As is the case with any successful business, it’s one for all and all for one. Yet based on my experience in both newspaper publishing and commercial printing, I’ve often questioned the fair distribution of expenses across these two divisions.
When too few or too many expenses are misallocated to commercial printing from the newspaper side, it can distort the profit lines of both areas and lead a company to make poor decisions based on inaccurate bottom-line reporting.
I’m a strong proponent of truth and fairness in our industry and don’t tolerate well one side of our business profiting at the expense of the other. We either all succeed or fail together as one cohesive unit.
Often in our business I’ve seen individuals on both the commercial and the newspaper side of the business warring over expenses as if they were in competition with one another instead of all on the same team, with the same goal, which is overall profitability and sustainability for the company.
Keeping accurate track of what expenses are allocated from operations to commercial isn’t always an easy task, nor is it a perfect science. Although most of us believe we’re doing a fair job distributing expenses to reflect accurate costs in both areas, I believe we need to take a closer look at how we assign expenses on a regular basis, and make appropriate adjustments to reflect true profitability in commercial and our expenses in both production and commercial.
However, I realize that many of us are content to sit back and let the newspaper take on the lion’s share of expenses to reflect a stronger bottom line for commercial. To some, it seems to produce a false sense of security that at least one area of the business is doing well. After all, with faltering circulation, losses in advertising revenue, classified a mere shadow of its former self and profitability in newspapers challenged day in and day out, what’s wrong with shaving a bit of expense from production to show a healthier profit in our commercial division? In my opinion, there is a lot wrong with it.
So, I’ll climb down from my high horse and go over some of the gray areas I believe need to be carefully evaluated and adjusted accordingly to reflect accurate accounting practices in operational and commercial print expense and profitability.
Shades of Gray
Most of our properties allocate some form of overhead to commercial. When we create quotes for customers, we throw in 10 percent or so for overhead to cover the cost of electricity, gas, water, property taxes, etc. figuring that the amount of expense moved into commercial can be accounted for under this general category. But how much thought really goes into the percentage verses actual use? Perhaps someone looked at this percentage/formula a few years back when you first got into the commercial business or maybe a well-meaning accountant pulled a number out of a hat?
Granted it isn’t always easy to arrive at an accurate number for allocating utilities, but it is an expense that can make a huge difference in the big picture. The amount of time and use is a utility expense associated with commercial verses newspaper production and it can vary greatly from week to week, with busy weeks verses slow periods presenting a moving target for even the best accountant. I don’t pretend to have the exact solution here, but I propose that you calculate hours of commercial running time and newspaper publications running time and make as fair an assessment as possible to arrive at a division of expense.
As you work through this exercise, you obviously understand that the press and mailroom are not running 24/7. So, who pays for the time that the lights are burning, and the heat or air conditioning is cycling on and off? Right now I’ll bet that your core publications division is paying for all downtime and commercial is sitting off on the sideline. Appropriately and fairly allocating any gray area of expense takes research and a bold business decision. The decision is yours on how to allocate expense in the utility area.
To be clear, if we were to sort through each little allocation on an ongoing basis, we probably would have so much time invested we wouldn’t have any time left to do our day job. I’m not suggesting that we go overboard with this but merely recommending we look at things from time to time to make sure that as commercial work varies allocations follow.
Areas to Consider
The following are some questionable areas of expense worth looking at that we may put little thought into and can subsequently be absorbed into operations. If your management is okay with this, that’s fine. Just keep in mind that while these expenses may be considered covered in the general overhead area of commercial, but they are real costs that may be skewing production expenses and contributing to a false margin in your commercial area.
Many of our properties may already have separate expense lines for some of these categories and that may work fine for you. I’m bringing these areas up simply to generate thought and focus attention on many of the less reviewed of parts of our operation and detail how those expenses can affect us.
Software updates and maintenance: Contracts for software updates and maintenance exist for many of our inserters, press controls, mailing/labeling systems, copiers, printers and other production equipment. These expenses can add up to a pretty penny and need to be considered when looking at commercial overhead.
CTP contracts: While we all account for plate usage on our quotes and our expense lines, we also have both hardware and software contract expense for our computer-to-plate equipment that is probably falling under production expense. Depending on your coverage, this is not a small expense. This area of cost can easily be fairly allocated by taking a simple plate count, arriving at a percentage and allocating the contract expense based on that percentage.
Cell phones: A small but constant expense, normally charged to the department the phone service lives in and if this service is for a commercial salesperson, it will be allocated appropriately, but often the operations director is the person directly in charge of commercial and many hours of cell phone time can be related to interactions with customers and commercial details; likewise with land lines. This expense should be adjusted and allocated accordingly.
Office supplies: These can range from a few envelopes to expensive toner cartridges, reams of copy paper, office equipment, etc. and usually isn’t considered under commercial overhead.
Building repairs and general maintenance: I’ve never seen commercial share in an expensive building repair. Sure, there is the general belief that it’s covered within overhead, but if you take a close look at the cost of repairing or maintaining HVAC units, plumbing, electrical issues, pest control, janitorial supplies and services, etc., those items come at a significant cost.
