Strategies that Yield Results

Halfway through the year, many printing company managers are still waiting for business to get better. It may be long wait. The Printing Economic Research Center of the National Association for Printing Leadership (NAPL), Paramus, N.J., reports that year-to-date print sales are down 1.9%. Chief economist Andrew D. Paparozzi, while noting that the printing industry hasn't seen meaningful growth in three years, has cut NAPL's annual sales growth forecast in half to 2.5%.

Furthermore, in April, the most recent month for which NAPL data was available, print prices fell for 45.5% of printers responding to the association's monthly survey, with only 10.2% reporting a price increase. Meanwhile, profitability fell in April for 49.5% of the survey group, far more than double the 19.9% that reported a rise in profitability. Paparozzi attributes the profitability drop to costs rising more quickly than either prices or productivity.

Surviving in this brutal economic environment is no small challenge. While there is no fool-proof prescription for success, there are key business strategies being implemented across the industry that are sustaining companies in the short term and positioning them for the future. To identify those strategies yielding the best results, Graphic Arts Monthly contacted several graphic arts industry consultants. Those conversations resulted in following blend of strategic approaches.

1. Identify major strategic issues. The first step in developing business strategies that yield results is identifying a company's major strategic issues and critical success factors, says William K. Marrinan, president of Marrinan Associates Inc., Raleigh, N.C., which offers printers such services as strategic business planning, turnaround management, and mergers and acquisitions.

He defines a major strategic issue as a key circumstance in a business that, if not attended to, will have a serious and significant impact on a business. Marrinan reports that a typical printing company could have six to eight such issues. Two examples: a company is not able to generate enough cash flow to service its debt at the current level of sales and capacity utilization, or a company has lost three major clients that accounted for 35% of its business.

The critical success factors, explains Marrinan, are the tactics and actions necessary to cope with the issues identified.

2. Recognize negative sales rollover. In Marrinan's view, negative sales rollover—also called displaced sales—is killing many printing companies. He says printers need to understand what this is and why it's happening, then do something about it. Managers who pay close attention to rollover, Marrinan continues, can readily identify when an account is showing signs of leaving so they can take immediate action to recover lost business and thwart the flight of the account.

Negative rollover needs to be taken into account in sales growth plans, Marrinan adds. For example, a printing company aiming to expand its sales from $1 million to $1.25 million but saddled with a sales churn of 15% actually needs to write total new sales of $400,000, not just $250,000.

To assess rollover, Marrinan advises that a company analyze its sales by individual accounts for a period of at least two years so that managers can assess the number of lost accounts or decreased business compared to the number of new accounts and increased business.

Industry consultant Clint Bolte, president of C. Clint Bolte & Associates, Chambersburg, Pa., reports that some printers are taking a similar approach. He says, "Astute printers are analyzing dominant clients' purchasing volumes over three or four years to see which accounts have slacked off, and then are finding out why. The explanation may be simple; some clients may be buying less because they built up an inventory, and now are ready to buy more."

3. Restructure, resize, and reallocate resources. These are tactics that printing managers must consider given the current economic environment, advises Marrinan. Firms need to rescale their businesses to reflect current sales forecasts to successfully ride out the continuing downturn.

"To bridge the gap from now through the initial recovery period for the economy and the industry, printing managers will have to make tough choices and reallocate resources," says Marrinan. He suggests basing resource decisions on breakeven profits generated during slow months, and adding overtime and/or temporary help to meet busy periods.

He also advises that firms develop plans to maximize capacity utilization at their current sales level by accepting a preplanned amount of work priced at a discount. But this practice must be planned carefully, controlled diligently, and monitored monthly so that managers don't overbook their shop with discounted work. Uncontrolled use of discounted pricing has been the cause of failure for many printing businesses, says Marrinan.

He identifies two circumstances when this approach should be applied:

1. When the current sales volume covers all costs and expenses and the added sales produces immediate increases in contribution margins, cash flows, and profits.
2. When the current sales volume is not sufficient to cover all costs and expenses, the additional discount sales, after deduction of materials and supplies, provides a contribution to the otherwise under-absorbed out-of-pocket (Oops) costs.

