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RETHINKING SALES COMPENSATION

Posted Wednesday, October 10, 2018 by Bob Lindgren, The Management Guys.

Article by PPI Trusted Partner

Achieving success as an outside sales rep requires an unusual ability to listen to customers, learn their needs but then accept “no” as the answer but keep on trying. It’s generally acknowledged that some form of commission on sales is the best way to incentive these folks to keep on trying. The simplest form of such an approach is a percentage of sales, usually around 8% or 9%.

Because printer’s estimating/pricing systems produce quotes that include not only the actual expenditures to produce the job (production wages, materials, outside services, etc.) but also allocations of all the overhead costs of the business (plant, machinery, front office, etc.) they usually identify amounts charged to the customer in excess of this as “margin” and think of it as “profit” in the same sense as profit for the business as a whole at the end of the month. Because of this, some firms have keyed commissions on margin (25% to 50% of the margin) or a sliding scale based on gross sales but varying it by margin (0% on negative margin, 5% on a 5% margin, 10% on a 10% margin, 15% on a 20% margin). The motivation for these approaches is the belief that “margin” equals “profit” for the business as a whole.

However, the reality is that profit for the business as a whole is reached when the “contribution” from the jobs produced for the month covers the overhead for the month. The typical job involves an actual expenditure (paper, outside services, factory wages) of about 60% of the invoice price and thus produces a 40% contribution to overhead. If a job is sold for $10,000 about $6,000 will be spent to produce it and $4,000 will be left to cover the overhead. If the overhead is $75,000 per month, the firm is now $4,000 closer to profit. A moment’s thought makes it clear that if the job had sold for $9,000, the firm would still be $3,000 closer to profit than if the order had been lost to a competitor. Similarly, if the job had been sold for $11,000, the firm would be $5,000 closer to profit. Simply put, any job that is sold to produce a positive contribution makes the firm better off. If the price is increased by $1 dollar the firm is $1 better off.

This reality demonstrates the problem with commission systems that are keyed on margin. They discourage the sales reps from selling jobs that would contribute contribution dollars while at the same time they give a disproportionate reward to jobs that contribute at a higher level as the contribution dollars are not more valuable as they get larger. Also, since really high contribution jobs are scarce, the sales reps focus on them may starve the firm for overall contribution dollars and make achieving profit at the end of the month more difficult.A far better approach would be to pay the sales reps a percentage of contribution. However, this would sensitize their compensation to variations in plant performance beyond their control. As a practical matter, a percentage of value added is preferable as it achieves the same result and is easier to understand. “Value added” is the difference between the invoice to the customer and the actual cost of paper and outside purchases.

If the firm has decided to make a change in its system, implementation must be carefully planned if disruption of the sales force is to be avoided. First, the rates used should not effect a global change in the rep’s compensation. If they continue to sell the same jobs for the same prices, their pay will not change. What the firm is trying to do is to get them to sell more jobs for as much as the customers will pay with the goal of fully utilizing plant capacity which will maximize the firm’s profits. For example, if the reps are now being paid 8% of gross, the value-added equivalent would probably be about 12%. This can and should be tested by looking back at a year’s sales data and identifying gross sales and value added. This is relatively easy as paper and outside services are usually identified.

Then the new system must be explained to the sales reps not as an attempt to cut their pay but to make both them and the firm better off by selling more work at the most that the customers will pay. It is also wise to implement the change with a transition period of at least six months where the commissions will be computed under both the old and new systems and the rep will receive the higher of the two. Reps who grasp the opportunity, will sell more jobs and make more money. Those who can’t will eventually leave.

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Better Workflows for Smaller Shops

Posted Tuesday, October 2, 2018 by Ryan McAbee, Director, Production Workflow, Keypoint Intelligence.

Managing a print shop is complicated. There are many moving parts and interdependencies, along multiple streams of inputs and outputs, that must be executed with timeliness and precision. A print management information system (MIS) has been the default tool for shops to control the chaos. As you know, the challenge, at least for small-to-midsized shops, is that many solutions on the market have been financially out of reach and the ones within reach are often not as sophisticated or encompassing. According to a Keypoint Intelligence/InfoTrends study, money and time were two of the top three reasons smaller shops (up to 19 employees) did not upgrade to a more robust print MIS.

better workflow

Smaller but Similar Challenges

Smaller print shops have similar business and operational challenges as larger shops, and the need for a single system of record to manage the business is just as critical. With fewer employees, smaller print shops are even more challenged to meet production demands. Having an easy-to-implement and use print MIS is important for smaller shops to:

  • Have a central place to update and track customer information
  • Communicate with customers and suppliers
  • Quickly create consistent pricing regardless of who is estimating the job
  • Create accurate and up-to-date production job tickets
  • Track inventory and waste
  • View production capacity and schedule jobs based on key criteria (e.g., due dates and service level agreements)
  • Track production costs
  • Interface with accounting (general ledger, accounts receivable/payable)
  • Generate reports to ensure business goals are met or exceeded

Beyond these tasks, you also need to on-board your customer’s jobs (ideally through a web storefront) and the jobs into a workflow before each can be printed, finished, and delivered. These connections that point upstream to a web-to-print solution and downstream to the workflow are needed to automate your processes. Until recently, print shops had to purchase a more expensive print MIS with integration capabilities and pay for professional services to setup the connectivity to the other software solutions. That’s changing.

