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:

qkconsult@aol.com www.qkconsultant.com