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Welcome to NPOA’s 1st Owner’s Conference New Orleans – April 18-21, 2013.
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Transcript of Welcome to NPOA’s 1st Owner’s Conference New Orleans – April 18-21, 2013.
Welcome to NPOA’s 1st Owner’s Conference
New Orleans – April 18-21, 2013
General Session Presented by
John Stewart, Q. P. Consulting, Inc.
In prehistoric times (before 1960) there In prehistoric times (before 1960) there were two types of cavemen and women…were two types of cavemen and women…
Those that worked 24/7 and trained their family members and employees to hunt…
Risking their lives and facingRisking their lives and facing“mammoth” challenges“mammoth” challenges
If they were lucky, and worked hard, they were able to bring home
food to feed their families…
While others stayed at home or the office doodling, chipping stones…
Dreaming, drawing andDreaming, drawing andpainting on their office painting on their office
walls…walls…
AND some, AND some, believe it or believe it or not, instead not, instead of hunting, of hunting,
stayed home stayed home to pursue to pursue
their artistic their artistic nature by nature by making making
pigmentspigmentsand mixing and mixing
inks!inks!
This is “Jocko man” mixing berries to match PMS 266 – it’s his 4th try!
It’s time to stop dreaming, doodling, chipping at rocks and painting on your office walls…
This morning I am going to share with you critically important, and publicly available statistics, to help your firm improve your profits in the next 12-24 months.
Key Ratios & RecommendationsKey Ratios & RecommendationsFor Profit-Oriented CompaniesFor Profit-Oriented Companies
Whether you consider yourself at the top, the middle or even at the bottom in terms of either profits or sales, the studies that have been co-published by NAQP and QP Consulting, Inc. (soon to be by NPOA) can help you improve your firm’s profitability in 2013 & beyond!
Ok, so what have we uncover in these types of ratio studies?
Big Firms & Small Firms…
Some of the key ratios we will cover in today’s seminar…•Leader vs. Laggard Performance
•Profits Per Employee
•Sales Per Employee
•Sales Per Press Operator
•Sales Per DTP Employee
Overview ofOverview ofOur Industry Our Industry Based upon…Based upon…
Study
Results
&
Industry
Overview
2011 Income Analysis
2011 Expense Analysis
Historical Analysis 1983 vs. 2011Historical Analysis 1983 vs. 2011
Let’s all sing – Let’s all sing – “Where or where have all the flowers (Profits) gone?”“Where or where have all the flowers (Profits) gone?”24 years and COG +/- 1.5%; OVHD down 3.3%; Payroll up 8.2%; Owner Comp down 6.4% 24 years and COG +/- 1.5%; OVHD down 3.3%; Payroll up 8.2%; Owner Comp down 6.4%
Now a closer look at
“Leaders” vs.
“Laggards”
Industry Leaders vs. LaggardsIndustry Leaders vs. LaggardsWinners vs. LosersWinners vs. Losers
State Of The Industry 2011-12
Key Ratios - Fiscal Year 2011 PROFIT PROFIT
AVERAGE LAGGARDS LEADERS
Sales Volume $ 1,202,058 $ 1,264,159 $ 997,797
Payroll as % of Sales 32.5% 38.4% 27.2%
Owner’s Comp. % 11.5% 0.8% 24.2%
Sales/Employee $ 122,931 $ 107,697 $ 137,438
Total Payroll/Employee $ 44,495 $ 45,081 $ 43,354
Owner’s Comp. $ 138,236 $ 10,113 $ 241,466
What Can You Do To Boost Your
Firm’s Profitability & Value?
1.Monthly Financials – Organized properly
2.Standardized Chart of Accounts
3.Demand Ratios Next to each Expense!
4.Make sure all payroll expenses are clarified
5.Remember bookkeeper/CPA works for you!
6.Set goal for reducing total expenses by 2%
We require two things to calculate Profits per Employee before we can compare
your performance against peers:
1. Owner’s Compensation – All the money that is
left over in the business after covering all the expenses of the
business but before paying the owner a salary or fringes.
2. Excess Earnings – Owner’s Compensation less a
Fair Market Salary for the owner. For that, we use the following
formula: ($14,000 + 4% of sales) X 1.18% to account for payroll
taxes, etc.
Owner’s Compensation
1. Owner’s Compensation – The total amount of
funds and benefits paid to or on behalf of a single owner –
salary, taxes, healthcare benefits, cell phones, entertainment,
personal travel, corporate profit. Must be clearly demonstrated
via records and on financial statements. It does not include
benefits or salaries paid to spouses or partners, unless of
course you would sell the spouse or the partner when selling
the business. Salaries paid to these individuals are legitimate
expenses of the business. If the amounts are excessive (over
market amounts) then this is added back to owner’s
compensation.
