In Pursuit of Profitability

Obtaining profitability is the primary goal of virtually every entrepreneur or business. In 2010, we saw in excess of 2,000 printing companies close their doors, which should make almost anyone ask, What financially went wrong?

Within the selling process, I believe that the pricing theories used in the face of changing volume maybe one of the central issues behind these closings. Failure to keep a finger on the pulse of a company’s marketplaces also plays a crucial role in this situation.

What drove me to write this blog is my current RIT graduate-level course, titled “Estimating and Analyzing Graphic Arts Systems.” I am very fortunate to have Steve Whittaker, Monroe Litho’s vice president of Quality Control and Sustainability as my professor.

This class has opened my eyes to how important understanding the fundamentals of estimating is. Anyone can plug job information into an MIS system and obtain prices for the given quantities. But knowing “what’s in that number” and where it came from is far more important and useful.

When looking further into pricing for profitability, I believe what goes on between targeted selling price (TSP) vs. actual selling price (ASP) is extremely important. The TSP concept was developed by Spencer Tucker in the 1960s. It is based on the ROI concept that profit on what is produced should reflect the cost of the capital employed to produce it.

Not coming up with a successful pricing strategy and continuing to sell below TSP costs is what I surmise a majority of those 2,000 companies ran into. To achieve success, its crucial that the cost-oriented pricing philosophy be successfully adapted to each individual market-orientated pricing. If the marketplace consistently keeps a company from attaining its TSP, management needs to understand why.

Companies in this situation should take a hard look at how the market segment’s characteristics are affecting them.

  • Why does this pattern of selling below the TSP continue?
  • Why does it take so much labor for us to do the job?
  • Why are we so expensive?
  • Where are the differences between our ASP and TSP?
  • Where did we beat TSP and where did we fail to achieve it?

Perhaps your company is less efficient than competitors in the same market segment. In this situation, the competitor is meeting its TSP prices while you are forced to sell below TSP to obtain the same work.

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Nick Gawreluk is product manager of integrated solutions at Mimeo. His passion for print has spanned across the globe to South America and Europe in addition to many unique work experiences inside the United States.

He enjoys sharing his insight and involvement within the industry and is always searching for new experiences. Nick’s goal is to lead his generation into the future of the printing industry.
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Comments
  • Patrick

    Nicholas are you going to be at the RIT Brick City Festable in October 15th.
    I would like to meet and talk with you.
    Patrick

  • Kevin Cassis

    Nick,
    Your article leaves me with hope that our industry just might survive if the next generation is a sharp as you are. It is difficult for printers today to compete with those who do not measure or even understand their TSP, but have enough cash to exist for prolonged periods, even at losses. Perhaps the next generation of printers like you will be more business savvy and less driven to just print more impressions at any cost. Now hurry up, graduate and get in the game!

  • Pat the Printer

    Speaking from the vantage point of 16 months out of the business, I believe our own customers contributed much to our demise. The day of 1500 black-and-white forms padded in 50s at the top vanished three or four years ago thanks to in-house copiers and digital printers. A couple of our larger accounts installed large color printers and one even installed a cutter so we didn’t get to even trim their jobs. I was 70+ and had absolutely no appetite for borrowing more money. The city and county rescued me because they wanted our real estate for a joint administrative center.

    I’m in the I-29 Corridor in a rural state. I’m surrounded by printers in towns of less than 20K who have purchased 4-color 20×26 and 23×29 presses. Whether they can keep them busy enough to pay for them remains to be seen. I maintain the jury is still out. Fifteen years ago when we contemplated a purchase of this $$$ magnitude, we’d be trying to see if we could keep it busy more than ONE shift; these guys are hard-pressed to keep these 4-color presses busy even one shift.

  • Steve

    Much, if not most IMO, of the continued selling below TSP happens because companies adopt the mindset of selling work at any price to keep the cylinders turning. Selling below TSP can be part of a segmented approach to the market in which some work is sold at TSP, while other work is sold at or near cost to help recoup fixed and what I’d call semi-fixed costs (labor not laid off for short periods). This type of approach can also be successful and is no doubt required given the variability in demand and the excess capacity in this mature industry. Where it fails is when "filler work" replaces profitable work and ROI approaches zero. There are too many reasons why this happens to go on.

  • davidamoore

    At some point, "the light goes on" or it doesn’t. Many of the smaller printers just don’t get it or keep their head buried in the sand. I was a perfect example. Then I had to make some very hard and very personal decisions exactly a year ago. I laid off people, replaced with better/younger ones, sold equipment, out sourced, eliminated overhead, etc. Now 2011, and in particular, the last 3 months have been the best in years. We were on the brink of failure and my reluctance to make the hard decisions for the last 2-3 years nearly cost me everything. No more "filler" work or zero ROI for me. If it doesn’t make money, good money, I don’t do it. Period.

  • Sophie

    I really don’t know what the mystery is – this has nothing to do with management, business planning or strategy. Printing is being outsourced to shops in India and China where they can simply dump their toxins into the environment without fear of repercussion, employ workers who are without labor law protection and pretty much ignore ethical, humane rules and regulations that make the world a better place. There was also a very interesting article about a Chinese company purchasing the Greek port of Piraeus at http://www.npr.org/2011/06/08/137035251/in-greek-port-storm-brews-over-chinese-run-labor. The world needs to wake up and recognize that what goes around will come around and the bottom line is more than dollars and cents.

  • Dino

    Let’s not forget that many "star salespersons" have largely contributed to this problem as well – hurting the companies they work for and the industry they work in.

    It is one thing to sell at TSP and another to sell at a discount; the worst salesperson in the world can sell anything at the right price.

    Compensation should be based on contribution rather than on sales volume. This is something that should be adopted industry-wide.