I am writing this on January 1, 2000, and there's trouble brewing in the old print shop. Yep, Joe Davis, chairman and CEO of Consolidated Graphics, announced in a press release that he "believes lower-than-expected sales volume is attributable to general industry conditions."
Davis believes this statement because Andrew Paparozzi, chief economist for the National Association of Printing Leadership (NAPL), published a report that said, for the first time in 15 years, real print sales (RPS) is lagging behind gross domestic product (GDP) growth. According to Paparozzi, printing industry sales growth will slow to 3 percent to 3.5 percent from the 4 percent to 5 percent for the year 2000. This means that for print sales to keep up with GDP growth, if 1999 was $100, then 2000 would have to be $105. Instead, alas, it's only going to be $103, or if we're lucky, $103.50.
You have to ask, "What's all the worry over a lousy buck-fifty?" It's not as if print sales will be down 20 percent this year. So, excuuuuse me if I dare to disagree with these esteemed gentlemen.
I think the real reason for the slower print growth is that some of you didn't work hard enough to sell more profitable business. I believe that many print salespeople have allowed profit margins to erode rather than improve. If you all had added just a teensy 5 percent to every job during 1999, Andy Paparozzi's base dollar would have been $1.05 plus the 1.5 percent real growth in print demand. Since that didn't happen in 1999, if you would just please add 5 percent to every job in 2000, it would result in real print growth actually outpacing the GDP. A more modest 2.5-percent price increase would put print growth on the same level as GDP.
By the way, since all 65 of Joe Davis' printing plants serve local or regional general commercial sheetfed customers, I assume he was limiting his observation to that segment. For all we know, labels, publications, books, folding cartons and direct mail are going through the roof.
And, since most of NAPL's members are general commercial companies, I assume that Andy's forecast is limited to that segment. You just cannot generalize about the printing industry because it consists of many, I said many, segments. Each segment behaves differently because it serves specific groups of customers with its own technology, i.e., gravure, intaglio, flexo, heatset web, non-heatset web, digital, etc.
The general commercial printing segment has always had a pricing problem. There's less customer loyalty, and you've got a multitude of salespeople chasing almost every job. It is also the largest printing segment, by far, and it remains—after all the consolidation of the '90s—the most fragmented.
So, I contend there is no problem with print demand: The problem is that our prices remain too low, and the customers are still in control.
Let's examine the components of a print-sales dollar. I'll make a pie chart. The important section in my chart is the yellow "profit" slice labeled "8 percent." An 8-percent, pretax profit printing company is doing great! I use this example because that's just about the profit Consolidated Graphics produces.
I don't want this to be an accounting lesson, but expenses like sales commissions, office salaries and phone charges are paid from the green area labeled "SG&A" (sales, general and administrative expense). The blue and red slices depict the cost of producing a printed product. Interest is spent on the debt used to finance plant equipment and, sometimes, working capital and is the small, light blue slice. The yellow "profit" slice is first used to pay federal taxes, and whatever is left flows into the equity account to finance the future growth of the company. If your company has no yellow slice, you are either breaking even or losing money. Neither result is good.
Now, let's look at a pie chart for a mythical 8-percent-profit company, where all four salespeople committed to raise prices by a mere 5 percent. See what happens. The yellow slice gets a lot fatter—just like the ol' Mañana Man. And, the whole pie gets 5 percent bigger.
The Secret to Success
I knew something had to be wrong with a Texas guy transplanted from an Arkansas farm (Davis) agreeing with an Italian economist from New Jersey (Paparozzi).
The answer, folks, is markup. Add more profit to your jobs, and sales will go up. Of course, you've got to sell it, and the customers have been telling us for years, "Give us primo response and Ritz-Carlton service, and we'll pay a little extra." As soon as you figure out how to satisfy each of your customers on their terms and gain their confidence, you can get an extra 5 percent.
OK, here's what we're going to do: I am going to be completely fair and divide up the readers by "consolidators" and "independents." All salespeople from independent commercial printing companies, you sit on the left side. All you commercial salespeople from Mail-Well, Master Graphics, Consolidated Graphics, Printing Arts America, Wallace, Kelmscott, Nationwide Graphics and Quebecor World, you sit on the right side. (Would somebody please have security break up the fist fight between the Mail-Well and Wallace people?)
I will write in code, so that the right side can't read my message to the left side, and vice versa. OK, listen up you big company salespeople! Here's what I want you to do:
- Commit to working eight extra hours per week, devoting all that time to extra service for your largest accounts.
- Commit to investigating, learning and deducing everything about the meaning of customer service.
- I doubt that your companies are providing you with sales training, so I want each of you to commit to spending $1,000 of your own money to improve your selling skills.
- Slowly, selectively and planfully begin adding 5 percent to every quote. I dare you to try it!
OK, left-side independents, your turn. Read carefully, because the right-side consolidators will not know what I'm telling you.
(Now, we're gonna cheat. Go back and read all the bulleted text. But shhh! Don't tell the consolidators on the right side of the room that I shared the scoop with you!)
And now that you have all accepted my dare to add 5 percent to every quote—Mr. Davis, Mr. Paparozzi and the rest of the industry have me to thank for single-handedly reversing this slowdown.
Oh, both sides of the room, I forgot one more thing: GET OUT THERE AND SELL SOMETHING! I mean it! Right now!
—Harris DeWese
About the Author
Harris DeWese is the author of "Now Get Out There and Sell Something!" He is a principal at Compass Capital Partners and specializes in investment banking, mergers and acquisitions, sales, marketing, planning and management services to printing companies.