Ways printers can promote their businesses inexpensively

By William Lynott

GPO Work: No Fancy Campaigns Required

On average, print suppliers have 30 percent idle production capacity and are constantly seeking short-turnaround projects to fill schedule gaps. These projects are readily available in secondary markets such as the U.S. Government Printing Office (GPO), and no fancy marketing campaigns are needed. However, you must know what you are doing to be successful in complex government markets.

One key is low pricing without establishing precedent that affects future price expectations or an ability to bid on future projects. This strategy is called “contribution pricing,” because any income above out-of-pocket costs “contributes” 100 percent to the bottom line.

When contribution pricing is applied consistently and strategically, profitability will jump from an industry average of 3 percent to 17 percent or more, even when fill projects are sold at prices reduced by 25 percent to 50 percent!

Using the following assumptions, look at what happens to a printing company (with a 3 percent operating profit) that applies contribution pricing during a week when it sells 70 percent of its production capacity at “normal rates.”

Work week: 40 Hours
• Capacity utilization: 70 percent (or 28 hours)
• Hours reserved for maintenance: 5 percent (or 2 hours)
• Bonus hours available: 25 percent (or 10 hours)
• Normal selling rate: $2,000/hour (includes all equipment)
• Low contribution selling rate: $1,000/hour (includes all equipment)
• Out-of-pocket materials are charged extra at cost

Profitability without contribution pricing would be:
• Normal weekly revenue: $56,000 (28 hours x $2,000)
• Industry average profit: 3 percent or $1,680 (3 percent x $56,000)

Add contribution pricing, and profitability would be:
• Additional weekly revenue: $10,000 (10 hours x $1,000)
• Exceptional profitability: $11,680 ($1,680 + $10,000)
• Profit leader status: 17 percent ($11,680/total of $56,000 + $10,000)

By selling its unused production capacity (in this case 10 additional hours, allowing 2 hours for maintenance) at a 50 percent discount from a normal selling rate, the printer contributes $10,000 directly to its bottom line. This improves operating profit for the week from $1,680 to $11,680 or from 3 percent to 17 percent.

Rather than being a “shoestring” approach, contribution pricing is a smart way to fill downtime and optimize profits. Of course, this has to be coupled with the best marketing tool—producing top quality work, on time.

—William Gindlesperger

IT'S NO secret. Today's economy is filled with uncertainty. One day, consumer confidence is up and things look promising. The next day, some bad economic news casts a pall over the outlook. With a tiny advertising budget, it can be difficult to find ways to boost your bottom line.
In uncertain times like these, it may seem natural to pull in your horns—take shelter until things look more promising. But that's exactly the wrong thing to do. The economy may look gloomy, but there are still plenty of customers in need of printing out there.

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