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We are well into the second half of the calendar year, and to ensure a profitable end to your year, take a few minutes to look at what is in your pipeline, what has been onboarded, and what is in production. Is it what you expect? In part two of a two-part series, Pat McGrew takes a deep dive into the costs of doing business with customers and how you apply discounting strategies.
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About Pat McGrew
Pat is a well-known evangelist for inkjet productivity. At McGrew Group, she uses her decades technical and marketing experience to lead the industry toward optimized business processes and production workflows. She has helped companies to define their five-year plans, audited workflow processes, and developed sales team interventions and education programs. Pat is the Co-Author of 8 industry books, editor of A Guide to the Electronic Document Body of Knowledge, and a regular contributor to Inkjet Insight and WhatTheyThink.com.
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Discussion
By Robert Lindgren on Aug 05, 2022
The fundamental questions are: "what are actual costs" and "what are actual profits." If these are defined by traditional estimating and costing methods tht try to allocate all of the overhead to individual hours of production and therefore specific jobs, they are wrong and terribly misleading.
The inescapable reality is the "cost" of a job is the money actually spent to produce it (paper, buyouts, factory labor and sales commission). The difference between these and the invoice is "contribution." When contribution exceeds overhead in any period we're in profit land.
Obviously, contribution dollars are maximized by charging as much as the customer will pay but also, and actually more powerfully, by selling more orders. Discounting is an essential tool to accomplish this.
Given that the average contribution ratio is between 35% and 45%, the power of using discounting to increase sales is obvious. The question is: would you rather have a contribution of 20% that would come at a discounted price or the zero that would come from a lost sale?
By Pat McGrew on Aug 06, 2022
Hi Robert! Thanks, as always, for your very practical and actionable comments. One thing I have learned is that "obvious" is a tough call. For those of us who see many different print environments and approaches to business management, things that seem obvious to us sometimes escape those living in the moment. Your words are great guidance to every business to take a closer look at the elements of their pricing model.
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