Let’s Look Deeper…. Much Deeper…..!

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Sid Chadwick

By Sid Chadwick

“Direction is more important than speed”…..Dick Gorelick, Writer, Consultant, Advisor to Three Republican Presidents

INTRODUCTION:

I’m of the opinion that only a few, very profitable companies in our great industry… are systematically practicing…. what I’m about to explain.

Your CPA, your banker, and your regional association…may not like what I’m about to explain.

Your Profitability -- could be much better, if you’d conduct an analysis, at least quarterly, like the following illustration.

“Profit-Leader Commercial Printing Company A” -- has conducted a consolidated review of their Customer markets, for the quarter. It looks like this:

Customer Markets	Total Qtrly. Revenues	Value-Added Contribution %	Av. Job Profitability %
1. Casinos	$70,000	50%	15%
2. Mfg.	$120,000	65%	5%
3. Jewelry	$80,000	45%	8%
4. Brokers	$150,000	40%	-1%
5. Medical	$60,000	50%	10%
6. Pharmaceutical	$85,000	55%	12%
7. Cosmetics	$40,000	45%	15%

Note: “Value-Added” = Revenue less Materials & Outside Suppliers

Note: “Value-Added” - is what you have left to pay your company’s Operating Expenses.

Note: “Skilled Labor” is not a “Variable Cost” – if you want to keep your skilled personnel.

Note: “Value-Added $’s” - include - “Profit $’s”

Next Steps:

Qtrly. Customer Mkt. Consolidation Review:

Customer Markets	Qtrly. Revenue	Value – Added Contribution	Job Profit %	Profit $’s
Casinos	$70,000	$35,000	15%	$10,500
Mfg.	$120,000	$78,000	5%	$6,000
Jewelry	$80,000	$36,000	8%	$6,400
Brokers	$150,000	$60,000	-1%	($1,500)
Medical	$60,000	$30,000	10%	$6,000
Pharmaceutical	$85,000	$46,750	12%	$10,200
Cosmetics	$40,000	$18,000	15%	$6,000

Armed with this information, from reviewing not just a calendar quarter, but rather “a year or two” of your customer markets performance numbers,

Which “Customer Markets” -- should be pursued for additional business….?
Which “Customer Markets” – should be avoided….?
And…and…should we pay “Sales Commissions” on Gross Revenues – or “Value-Added $’s” - generated….?

SUMMARY:

There are many implications… this process review gives us.

Note: Different commercial printing operations have different equipment and different personnel. No two suppliers generate the same “value-added” or “profit numbers” -- serving the same customer markets.

And it is partly from this analysis that a company can begin to purposefully select its market differentiation – that allows that company’s management to be much more selective in what target Quotes – and customer markets -- it wants to pursue – not because of higher Profit Estimates, but rather – because of many other, more important factors, such as “Value-Added $’s”, asking …

“Does that selected Quote …and customer…‘fit” the work that leaves us…more revenue – for us to pay our bills…and reinvest…?”

Yes, it is possible, even probable, that many companies pursue customers -- with “Higher Estimated Profitability” – but -- not higher “Value Added” work.

And….there are other issues to discern…..such as, “What (customers) work do we ‘predictably beat’ our Estimated Production Times?

“Which product markets are growing, with well-above average “Value-Added dollars” being generated (e.g. Wide-Format)…?

I’m of the opinion – most of our great “Industry’s Profit Leaders” – most of them – understand the dynamics of “Value-Added vs. Profitability” – and “Plug-them -- into their Planning of “Target Business to Pursue”…and “Quarterly Performance Reviews”.

At the U. of Houston’s Digital Media Department (part of their College of Technology), these fundamentals are part of their curriculum. Dr. Jerry Waite is their Department Chair, and Mark Hargrove teaches that Curriculum.

“A Creative man is motivated by the desire to achieve…not by the desire to beat others.”…Ayn Rand, Author, Philosopher, Futurist