Life Cycle to Profit

Profit Optimal profit is earned by managing each and every segment of the sales order life cycle. The purpose of this article is to show you how to increase the profitability of your business.

Present The sales order life cycle typically starts with time and money soliciting the order by advertising and sales personnel. Then there are discussions with the customers. What does the art look like, when should the order be delivered, and lots more. Perhaps the customer takes your time while they debate which green ink they want, or you need to persuade the customer to change the artwork so the image will be effective.

The image needs to be produced in positive form, colors separated, and screens made and registered. Then there is printing, curing, folding, packing, and a lot more steps to the cycle. You know the drill. Each step has a cost, and costs need to be eliminated or minimized to maximize profitability.

Future Profit comes from profit per piece times pieces per hour. Ideally all other activity is either eliminated, or is revenue generating. Here are some examples.

One of our customers prints paper bags. He has a one color press, conveyor dryer, and invested less than $3000 to get started. He prints 300-400 one color bags per hour in his garage for 25 cents per bag. The minimum order is 800 bags. His customer provides the bags and art in positive form, and delivers the bags on a pallet to the garage, and picks up the printed bags the next day. All our customer does is make the screen for tomorrow night and print 2-3 hours per night, 5 nights a week. Profit first year: $56,000. The second year our customer quit his day job and now takes home $80,000 from the paper bags, plus “extra money” from shirts and caps.

Now compare that to the Present above. You will notice there is no time or money spent soliciting business, dealing with art or customers, registering screens, folding and more. The business model is very simple, and other than a few minutes spent making a screen for the next night of printing, all the time is devoted to pieces per hour.

Another customer prints small tote bags with corporate logos. The bags are 600 denir polyester, which is a textured surface, that are almost always black printed with white ink. The white is very bright and opaque, and the edges match the positive rather than being saw-toothed. Since learning how to print at this level, the customer has been able to increase their business six fold. This customer does not print shirts, caps, jackets or any product, except these bags.

Comparing to the Present above, this customer gets the orders at trade shows, the art from the customer, and there is no registering of screens or most of the other activities that are common in a custom printed screen printing shop. The work is highly repetitive, and the shop personnel are very productive.

Knowing Your Costs You know the cost to purchase the item to print. What about all the other costs of the business? We need to know these costs per piece that is printed. Here is a simple way to determine the per piece cost.

Add up all the costs of the business for the month which we will call overhead, and exclude from the total only the items which will be printed. We already know the cost of those items. The total overhead includes power, rent, ink, salary, taxes, stationary, insurance and many more costs and expenses. Divide that total overhead for the month by the number of days per month you work, such as 20 or 21. Now we have the overhead per day. Let’s say that works out in a small shop to be $180.

Next, how many hours per day did you print? You will need to keep track of your printing hours. The total hours printing during the month divided by the number of days you worked is the average number of hours of printing per day. Let’s say that is 3 hours. Now we know the overhead is $60 per hour.

If you print one color ink on light shirts at 100 shirts per hour, then 100 divided into $60 means the overhead per shirt is 60 cents. That 60 cents plus the cost to purchase the shirt is your total cost. Let’s say the shirt costs $1.40. If you are selling the shirts for $5 each with a total cost of $2, the profit margin is $3. The profit margin times the 100 shirts per hour printed results in a profit of $300 per hour.

If, on the other hand, you are printing four color shirts at a rate of 40 per hour with flash curing involved, the overhead per shirt is now $1.50 per shirt ($60 divided by 40 shirts). Total cost is $2.90. If we expect to make the same $300 per hour profit which is now divided by 40 pieces per hour, then the profit per piece would have to be $7.50 per shirt. The price the customer pays would have to be $10.40 ($7.50 plus $2.90). That might be a more difficult price point to sell than $5.

The four color job also has more time involved separating colors, making screens, registering screens, mixing inks, and cleaning up after the job has been printed. Even additional charges for art and set up will not match the $300 per hour.

How People Get Started in Business First they buy equipment, and typically based on lowest purchase price. Most people have not been trained or know the financial consequences of different brands and methods. Training and technical support are not the priority. Buying equipment is the priority before there is a business model that is even considered. This is your competition. The failure rate of these businesses is very high, and many others continue in business without making money.

These shops have no idea what their total cost per piece is, and don’t count or record the number of pieces printed per hour. These shops use the selling prices of their competitors without knowing if the prices produce a profit. Since there is no recording or measurement, these shops believe the purchase cost of everything they buy is the total cost. These shops do not recognize ownership costs. Typically ownership costs are greater than purchase costs.