Profits Per Employee…How to calculate? (2nd Qrtl)
EXAMPLE: Sales of $727,500 and 5.4 FT employees + owner (2nd Qrtl)
Owner’s Comp. 9.5% or $ 69.112
Owner’s Comp. $ 69,112 – Less Fair Market Salary $ 50,860
Excess Earnings = $ 18,250
Profits Per Employee $18,250/5.4 = $ 3,379 * Fair Salary Calculation = $14,000 + 4% of Gross Sales; Above represents an average company with a SPE of approx. $113,700 and owner’s comp. of 9.5%
Data based upon Quartile Analysis $500,000 - $999,999, 2012 Benchmark Study
Profits Per Employee…How to calculate? (Top Qrtl)
EXAMPLE: Sales of $733,600 and 4.5 FT employees + owner (Top Qrtl)
Owner’s Comp. 25.4% or $ 186,341
Owner’s Comp. $ 186,341 – Less Fair Market Salary $ 51,146
Excess Earnings = $ 135,195
Profits Per Employee $135,195/4.5 = $ 30,043 * Fair Salary Calculation = $14,000 + 4% of Gross Sales; Above represents an average company with a SPE of approx. $135,628 and owner’s comp. of 25.4%
Data based upon Quartile Analysis $500,000 - $999,999, 2012 Benchmark Study
The industry’s simplest of all calculations –
Total Sales divided by the total number of bodies (including owner, sales reps, mother-in-laws, spouses, partners) required to produce the work. It matters nil whether or not these individuals are paid to produce this work!
Historical SPE Data 1996-2012
2012-2013 Pricing Study published Q. P. Consulting, Inc.
2011-2012 Industry Average SPE
Sales Per Employee by Quartiles:
(All firms 2011-2012)
Bottom Quartile… $107,697
2nd Quartile… $122,319
3rd Quartile… $127,767
Top Quartile… $137,438
The Payroll Cost Problem
Payroll Cost Net
Owner’s Year Percent Percent
1983 24.3% 17.9%
1987 27.3% 14.7%
1995 28.8% 13.6%
1999 30.8% 11.5%
2005 31.7% 13.4%
2011 32.5% 11.5%
27-yr change + 8.2% - 6.4%
The Continuing Payroll CrisisThe Continuing Payroll Crisis
Payroll as % of Sales
Bottom Quartile 38.4%
2nd Quartile 32.9%
3rd Quartile 31.4%
Top Quartile 27.2%Please note this crisis has come about NOT because owners are paying their employees too much, but because they typically employ too many employees for the work required.
Make Gains in
Sales Per Employee
that are Greater than
Increases in
Payroll Costs per Employee
BENCHMARKING DATA INCREDIBLY VALUABLE
AS TOOL FOR OPERATING A PROFITABLE FIRM
Why Employees Don’t Do Better
They don’t know how to do their job.
Solution – Training
They don’t know what is expected of them.
Solution – Standards
There is no extra reward for performing well.
Solution – Merit pay or bonus systems.
Key Productivity
Ratios revealed in the latest industry
Pricing study
Annual Pricing Study Tracks Key Productivity Ratios...
A brief look at three key ratios used by profit-leaders in our industry:
1. Sales Per Employee (SPE)
2. Sales Per Press Operator
3. Sales Per DTP Employee
All data and ratios extracted from the 2012-2013 Industry Pricing Study.
2012-2013 Industry Pricing Study
SPE Quartile Analysis
Thoughts on Industry Selling Prices
Selling prices for most items are increasing at about the rate of inflation (DTP and copying charges are exceptions).
Profit Leaders and Profit Laggards charge about the same prices.
Many studies* have shown that the price of a product tends to rank only 4 or 5 in a list of purchasing criteria used by most buyers.
Increasing prices is a far, far easier path to increasing profits than lowering prices in hopes of capturing more sales.
*Dependability, quality, turnaround time, ease of doing business, price, special technologies, unique capabilities, geographic location
Additional Comments on Industry Selling Prices
Little variation in pricing from one geographic section to the next, yet variations of +/- 30% above and below average price are quite common with markets.
Argument that, “Everything else being equal, people will make decisions based upon lowest price” is totally unsubstantiated by the facts.
Owners who view their products as nothing more than commodities and must be sold as such are missing many profit opportunities.
There is no product better defined as a “commodity” than food*, and yet price variations (not costs) of 32%, 36% and even 43% can be found between identical products sitting on store shelves everyday!
*Cream Cheese, 39%; qt. milk, 34%; LeSeur Peas 41%; lb butter, 29%
Factors Cited by Print Buyers When Selecting a Printing Firm
If you tend to buy items based upon pricing, you are also likely to sell on that basis as well.
Participants by Average Participants by Average Sales Per EmployeeSales Per Employee
Average Pricing Study SPE $125,800
Tips for achieving higherSales Per Employee
Provide employees with best equipment possible Be prepared to pay higher wages/benefits to employ the
best, most productive employees Provide sufficient room for production and a pleasant
working environment Track and measure employee performance &
productivity wherever and whenever possible Spend 30 minutes a day managing your business.
