Discussion

By Robert Lindgren on Feb 11, 2020

"Are the sales people selling what your are capable of printing?" The problem with this goal is that it is focused on the printer, not the customer. Wouldn't it be better to meet the customer's needs even they require buy-outs? Wouldn't the sale rep and the printer be better positioned as the sole source for the customer's graphic needs and not just a narrow portion of them.

"Who is discounting? What jobs regularly come in with problems?" These are pricing issues that relate to fully utilizing the capacity of the plant. Isn't discounting better than not getting the order? Isn't a problem job an opportunity to charge more for getting it done? Customers who get everything right the first time are not high revenue producers.

By Pat McGrew on Feb 11, 2020

Robert! Thank you for the comment. I would challenge the idea that it's the goal. It is essential that the salespeople understand the capabilities to be able to map it to what their customers want and need. Too many salespeople are selling the capabilities from three, five or even ten years ago. I have seen it too many times in assessments. Knowing the capabilities isn't the opposite of selling to customer needs And I'll challenge the idea that discounting is better than not getting the job. It's not always the case. It should be a business decision. Thanks for your thoughts!
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By Robert Lindgren on Feb 11, 2020

Pat...I agree that the rep must understand the current capabilities but the customer's needs are paramount.

If discounting is bad is a matter of the facts. For the average printer, the actual expenditure (materials, production wages, commission) to produce a job is about 60% of the estimate. Thus, if the discount is less than 40%, producing the job produces some contribution to overhead which is better than zero.

By Pat McGrew on Feb 11, 2020

Hi Robert. Customer needs that are a mismatch for capabilities are a business challenge that can be met in three ways. Walk away from the business, try to build the capability on the fly or find a partner. Each has consequences. I see what you are saying on the discount, but I don't agree that this is always true. Discounts should be a business decision, not an automatic giveaway, which was my point.

By Robert Lindgren on Feb 11, 2020

Pat...My concern about discounts being a "business decision" is that too many printers starve themselves for volume and underutilize capacity by being biased against discounts. I believe that the principle should be "charge as much as the customer will pay but get the order."

By Pat McGrew on Feb 11, 2020

I understand your point of view. I haven't found a bias against discounts... which may be my lack of experience. However what I find in almost every company I walk into is that when salespeople control the discounts they are overused. We don't have to agree, but the discussion is fun!

By Robert Lindgren on Feb 11, 2020

I think that the printer should realize that the estimate is an arbitrary number that's really unrelated to the firm's profit. Profit is achieved by maximizing contribution to overhead (sales less materials, factory wages and commission). This is usually achieved by fully using the plant capacity (24/5 or better). To achieve this, getting all possible orders is the key--thus "charge as much as the customer will pay but get the order." The reality is that customers determine the price by their willingness to give an order.

By Pat McGrew on Feb 11, 2020

Interesting view.

By Gina Danner on Feb 12, 2020

Fascinating conversation... Estimating should be seen as itemizing ALL COSTS, not determining sales price.

Too often PSPs aren't able to fully articulate or KNOW their.

Discounting should be done for strategic reasons.
--Fill under utilized capacity
--Get your foot in the door for the right account
--Help a new AE get their book built
--Build a new line of business

Sales reps too often drop pricing out of fear instead of out of strategy. For years, I have heard from under performing reps that "our pricing is too high". That is a difficult sentence to hear when my top performing reps consistently sell at higher markups.

Outsourcing has challenges in itself. If you have built your organization to do work in house, but your reps sell work that is done at other facilities then why do you own a printing company? Reps need to be trained to sell work that is produced within the walls of the plant first and then if there is some work that goes out, that's fine. I've had too many reps over the years come through our shop who simply sold outsourced work. That doesn't work for me. It doesn't contribute to the plant utilization which is where my overhead sits. If done properly outsourcing can be a good effort, but it is a delicate balance and must always have a healthy markup.

By Pat McGrew on Feb 12, 2020

Gina! I love your strategic list. It's a match to the one we recommend. It sounds like you have this thing handled!

By Robert Lindgren on Feb 12, 2020

The problem with traditional estimating is that it does include "all costs." Not only the actual expenditures (materials, production wages, commissions, etc.) but a whole host of necessarily arbitrary allocations of everything from the receptionist's salary to the rent for the plant.

The pricing decision is really entirely external flowing from the printer's relationship with the customer (treats us as their sole source to strictly price buyer) and the value of the job to the customer (critical to new product launch or throw-away).

