Operations: It May Be Time to Revisit Your Commercial Pricing Structure

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Cutting costs in our operations has long been the fallback for many companies. As painful as this strategy is the approach seems to show immediate savings and despite of ourselves, we always seem to find a way to get the work done through one means or another. Regardless of the excess time we may have had in our heyday, all good things must come to an end and in many of our operations we’re running low on bright ideas and ways to push the envelope on cost savings.

We are beginning to see more operations missing deadlines, incurring overtime hours and employing high-priced temp help just to get by. Print quality may even suffer.

Cost cutting is a trend that has and will continue to affect us all, often turning our journalistic establishments into bottom-line businesses rather than news organizations and advocates for our communities as they were originally designed to be.

When the golden goose starts running out of eggs, we need to explore other options to improve the franchise and maintain financial stability for owners and investors.

As it becomes more challenging to find cuts that won’t damage the franchise and destroy what some have spent decades building, we should turn our focus from cost reductions to growing revenue.

Following that statement, I can see our ad departments and online staffs snapping straight up in their chair and taking issue with my comment. But before the anger sets in, let me tell you that I’ve been in their shoes before and it’s not a comfortable spot to be in. Our ad departments are fighting for advertising dollars against mounting odds daily. As much as we love print, we can’t deny things simply aren’t what they used to be and will never be again.

When I first started “selling” print advertising it didn’t amount to much more that “order taking.” I’m not very proud of that, but it’s the truth.

I remember simply walking into business after business to pick-up their ad copy, revenue producing special sections were few and far between, and advertisers accepted rate increases without much of an argument. Occasionally, we might hold a page for a late ad, but I remember many times filling pages with news copy if an advertiser missed their deadline by more than a few minutes. I truly wish we had recognized our stupidity and arrogance well before it got the better of us. But that was then and now we are facing a much more difficult world in advertising and online sales; so, think twice before you complain about cost cutting to stabilize your property.

One of the areas for revenue growth that still exists is commercial printing.

As more publications explore consolation as a result of buyouts, mergers, or the simple fact that maintaining full-blown press, mailroom and production operation can sometimes cost more than you’re taking in, the number of commercial print opportunities continue to grow for those of us who have developed strong commercial printing capabilities.

There’s a lot of competition out there and it’s not always easy to expand commercial volume. Some of us may not have the sales arm to promote additional sales; others may not have fine-tuned our operations allowing us to remain competitively priced, we may not have the right staff or equipment in place to handle additional work, or perhaps we’re filled up and without available print windows and just can’t take on more work at this point in time.

For organizations who have developed their commercial printing business and may not have a lot of room to expand, or for those who continue to grow but haven’t recently reviewed pricing, you may be missing a golden opportunity to add additional dollars to the bottom-line without painful cost cutting.

I’ve worked for organizations who have not passed on a commercial print price increase in several years. Many have had the same pricing structure since taking on a client five or even 10 years ago, while at the same time continuing to absorb cost increases from vendors on plates, paper, ink and other consumables while watching their commercial profit margins shrink.

One of the most significant costs that affect margin can be labor. Over the years some employees have received wage increases, some through merit increases others through minimum wage mandates. This has driven up expenses and if you haven’t passed these increases on to customers you will see your original quotes quickly getting out of touch with reality.

It may be time to review your commercial pricing structure and consider price increases in your commercial print division.

You must determine the proposed percentage of increase for each individual customer based on several factors. Let’s break these considerations down.

Current Margin

This may be the most important part of any commercial printing review.

Most of our organizations determine month-to-month what the overall margin of their commercial operation is, yet many of us don’t track the profitability/margin on each of our commercial customers. This can result in high-margin jobs offsetting low-margin jobs that continue to go unnoticed because the end result (overall profitability) is maintained. This approach equates to leaving money on the table that is coming out of your pocket on the front-end (consumable price increases, etc.).

This is not an easy task and is time-consuming, but go through each of your commercial accounts and determine the actual margins and how it corresponds with your original bid. If you’ve seen a decline in the margin over the years, those accounts can be a prime target for passing through a price increase.

Labor

Let’s face it, some jobs are easier than others. Say you have a job that sends PDFs and doesn’t need to be touched in prepress; we plate them, lock-up plates, run the job and the customer picks up the finished print job. Labor is at a minimum and it’s what we all refer to as a “cake job.” It might not be a big job, but because of the low cost of labor these jobs are normally high margin. It doesn’t tie things up in your shop and there’s not a lot of room for error. Jobs like these can often support a small increase in price to the customer without a lot of fanfare.

On the other side of the coin, we have the job with inserting, specific bundle counts, inkjet labeling, delivery and other labor-intensive requirements. These are the jobs that we really need to closely look at. Perhaps as your crew has become more familiar with the job efficiencies have improved and the margin along with it, or the opposite may have occurred, and the job could be chipping away at the margin you originally planned on. These jobs require closer evaluation and may require larger pass-alongs just to maintain an acceptable profit. Or you may have to consider removing these jobs to make room for higher margin alternatives.

Length of Time the Customer Has Been with You

On one hand, there’s a lot to be said for stability. If you have a customer who pays their bill on time, doesn’t complain about every small smudge or imperfection, who you’ve established a strong relationship with and sings your praises, you may be satisfied with a bit smaller margin.

But, on the other hand if this customer has been with you for a length of time and has the same pricing as when you first sold them, perhaps they’ll better understand your need to cover expenses with a small price increase.

