By David M. Fellman, consultant
Is it better to be bigger – in terms of sales volume – or more profitable? It’s a serious question. Sure, the most likely answer is both, but that’s not the normal state of affairs in the printing industry. Yes, there are large and highly profitable companies in every segment of the printing industry – from those that print on paper, those that print on fabric or those that print on board or any other substrate to those that print with ink or toner or add value with foil or other finishing techniques. But there also are less profitable and not-profitable companies in every segment of the industry, all of which either want or need to be moving in a more positive direction.
Now, obviously, there are many things to be considered on the cost side of the business, including payroll, cost of goods sold, technology, etc., but all of that is a topic for another day. Today is about volume and profit and the sales side of business.
Four categories
Typically, printing companies will fit into one of just four categories regarding the intersection of volume and profit. They are: (1) High Volume, High Profit; (2) High Volume, Low Profit; (3) Low Volume, High Profit; or (4) Low Volume, Low Profit.
Where exactly the border lies between high and low is unknown, but if a company wants or needs to increase sales volume, the rules for low volume apply. Similarly, if a company wants or needs to improve profitability, the rules for low profit apply. If they don’t want or need, they safely can play by the high rules – at least
for now.
What are these rules? If companies really are in the high volume, high profit category, they obviously want to maintain that position. That requires them to maintain good customer relationships, which in turn require a combination of customer service and customer contact. To put it simply, they can’t let their customers down in terms of quality or service, and if they do, they’d better identity and rectify any problems before their customers start talking more seriously with their competitors.
Customer contact is an important element in this equation. There’s a tendency to think that customers will let companies know if they have a problem. That theory has been disproven many times in the marketplace. The fact of the matter is that good customers aren’t usually lost over one huge failure. More often, it is the cumulative effect of two factors. The most obvious is a series of minor quality or service failures. The more dangerous is when a customer starts questioning whether a company truly values their business.
Give some thought to the nature of the contact between the company and its customers. How much of it is the salesperson looking for orders? How much of it is the back-and-forth directly connected to processing those orders and involving the customer, the salesperson and possibly the customer service/project management employees? How much of that contact involves some stress on one or both sides?
Now, how much of it is senior level contact reaching out to the customer to (a) assure the health of the relationship and (b) reinforce the value the company places on their business? Most customers like it when someone senior reaches out to them, especially when there’s been some stress in day-to-day interaction with lower-level people. Customers also like knowing – not just thinking or hoping – that the company is doing everything it needs to do to maintain those happy customer relationships. The best way to know is to be an active participant.
Please note, by the way, that customers are talking to the competitors. At the very least, they are hearing from them, and the most visible customers (i.e. big companies, well-known companies) are getting plenty of attention. As companies should know from their own prospecting, there can be a significant gap between talking to and buying from, but that gap diminishes if the level of satisfaction with the current supplier does the same.
Speaking of prospecting, even a high volume, high profit salesperson or company always should be prospecting for new business. Companies want to have people in the pipeline just in case something does damage a current customer relationship. And beyond that, there’s nothing wrong with higher volume, high profit, is there?
High volume, low profit
If a company is in the high volume, low profit category, it also should be prospecting, because universally, the biggest reason high-volume printing companies fail is that they have bad customers and don’t work hard enough to find better ones. They take all the business they can get from companies that won’t pay for value and that further drain profit by obstructing production schedules and impeding cash flow.
This leads directly to the cardinal rule of high volume, low profit situations: When companies have bad customers, do something about it.
Bad customers
It’s worth asking how to define a bad customer. As noted, they tend to be price buyers rather than value buyers; they tend to obstruct production schedules with unreasonable demands or expectations; and slow-pay customers seriously can impede cash flow. To sum all of that up: Bad customers can be defined simply as more trouble than they’re worth.
The good news is that companies usually have a chance to change bad customer behavior before one of these customers kills the company. Generally, companies can change bad behavior by talking it out with the customer. First, give some thought to exactly why they’re more trouble than they’re worth. This is not something companies should approach with just a vague feeling.
Then, reach out and see if a meeting can be set up. Success may hinge on another element, because there are only two reasons why someone might fall into that “more trouble than they’re worth” category. One is that they’re jerks, and there’s not much companies can do about that. The other is that they’re civilians, meaning they are people who don’t have professional knowledge of the industry. They simply don’t know how best to work with printers to reach their own goals. Civilians can be trained. Not always, perhaps, but it’s always worth a try.
Here are the rules for high volume, low profit: (1) Work at improving the trouble-to-worth ratio with the customers the company already has. (2) Work at finding new customers to replace any the company had to lose. (3) Don’t replace old bad customers with new bad customers.
Low volume, high profit
Imagine an client looking to sell their small company. They have been quite satisfied to earn a little under $100,000 on a little over $400,000 in sales. But the new owner has greater aspirations. This is a perfect example of a low volume, high profit situation. Any advice to the buyer would be pretty direct: Don’t take on any bad customers in order to inflate the top line.
The perfect strategy is to scale the business up using the previous owner’s model. Seek out a few new value-oriented customers. Give them – and charge them for – a premium level of service. Set a goal, such as $600,000 in sales and $150,000 in owner’s compensation. With the right focus, both of those are doable.
For what it’s worth, $800,000 in sales and $150,000 in owner’s compensation also is doable, but what’s the value of an additional $200,000 in sales that doesn’t produce any more profit? In some cases, it’s just 33.3% more work.
The coffin corner
Finally, what if a company is in the low volume, low profit category? The best advice is simply to do something. That may mean prospecting for new customers. It also might mean addressing the bad customers the company already has. In absolute fact, it probably means doing both of those things and starting immediately.
Albert Einstein is famous, among other things, for defining insanity as “doing the same thing over and over again and expecting different results.” Every printer that has failed probably passed by a point where changes could have been made and a different result gained.
Here’s the bottom line for today: Look at where the company stands in relation to the intersection of volume and profit, and then do what needs to be done to put it on the right side of the road.
Dave Fellman is the president of David Fellman & Associates, Raleigh, North Carolina, a sales and marketing consulting firm serving numerous segments of the graphic arts industry. For more information, visit www.davefellman.com or e-mail
dmf@davefellman.com.
