Musings on Material Multipliers -- Dickeson
That gave us the weekly "contribution" needed to have neither profit nor loss; that's the BEB (Breakeven Bogey). "Contribution" is equal to sales less materials. It's the value the printer adds to the basic raw materials. If we had less contribution than breakeven, we had a loss.
Now adjust that total for predicted increases and decreases in the coming 12 months and divide by 52. That's our weekly BEB—Breakeven Bogey—for the year ahead. Do it by quarter and divide by 13 weeks, if you wish. Assume we're shooting for 10 percent profitability. Divide the BEB by .90 and get a WTC (Weekly Target Contribution) bogey. Y'see, we haven't tried to predict sales numbers, number of hours or hourly chargeable cost rates. All we're predicting are operating expenses. That's it. We purposely call them "bogeys" to remind us that they're not real, just one stroke more than par on the golf course.
If you've never done this exercise before, stop right now and do it. Indeed, it will immediately clear your mental sinuses or "your money cheerfully refunded." Logical and quite simple, isn't it? If the goal is to make a profit from a printing business, this points us straight at what we must do to get there, week-by-week.
If we're running below our Weekly Target Contribution we must either a.) increase sales volume or prices, b.) decrease materials waste, c.) decrease operating expenses, or work some combination of these three. We look at the actual results compared to the bogey at 9 a.m. every Monday to focus our minds on what must be done this coming week.
A faster press or binder, moving to computer-to-plate and working harder or more efficiently won't change the operating expenses or increase sales volume or prices. Brutal as it may be, we must downsize, outsource and change the marketing approach to the printing conversion process and services. We must simplify. We must clarify our understanding by trashing the confusing and misleading assumptions that led us into overcapacity.