If the printer is focused on selling only what they can produce, they are sentencing themselves to be just another choice among many. If the printer strives to become the customer's sole source for their graphic needs they insulated from purely price competition. If you think about it, this is the business plan of successful print brokers.

By Pat McGrew on Feb 12, 2020

That is an interesting view, Robert. Not one I completely agree with. I've seen many models work. The original point of the article was that in assessments I often encounter salespeople who do not know what the company they work for can produce, so they sell what they could sell 20 years ago. Due to all sorts of relationship and other issues, management doesn't hold them accountable for selling what they can actually produce, and so they lose opportunities. By ensuring that sales team members are continuously educated, and providing clear guidance on discounts as Gina mentioned in her comment, a print organization can improve their success rate.

By Gina Danner on Feb 12, 2020

"If the printer is focused on selling only what they can produce, they are sentencing themselves to be just another choice among many." -- This is shortsighted view... NextPage carries about 8% of our total sales as outside buys. Those may be products fully purchased out of house, or partially produced out of house (as in foil stamping). We are anything but "just another choice". We've consistently grown year over year.

"If the printer strives to become the customer's sole source for their graphic needs they insulated from purely price competition." MAYBE -- if you are able to truly deliver on that sole source capability. From my perspective, I have to clearly define who is our "ideal customer". If I am able to clearly articulate the ideal customer then my account execs and my marketing team search for those ideal targets and it becomes a great fit.

Yes Print Brokers can have viable businesses. I'm not a print broker. I own a print manufacturing plant. My goal isn't to just sell something, my goal is to sell services that maximize my plant. If I focus my efforts on that, I have a strong organization. Once I've maximized my plant, then I may choose to focus on the brokerage side of the business.

Watching my financial statement over 30 years, if we focus on selling hours in our plant, we have more profits and stronger client relationships.

It is a choice in how one wants to run their organization.

As far as "estimating and costing" -- How an organization chooses to manage their costing model is as different as any organization. For example -- I put my phone expense as a cost of goods because when my sales go up, my phone expense goes up. I know most put it in overhead. May or may not be the right choice.

When I figure hourly rates, I have a choice to cost on a one, two, or three shift model. If I cost on a three shift model, but only fill 1 1/2 shifts, my costs are artificially low.

Note that I am talking costs -- not sales price. There is a whole other conversation that could be had.

By Pat McGrew on Feb 12, 2020

Thanks Gina!

By Chris Lynn on Feb 13, 2020

Useful discussion! Gina says “my goal is to sell services that maximize my plant”. I suggest that this really means “maximize contribution to my fixed costs” , which would be consistent with a goal of increasing net profit. One of the points at issue here is how to decide - in the toughest situations - how to price a job so as to maximize contribution, if plant capacity is available. Robert’s point is that any price that contributes to fixed costs is better than losing the order, and that conventional estimating systems that allocate overheads are misleading in making this judgment. Discounting, as Gina points out, has to be done strategically, and can be a slippery slope. (As we all know, orders are won by the salesperson’s unique skills, and lost because he was not allowed to discount enough...)

Does anyone know of research on what proportion of print salespeople are paid commission on contribution margin versus top line revenue?

By Pat McGrew on Feb 13, 2020

Chris! Very interesting question. I don't know of anyone who has done that research. Does anyone else?

By Robert Lindgren on Feb 13, 2020

Chris's comment is right on point. My experience is that most commission plans are a percentage of gross sales but frequently with a significant reduction in the event of "discounting" which is exactly the wrong approach. Commission based on contribution margin is rare, but commission on value added (gross sales minus materials and outside purchases) is more common and has almost the same effect.

By Pat McGrew on Feb 13, 2020

Thanks Robert.

By Gina Danner on Feb 13, 2020

I have been pondering commission plans of late. One of the challenges is that print sales commissions plans haven't changed while everything in the industry has. And sad to admit, I'm just as guilty as everyone else.

I would love to pay on the "value of an account" instead of the "value of a job". This encourages more professional selling and a total opportunity viewpoint.

We pay on a calculation of a percentage of the markup over cost with a minimum commission paid. That rewards the rep to grab the low margin work where it is warranted, and incentives them to earn a higher rate on the higher margin work.

The problem is that it artificially inflates commission if there is a mix of high and low margin jobs for a consistent account. The real value is in the total book of the account.

By Pat McGrew on Feb 13, 2020

Gina! If you find that magic bullet, share!

By Robert Lindgren on Feb 13, 2020

Gina...Since the rep gets the total from both high and low, aren't they getting the "value of the account?"

If you wouldn't mind, I'm intrigued by your commission method. Could you share the details with me? [email protected]