Building supplies: Cleaning supplies, restroom supplies, soaps, shop rags…the list goes on and on. It takes a lot of materials to keep our operations up and running, and it all comes at a steep price.
Lubricants, blanket wash, press chemicals, recycling of ink and chemicals: Again, these could be some items you feel are captured under overhead, but you just may notice that overhead expense is starting to look a little thin after we continue to add expense after expense to it.
Blankets and rollers: Following the same thought process as above, expenses falling under overhead/general supplies. Although I have seen this before as a separate expense line item in commercial, it’s often hard to separate blanket and roller expense for commercial verses production expense for non-commercial products. Therefore, we usually take the path of least resistance and simply roll it under general supplies as a small percentage of allocation to commercial.
Property taxes: Some of us also consider this part of the overhead expense allocation to commercial, but I don’t know if I’ve ever actually seen it applied to commercial. It seems that the publication division picks up this expense and commercial is not assigned any of this cost.
Overtime expense: This can be one of the most misallocated expenses to commercial in any property. We normally track hours on each commercial job and charge those hours to commercial subsequently extracting that expense from production, but when it comes to overtime, often it goes unaccounted for and tends to be entered at straight time instead. Of course, this not only adds to the expense in production but also falsely inflates the margin in commercial.
Management expenses: How involved is a property operations manager in commercial? It’s quite a bit. There’s day to day management of commercial job production, juggling of schedules to accommodate commercial, speaking with customers, working through printing issues, etc. How much time does your mailroom or pressroom manager spend working out insert issues and press challenges with commercial that doesn’t show in the salary line of your expense report? Normally, managing commercial takes up a lot more of your managers time than is accounted for on the commercial expense report.
Be Truthful and Fair
Most of the time we tend to focus on the big expense items and account for those costs believing we’re capturing majority, if not all, the expense for producing commercial jobs. We diligently keep track of paper, ink, salaries (although this allocation can vary depending on workflow), bad debt expense, etc. And yes, generally these expenses make up for majority of the costs in the commercial area, but if we choose to ignore the miscellaneous expenses associated with producing our commercial products that expense will still exist and be absorbed into other areas of the operation, distorting the expense lines as well as exaggerating margins for our commercial operations.
I expect that those on the commercial side are reading this article and thinking I’m way off base and that commercial is already absorbing more than enough of the expenses for the franchise and we’re lucky they’re contributing to our bottom line.
On the other hand, I’m sure that the production folks are reading this thinking it’s about time that someone brought attention to all the expense hitting their area and that commercial should be eating more of the costs.
If either of the above is true, then you’re all wrong. We’re all here for the same purpose, and if you’re stuck managing in a silo mentality, you’re in the wrong industry.
I sincerely hope that some part of this article helps you to better allocate expenses between production and commercial. We’re all on the same team and have the same goal in life—to be the best at what we do and be proud of the contribution we make.
The lesson is to be professional and be fair. It will take you a long way in our business and the area of expense allocations.
The Latest From ING
The International Newspaper Group and E&P recently announced their collaboration on the first annual ING/E&P Operations All-Star Excellence Awards to be handed out at this year’s ING Leadership Networking Summit in September. In preparation of that, we will share the latest news from ING every month.
This month, we spoke with ING board member Clarence Jackson, director of sustainable supply chain with Cox Enterprises, about the partnership and what it takes to be an Operations All-Star.
How will this partnership between ING and E&P be beneficial to our industry?
Clarence Jackson: I feel that in these times of consolidation in the newspaper industry where operations have been and will continue to be merged and drawn down, it is vitally important to recognize those that continue to drive their operation to be the most efficient and reliable. Having a job and collecting a paycheck is important but being recognized and rewarded will go a lot farther in showing how much we truly appreciate these all stars.
What is your opinion of what makes a true “Operations All-Star” in our industry?
Jackson: Someone who has demonstrated a passion for the business by leading by example, engaging and continuing to improve by acquiring new equipment, refurbishing existing, consolidated operations, making significant operations changes do better position their business. Led their operations through major changes with open and honest communications with their teams.
Based on your experience, what personal attributes do you believe make someone successful in operations today?
Jackson: Integrity and honesty with open communication are attributes that are key to leading in operations today.
What advice would you give to someone coming into our industry on the operations side?
Jackson: The advice I’d give to those newly entering operations in the newspaper industry is that you’re starting during an exciting time where there is a lot of change and opportunities to make a real impact for where you’ll be supporting great journalism.
What advice would you give someone currently in our industry to become an All-Star this year?
Jackson: Keep pushing to improve your business and driving efficiencies and savings. There are still opportunities in our newspaper operations, from energy savings to labor and environmental improvements. Utilizing Design Thinking, Six Sigma and other optimization and industry tools to drive continuous improvement. Don’t overlook the great internal resources at your disposal—your people—as they are your greatest resource with most knowledge and the best ideas.