However, he cautions, by no means does this strategy imply getting a job at any price.

4. Increase your sales prospecting. The secret to winning sales numbers is prospecting, advises Peter Ebner, principal of Peter Ebner Seminars, Ontario, a graphic arts sales training firm. He says, "I think the biggest sales problem in the industry is lack of prospecting." For 90% of those printers that actively prospect, Ebner contends, recessions and other factors that can cause a business slump will have no effect.

Ebner proposes a prospecting strategy called "magic 25" that requires sales representatives to make either 25 phone calls a day or obtain two new appointments a day until they reach quota. He says this practice will lead to 100 new customers per year.

Ebner explains, "On average, for every 25 calls made, 10 will reach the buyer and two will agree to an appointment. Of those 10 appointments per week, two will award a job. Two new jobs per week multiplied by 50 weeks is a 100 new customers. And this is with no selling skill."

Ebner says that this formula, which is based on his many years of selling experience in the printing industry, rarely fails. However, since it runs counter to the long-held practice of quota-based sales evaluation, Ebner's method requires management to measure the daily activity of sales staff.

5. Build strong customer bonds. Mark Tietbohl, a partner of TRC Associates, Dublin, Pa., observes that the strategies working the best are those that focus on the client. He says that firms that know and understand their clients, and are open and flexible in serving their needs via unique business arrangements and products, are generally doing better.

"It all comes down to knowing what your clients really need," says Tietbohl.

Printing companies need to constantly gather information about customers, then use that information to create value, says Sid Chadwick, president of Chadwick Consulting, Lewisville, N.C.

He says that printers that understand their customers' business conditions, objectives, and priorities give customers good reasons to build long-term relationships.

Chadwick adds, "Buyers don't have time to listen to a sales rep who doesn't understand their business, and they certainly don't have time to train that salesperson."

Chadwick contends that business development is a lower life form in most graphic arts companies when it should be the number-one priority because it drives a firm's revenue stream.

Knowing your customer's needs can help increase sales, adds Rick Littrell, who identifies himself as a customer satisfaction manager for Littrell Associates, a graphic arts consulting firm in Groveland, Mass. "I'm sure that there's more work available from current customers, but print sales reps are not looking for it," argues Littrell.

He continues, "If you produce brochures for a manufacturer that also needs large-format posters, and you have a large-format system in house that you use for imposition proofing, then you can produce those posters. But is your sales force looking for ways like this to expand business opportunities?"

6. Compile strategic information. There's lot to be said on this topic, but for now the focus is market research. "The business strategies that yield results include identifying the right markets to sell to, the right time to sell to those markets, and the proper approach to that marketplace. The answers to all three efforts lie in market research," says Dennis Castiglione, president of Procom Management Group, Eastlake, Ohio.

Castiglione says that the trends that shape the industry are found by studying and surveying the marketplace, not just a firm's client base. But, he adds, "Once the research is completed, accept the results and don't assume that you know better."

Companies can either conduct their own research or analyze existing research. Our consultant panel recommends conducting research in both the printing industry and in customers' industries. Still, Chadwick holds, market research is vastly underutilized, saying, "Only one sales rep in a hundred knows how to research target customers and prospects."

7. Expand the service offering. Many printing companies are adding services to build stronger client bonds, differentiate themselves from competitors, reduce profit volatility, and bolster print demand. Companies pursuing this strategy are adding ancillary services on both the front- and back-end of their processes.

"Print suppliers are pretty aggressively pursuing this strategy to cement customer relationships," observes Robert G. Whitton Jr., principal of the Arellton Group LLC, a consultancy in Ridgefield, Conn.

What's important to remember when expanding services, says Bolte, is that real cash flow depends on getting as many billable press hours as possible. "Given that the revenue stream generated from printing presses is the lifeblood of most organizations, adding services that don't help increase press hours is not a very good strategy," he concludes.