Demand that others do their jobs as well Set reasonable written goals for you and your business!
Sales Per Press Operator
2012-13 Pricing Study published Q. P. Consulting, Inc.
Average Sales Per Press Operator $259,000
Sales Per Press OperatorRevised per data from 2012 Pricing Study
RATING ANNUAL WEEKLY
Excellent $350,000 and up $7,200
Very Good $300 - 349,999 $6,600
Average $275 - 299,999 $5,875
Fair $250 - 274,999 $5,365
Poor (Disastrous) Less than $250,000 $5,100 *Assuming 49 weeks available
Above chart is based upon sales per FT Press Operator. Dollar amounts represent full retail printing price of printing, including paper, plates and other costs. However, these prices exclude DTP charges and Bindery. Seem impossible? Six runs of 1M 3-part NCR per day, or its equivalent, would easily get you to the $350,000 or “excellent” category. Similarly, two runs of 4/4, 2,500 ea., 8.5x11, on 100# coated (total 10M imp) would easily put you at more than $500,000 annually, even accounting for very competitive pricing.
Tips for achieving higherSales Per Press Operator
Market & sell jobs with higher gross profit Improper & unrealistic pricing will prevent you from
achieving higher $$$ production Make Sure you have excess presses Remember, Profit Leaders still count on presses 26%
of their sales! Install group or Individual bonus plans Proper Scheduling -- Don’t allow the scheduling of 3
days of work over 5 days!
The infamous “BLACK HOLE”
Sales Per Graphics EmployeePer 2012-2013 Industry Pricing Study
Black-Hole Copies, Inc.ESTIMATED HRS. SOLD 3 HRS 5 HRS
Annual Sales @ $70/Hr. $50,400* $84,000(Assumes 240 working days @ 3 hrs/day @ $70/Hr.)
Wages & Fringes for 1 DTP $40,000 $40,000
Wages for CSR to Process $13,000 $13,000
Share of Gen. Overhead @ 15% $ 7,560 $12,600
Depreciation & Consumables $ 8,500 $ 8,500
Total Costs of Sales $69,060 $74,100
Net Profit $$$ $(18,660) $ 9,900
Net Profit Percent -37% 11.8%
Most firms in this industry are either losing money or just breaking even, especially so if they cannot find a way to charge for at least 25 hours per week or 5 hours per day @ $70 per hour. To charge less per hour or to sell fewer hours is a recipe for disaster. Sr. Graphics employee average pay: $19.34; Junior Graphics is $16.20.
* Assumes 240 working days @ 3 hrs per day = 720 X $70.00 = $50,400
Sales Per DTP Employee
RATING Annual Weekly
Excellent $95,000 and up $1,940
Very Good $80,000 - 94,000 $1,775
Average $65,000 - 79,000 $1,470
Fair $55,000 - 64,000 $1,224
Poor (Disastrous) Less than $55,000 $1,122
Above chart is based on retail sales per F-T DTP employee. Note that at $65/hr. it is only necessary to sell 29 hours per week (74%) to achieve “Excellent” status. This assumes 49 weeks available, after vacation and holidays.
Update on DTP Productivity Average 2012 hourly charge - $71.40 Average Number of Hours sold/week – 21.5 hrs Average Wage for Sr. Graphics… $19,34 Average Wage for Jr. Graphics… $16.20 Estimated time required to prepare typical
customer supplied file for print… 24 minutes Percent of that time actually charged to
customer is about 61%... or a $43/hour Approx. 39% of industry fails to chg. To “Pre-
flight files.”
How to Squeeze More MoneyFrom the “Black Hole”
1. 1. Attempt to recover/charge for just one (1) additional hour per day @ $70 per hour (only asking for 60% productivity). This will result in approximately $17,150 in additional annual DTP sales - A 25% boost in productivity!
2. Restrict/limit access of DTP Department by Customers.
3. Make sure CSR’s & owners adhere to published policies regarding proofing, file handling and pre-flighting files.
4. Make sure DTP is equipped & proficient with the latest software.
5. Use a “Published” price book or “restaurant menu” approach and charge based upon perceived value, not time spent!
6. Most important of all - require DTP personnel to track and record all time spent on each job - no exceptions!
Concluding RemarksConcluding RemarksLooking back on more than 25 years of consulting, involving more than 400 on-site consulting visits, each averaging approximately two days, I can’t recall a single firm that was in trouble because of a lack of sales, governmental policies, OSHA inspections or healthcare costs…
The primary reason for failure in this industry is the inability or unwillingness of owners to make difficult and even painful management decisions at the first signs of trouble.
Avoiding bad ratios or just pretending that your current financial ratios will somehow fix themselves is not the way to resolve problems.
THANK YOU!
QUESTIONS & ANSWERS IF TIME PERMITS
CONTACT INFORMATION:
John Stewart at:
[email protected] www.qkconsultant.com