow death,” shared Mario Benvenuti, an estimator at Hummel Printing & Mailing.

Diane Michalik, production manager at Jacobs & Clevenger Inc., contributed, “As a print buyer, there have been times where a price has varied considerably more than 10 percent. Typically, this was with a new vendor, who then wanted to ‘meet my lowest bid’ after the fact. To me, that is game playing, so I will most likely not do business with that vendor as a result.

“On the other hand, I have had vendors lowball to get in the door, only to nickel and dime me or raise the cost considerably on the next job,” Michalik said.

It is problematic when buyers see a large variance between their printers, but it is worse when buyers notice discrepancies from the same printer on similar types of jobs. I can’t tell you how many buyers are miffed when they compare the pricing a printer gives them from a current estimate, compared to one six months prior, and see that there is a huge difference. Even if you have a valid reason for a shift in your estimates—such as a change in paper prices, price increases in your fulfillment sources, or another valid reason—this is not always transparent to the buyers.

A final thought: Of course, it is in the best interest of print buyers to have suppliers that are financially secure—and, in this economy, your welfare is forefront in their minds.

As we enter 2009, we wish you health, wealth and happiness. PI

—Suzanne Morgan

About the Author
Suzanne Morgan is founder and CEO of the annual Print Oasis Print Buyers Conference (www.printoasis.com) and Print Buyers Online.com, a free community of more than 12,000 print buyers whose member companies purchase more than $14 billion a year in printing. PBO conducts research on print buying trends and teaches organizations how to work more effectively with print suppliers. Morgan can be reached at smorgan@ printbuyersonline.com.