MY BACKGROUND IS in producing large-format P-O-P and consulting for large- and grand-format screen and digital printing clients. I’ve served this industry as a print business owner, as an international grand-format prepress service provider, a process control and color management consultant, a trainer for SGIA and Idealliance (which are now a combined association with NAPL and PIA) and Printing United, and I am a member of international standard committees. I still remained involved in all of these, but the most valuable service I can provide at this time is to help print providers become more profitable. I call it “Business Acceleration.”
What Happened? Why is Profitability More of a Problem Now Than in the Past?
The graphic and display printing business has changed, and it changed quickly. Most of my clients from the last 20 to 30 years know how to design, engineer, and print. They produce an amazing product, they’re very efficient, they have good equipment, most of them are G7 Master printers, and their message of high quality is not fluff. Their quality and productivity are real, and they’ve spent the money and time making sure they’re considered by their peers and competitors as high-quality print and display providers. They should be able to demand top dollar for their products. But it’s becoming harder and harder to do that. Quality is expected at a low price. Fast service is expected without paying the “rush charge.” It’s sad, but it’s becoming the new normal.
In the last few years, even before COVID-19, these quality companies were struggling to grow and maintain a solid bottom-line margin. When I became aware of the growing problem of low or non-existent margins in our print segment, I was even more surprised when I found that low margins were accepted by the printers as a tradeoff to get high volume. The natural tendency of print providers is to push for more volume and sacrifice margins. After all, that has always been the solution in the past, right? But more volume was not the solution. More sales were not what they needed. It was bottom line margin. Larry Steinmetz, one of the best profit evangelists of all time said, “If you are going to go broke, don’t go broke tired.”
What Happened to the Margin?
It’s a belief that we can sell for less and make it up in volume. So, the problem that’s the most pressing for the clients I serve now is not productivity, or quality, or even lack of sales. It’s bottom-line margins that are sinking ships. And making the challenge to maintain good margins even more difficult is everything is happening faster now.
There are three primary causes creating this vessel-sinking iceberg:
- Commoditization. This is when the only difference in your product and mine is price. Online buying and print job auctions are the worst offender. Their objective is to make it impossible to differentiate your product with nothing except price. They win. You lose. If you get the job, you’re probably the one who loses the most.
- Over capacity of digital print producers. Promises of volume have motivated print providers to errantly purchase more capacity than they can fill. Thus, supply and demand says keep the press running, even at low margins. It ultimately drives all prices down to a large segment of the providers as it quickly sinks to a business-killing level.
- Short life span of digital equipment. The need to meet high lease payments on equipment is a new challenge the screen printing graphic community didn’t have. Screen equipment would last for decades. The fast development of faster digital printing is sometimes forcing a three-year ROI with a need for high revenue to be sustained to make lease payments. Then, at the end of the lease, the rat race starts again.
The Normal Lifecycle of an Industry (But at Warp Speed)
If we were paying attention to the large-format graphics and display screen print segment of business a few years ago, it suffered the same thing that is now happening to the grand-format digital printing segment of our graphics and display industry. There’s a natural lifecycle of business segments. In 2012, I was fortunate enough to hear a consulting colleague and friend of mine, Mark Coudray, explain this process and predict where we were in the grand-format screen printing lifecycle. It made a profound impression on me as I realized he was right.Advertisement
The Grand Format Screen Print and Display Disruption
Even at the time that Mark was forecasting the arrival of a major graphic and display screen print market disruption, the markets he was talking about were doing well. But the digital screen printing disruption was gaining ground on grand-format screen print.
Why? It wasn’t logical. Screen print was still the best and most productive way to print large sizes in large quantities. The product was still in demand and it was more suited for mass production. The ink was less expensive, the ink lasted longer, it was more durable, it was and is, still the most versatile for use on a larger variety of substrates, and the quality was as good or better than digital when produced by high-quality screen print providers. But digital was good enough and getting better. They were able to do larger press sheets, and getting faster every day.
Mark warned us about the “why.” Mark said something during that timeline that I will never forget: “Anything that is a target for being replaced by digital, moves through four phases: invention, extension, substitution, and then demise.” As digital printing disrupted the market, the producers were scrambling to abandon the grand-format screen print ship. Oh yes, even today there are still a lot of great high-quality large-format screen print producers that are doing well. But the market is still shrinking as buyers are even asking for digital because they “think” it’s better. It’s probably not, but what they “think” is what is right to them. It was just the normal lifecycle of an industry. But the cycle is now changing at warp speed in the digital market as it’s facing its own disruption.