More importantly, all the focus is on printing. After all, there is a lot to know. A shop needs to be able to generate computer art, make screens, print, and so much more to get the order out the door. Then the attention is directed to the next job to get out the door. In most shops, there is no effort to collect or know costs, or to understand the life cycle of a sales order.

Match Cost and Revenue When you know your costs, you will know where you can make money and where you do not want to compete when comparing to other shops in your locality. You will also know that jobs with a lot of colors, and certain types of work like athletic printing, are undesirable without volume orders printed on an automatic press or a special production set up that is very efficient. The numbers will drive your business towards more profitable markets.

Sales is Another World Custom printing shops take the orders that walk in the door. The smart shop owners determine which business is most profitable, and then learn how to attract that type of work. Turning down unprofitable work leaves time in the schedule for profitable work.

Public golf courses that typically charge $45 for 18 holes and a cart also have golf shirts selling for around $60. The shop owner paid exactly half of the selling price. If you attempt to charge more than $30, the shop owner will flinch. If you charge less than $30, your product will be viewed as inferior. That shirt costs you, the decorator, $8-10. So the margin is $20. I don’t know any screen printer that calls on these accounts to provide shirts for all the events a golf course typically hosts. The XYZ bank is having an outing and needs 100 shirts printed with a one color design on the chest. The bank does not know who will be playing golf, and therefore shirt sizes, until 3 days before the event. So the shirts will have to be screen printed to meet the delivery requirement.

To target golf courses, a sales person would have to know where the public courses are that have pro shops, who to talk with, when they buy, and a lot more. The sales person would become a specialist in golf courses. That sales person would not know anything about truck stops, the corporate premium market, the school market, or anything about many other markets.

There are, in fact, many markets. Hockey pucks are printed for teams and events. Coroplast signs are printed for political candidates, landscapers, building contractors and driveway sealers. Stadium cushions have a huge market potential for college and high school football, baseball, soccer and many other events, or you could specialize in garden centers. How about grooming bags for pet owners?

There is no limit to the sales potential, but each market requires specialized knowledge of selling prices, and costs, where to buy the products to print, who to contact and when, the types of images to print, and so much more. Your competitor down the street or across town does not know any of this, because he or she is taking the orders that walk in the door.

To be good at printing requires a lot of time and effort, and the same focus and effort is required to learn about each market segment from a sales point of view, and then to measure the profit potential from a printing perspective. Let’s take a simple example.

Political candidates want signs along the road with their name. The printing is simple one or two colors, and the orders are large numbers. My customers typically make $3 profit per sign. So a 3000 sign order is very attractive. Actually, a lot of people are running for local, state and Federal jobs. The Board of Elections knows who all the candidates are, how to contact them, and the filing date to be a candidate. As a screen printer, you want to know the filing date as your last date you should be contacting candidates soliciting their sign business.

If the sign business is a very profitable segment of your business, then you might want to invest in a specialized press with vacuum platen that triples your hourly production. You can then solicit business from all over the state or several states, and any businesses that need signs, like roofers, painting contractors, contractors that remodel kitchens, Direct TV and more.

Soliciting orders incurs cost, and we want to eliminate cost. We want large volume, high profit margin jobs with simple printing delivered to our doorstep. So in the golf example, the price to XYZ bank is $45, or a savings of $15 per shirt for custom, on demand, printing. That saves the bank $1500. The shop owner who connected the decorator to the bank gets the difference between $45 and $30 for the referral, or $1500. Once the shop owner sees the money, he will be delivering the orders to you.

Political candidates will order again for the next election, and your reputation will be quickly established among all political candidates after supplying the signs for one election. For future elections, a direct mail reminder will bring in business, and those you don’t hear from you can call. So the sales expense and effort will be minimal relative to total sales.

Just remember that the time and effort you devote to establishing a sales program will equal or exceed the effort you need to develop a specialized knowledge of all the aspects to the production process of screen printing. Once that sales program is in operation, and the cost and profit of the program are recorded, then each business plan can be ranked so that your effort is directed at the highest and best use of your time and resources..

Life Cycle to Profit Achieving your dream of owning your own business and being financially well off requires a lot more than buying a used 6-color press that somebody got rid of, and then taking whatever order happens to come through the door. Profit is the measure of your knowledge of your options – both in production and in sales. The sales options you select greatly affect your production costs.

What options do you have in products you could produce, customers you can find, and equipment and technology you will need to support that sales objective? What is the profit per hour, and can that profit be earned every week of the year? If not, what other market segments are available at what profit levels to keep the shop busy at a targeted profit level all year long?

The life cycle might be seasonal, but certainly can be measured on a per hour basis which is then compared to your other opportunities. Start with the profitability of each sales opportunity before you commit your production resources, if you want to maximize your profit potential.