Often relationships like this revolve around comfort and trust. If your client knows you’ll jump through hoops to give him quality printing on a consistent basis, and that you consider him a partner instead of just another number, they will often find it easier to pay more and maintain that relationship.

Size of the Customer/Customer Spend

I take no customer for granted and am thankful for each one, but it sure hurts more to lose the high-dollar customers verses smaller clients. Keep this in mind when considering any price increase.

If you have two customers both with 30 percent margin, but one represents a $1 million in annual revenue and the other a $100,000, which would you rather keep?

It’s a fact that we’re going to be a bit more cautious passing on increases to larger clients. Sure, it means a bigger payday for us, but there is also more risk and I certainly don’t want to encourage any customer to look for alternatives.

Regardless of the size, our customers are in business to make money just as we are and it’s important to keep that in mind. They probably understand that everything is getting more expensive and we have to pass on some of our costs to maintain profitability and that allows us to continue to deliver the quality they are accustomed to. I find that if you are reasonable and fair in your daily dealings with customers and you are up front and honest with them, they are more apt to understand a well-documented and legitimate price increase.

Gauge each customer on the value they bring to your organization and act accordingly and fairly.

The Relationship/Comfort Level with the Customer

This is about knowing your customer. Are they happy with what you do for them or do they complain constantly about quality? Are they so cost conscious that a small increase, even though it’s well explained, will result in them running off to gain bids elsewhere? If you know your customer and can truly put yourself in their shoes, you’ll have a better feeling for the level of increase they may tolerate, allowing you to make better decisions regarding possible percentages of increase.

Publishing Day and Time

All of us have slow days and busy days of the week. Filling open print windows is something we want to do and can be much more profitable than jamming in a job in the middle of the busiest printing time.

In most commercial shops I’ve worked in, it seems all weekly publications want to print on Tuesday or Wednesday. That alone can create overtime (which should be considered during the bidding process) and can chew into your margins. If you’re fighting for a job in a competitive bidding war, price things realistically and don’t cut corners just to land the job. You’ll end up regretting it later when the real work starts.

If you’ve misquoted, a bid in the tight periods now is the time to right the ship, tough as that might be.

Ongoing Customer Demands

We always try our best to maintain good customer relations, but let’s face it some customers are downright difficult to please. If you have a customer, who despite you doing a great job on their work, is always looking for credits, adding work in outside of the original agreement and complaining about the charges, sending in pages with errors and blaming you for not catching them (even when you do quite often), perhaps you need to determine if you want to be their printer. If you decide that the relationship should continue, you might need to look at the quote, and consider any challenges to the margin and rebid things accordingly.

Stability of the Customer

In short, does the customer pay their bill. Are they struggling? Will they leave you stuck holding the bag? If the customer is on the edge, adding to their printing bill might not be the best way to keep them afloat and sending in those payments. Sometimes you need to make a judgment call and decide if it’s worth letting things go along as they are or hoping they can help support the increases you’ve incurred in consumables without going into a death spiral and bailing on their printing bill.

Type of Product

This circles back to the labor. Straight off the press beats labor intensive jobs hands down, but the profit (not to be confused with margin) can be higher on jobs with mailing, inserting, delivery, etc. when they are bid correctly.

Also, if you are lucky enough to be the only printer in the area who has binding or mailing capabilities, this, of course, gives you a one-up on printers who have to job these out. Take advantage of your specialties and price them fairly but as profitable as the market can support.

If you can provide one-stop-shopping to customers, you’ll have an advantage when it comes to pricing and passing through necessary increases. I’ve worked in shops that only print on ground wood and shops that do it all. It gives you a tremendous advantage when you’re not sending work out and marking up other printers folding, enamel printing, binding, etc. It also makes you much more attractive to customers who require quick turnaround, which you can accomplish easier in-house.

What’s Next?

Before passing out a price increase to customers, sit down with your commercial sales team and work through the process, set a time to implement the increase, inform customers and be clear explaining the who, what and why of the increase, allow customers enough time to prepare, and above all else, treat them fair.

We should be proud of the quality and service we provide to our commercial customers. We should be confident in the work we do and make no apologies for passing on necessary price increases to maintain the health of our organization. In order to continue moving forward in our own shops, properly maintaining equipment and labor forces to ensure nothing but the best quality printing and customer service available, we must maintain profitability to support our operations and our people into the future.

 

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.

Kevin Desmond

This month, we spoke with ING secretary Kevin Desmond about the partnership and what it takes to be an operations all-star.

How will this partnership between ING and E&P beneficial to our industry?

Kevin Desmond: Media companies that have their roots in the printed newspaper are considered by many the dinosaurs of the industry. We need to change that perception. This program will help us recruit and retain talent.

What is your opinion of what makes a true “Operations All-Star” in our industry?

Desmond: The behind the scene employee who embraces their company’s core values and plays in integral part in the success of the organization.

Based on your experience, what personal attributes do you believe make someone successful in operations today?

Desmond: Hands on, motivated, positive attitude, good people person, team player

What advice would you give to someone coming into our industry on the operations side?

Desmond: Don’t believe what other media outlets say. Our industry will be around for a long time. The mission of our newsrooms to provide watch dog unbiased reporting is a keystone of democracy society.

What advice would you give someone currently in our industry to become an All-Star this year?

Desmond: Believe in the mission, embrace your company’s core values and contribute to its success to the best of your ability.

Jerry Simpkins has more than 30 years of experience in printing and operations in the newspaper industry. Contact him on LinkedIn.com or at simpkins@tds.net.

Operations

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