Surviving the Changes or Anything Else that Comes Along
Even in this environment, there are ways to do more than survive in a disrupted market. I saw it in action last year. I saw Profit First People actually prosper and grow. They knew what was going on and had already addressed basic systemic problems. Also, if you follow the Profit First Path, there is not much traffic. Remember, I said most of the traffic is going the other way, chasing low margin work. But you can fix it. Start with something from 1896.
Pareto’s Law of Probability of 1896 at Work
This may be the one thing that’s the hardest to accept, but it’s a key profit generator. I’m sure everyone reading this article who have been in business for a while have been exposed to Pareto’s Law of Probability. It is simply a truth that Pareto, an Italian engineer/economist, discovered. He found, in most cases, 80 percent of the force that is affecting a result is powered by only 20 percent of the available driving resources.
Let’s unpack that description and use customers as the 80/20 values. Twenty percent of your customers are providing 80 percent of your top line revenue.Advertisement
Some say, “Ok, Mike, what does that hurt? The bottom 80 percent still are contributing 20 percent and we need the 20 percent because they are contributing to paying our bills.”
How Does Optimizing My Account Base Help Me to Be More Profitable?
I have seen this work many times and I’m still amazed at the acceleration and transformation of companies that take this seriously. On close examination you will find the reason it works.
- It frees up resources to better serve the needs of better customers. Profitable Growth.
- Customers that will pay a premium for better and faster service will migrate to you. Think about it. When you get a call on Thursday with an opportunity to charge a premium for fast service, you can easily do it because you aren’t doing low volume, low profit work.
- It actually even helps morale in your company. You are no longer the fast-food model of a print facility. It becomes fun to watch your banks account grow. It’s fun to have money to invest in new equipment and have fewer employees but get the best employees because you are able to pay them more. Just because you restructured.
One of Marks’s core profitability teachings is on the lifetime value of a customer. He explains a profitability concept most business people do not understand: “Every customer is not the same value.” There are two differentiators even in the top quartile of your customer base.
- The customer’s contribution to the bottom line at a volume that makes a difference.
- The other is how long that customer has been yours, which dramatically affects your bottom line.
In the bottom 80 percent is the realization that group is what causes “time bankruptcy” and the inability to take advantage of high-margin opportunities. This is a key concept.
How Do We Do That?
First, structure your pricing and services to eliminate most of the bottom 80 percent of your resource draining accounts. You may find that your top line will drop in volume but your bottom line will grow. And it will grow a lot. Remember, “Top line is vanity and bottom line is sanity.” It’s very hard to go out of business when your bottom line is strong.
It’s time to stop accepting the new “business normal” that the masses are thinking is normal. Did you realize that most of the companies you’re competing with are going out of business? There’s a need for a business catalyst that accelerates bottom line profits. I work with the “tried and proven system” developed by Mark Coudray called Catalyst Accelerator. More than 250 business have been through the CatalystPlan training. It provides a path to a success track for the business. Mark’s programs (and there are several flavors of his programs) are trademarked as CatalystPlan. I describe this simply, but please understand that foundationally some of the Catalyst Plan elements are rock solid and proven to work when applied as designed. Shortcuts or omission of elements or steps will result in less than optimal performance. That should not be a surprise at all. If it were easy, everyone would be doing it. I learned this from Mark Coudray. Mark learned it from the cruelty of the business life cycle. But if we learn from those that have traveled this path, and if we pay attention to those that survived and are willing to teach us the truth, we can avoid some of the pitfalls that force really good businesses to close.
Remember, solid, bottom line profits will accelerate a company’s success, it will make it a complete, solid, profit-making, machine surviving disruption and even pandemics. “Profit is planned from the beginning.” That is the key to CatalystPlan. What I do in Business Acceleration is reveal the danger lurking below the bottom line. I determine if all other productivity functions are normal or need improvement. If they do, I fix it. But what CatalystPlan brings to the table is the secret sauce that all companies need to know and use.Advertisement
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