Enter Skinny Print MIS and Web-to-Workflow Solutions

Smaller print shops are an attractive market for software solutions providers. While they do tend to spend less annually on software, smaller shops vastly outnumber large ones. Based on the latest US government data (NAICS), there were slightly less than 70,000 print shops with less than 9 employees while there were roughly 3,000 shops with more than 50 employees.

Software vendors realize they need a different approach to reach smaller shops, from how print MIS solutions have traditionally been sold and installed. To keep the costs down, vendors are creating lightweight solutions that can be quickly implemented (weeks instead of months) and delivered over the cloud via subscription. These skinny print MIS and web-to-workflow solutions are operated within a web browser, the user interfaces skew modern and simplistic, often centered around a customizable dashboard for each user. You can also receive orders over the Web and automatically route them to your workflows since most of these solutions include or have pre-built integrations for web-to-print and workflow automation. Several solutions use the costing capabilities of the MIS component to dynamically generate pricing for storefront products which eliminates the administrative task of maintaining static price lists and reduces the risk of providing an inaccurate price. Canon’s PRISMAdirect is an example of a web-to-workflow solutions with many of these capabilities that can take in orders from various entry points and push them downstream for more workflow automation.

Big Benefits for Small Print Shops

The increased vendor focus is a win for smaller print shops. The solutions are providing more MIS sophistication and integration capabilities (web-to-print and workflow) at price points that are better aligned with the average software spend of smaller shops. Since these solutions are cloud-based, you can redistribute time previously spent on securing and maintaining the computing infrastructure.

Odds are high that your MIS solution has been in place for many years (research suggests the average life is around 7 years). The long lifespan of a print MIS provides many opportunities to not install current versions, avoid database and cost maintenance, and find creative workarounds for any functional shortfalls of the solution. If this sounds familiar, it is time to re-evaluate your business needs and ensure your print MIS solution is up to the task of today and the next 7 years.

Sponsored by Canon Solutions America

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How to Get Students Interested in Print

Posted Monday, October 1, 2018 by John Berthelsen, VP-Development, Print & Graphic Scholarship Foundation.

PGSF logo

Companies throughout the industry (and this includes suppliers) are facing a common problem. They have an increasing number of employees who are reaching retirement age and are wondering where they are going to find replacements for these skilled workers. While this has always been somewhat of an issue for our industry, today it is becoming mission critical. A 2018 industry survey listed the top three business challenges as 1) Finding skilled sales personnel (65%), 2) Finding skilled production employees (42%), and 3) Recruiting and retaining employees (38%). How we address this going forward is of vital importance to the future survival of the graphic arts community. This article will not address the need to fill an opening that you have to solve in the next month but intends to look at the macro view of how you can address this issue long term and more globally.

Traditionally the graphic communications industry has done a poor job of promoting itself. In the eyes of most high school guidance counselors, and the typical parent, “printing” is thought of as a dirty non-essential and old-school industry. All over the country at both the high school and post-secondary level graphics programs are being dropped by school administrators. As a statement, very few graphics companies make an effort to support their local or regional educational programs, or to do any industry promotion.

The main focus of the Print and Graphics Scholarship Foundation is to award funds to students who are enrolled in a vocational school or college program. But an equally important mission is to actively encourage young people to consider the graphic communications as a viable career path. It has several tools and aids available to enable recruitment of young people into the industry and to support efforts of companies on a local basis.

Get Involved on a Local Level

So, what can a company do in its own area to improve recruitment and encourage young people to consider the graphic arts as a career choice? Here are a few ideas…

  • Hold tours at your company. Let the local middle and senior high know that you are available for class tours to show how the company operates and what you produce. Place an emphasis on digital, wide format, creative and other new technologies that showcase the modern aspects of the industry.
  • When offering tours, don’t forget about Boy Scouts, Girl Scouts, Yearbook staff, Design club, Journalism class or any other related group that may have an interest in touring or learning about your company or manufacturing process. You never know where you might strike an interest.
  • PGSF has a Career Guide flyer available that you can give to visitors that describes the industry and lists several potential positions available in a typical company. Downloadable files are available so that you can add your own logo and information on the back cover to produce your own localized version.
  • Send speakers to local high school career days whenever the opportunity exists. Hand out literature (see previous note) and use interesting graphics or display materials if your company produces them. One company I know of produced a life size cutout of Justin Bieber and every kid in the room wanted to take a selfie with it. Do one of your local sports team mascot. Send one the youngest and best talkers you have - who will relate to the kids – not just any senior VP or manager.
  • Do whatever you can to promote the industry in whatever venue you can. PGSF has updated our Career Poster that is available to anyone requesting it. It can be posted in schools or anywhere kids will see it. It is intended to pique their interest and encourage them to consider a career in the graphic arts. Several companies have made large banner size copies for posting at strategic locations in their facility.

PGSF poster

  • If you know of a student who is planning on going to school to get a one, two or four-year degree in a graphics related program, encourage them to apply for a scholarship with PGSF. This year we will give out 217 scholarships totaling over $500,000.

Take Action!

If enough companies start taking action, we will certainly be able to move the dial, and be able to ensure that we have enough young people entering the workforce to replace those that are leaving. Support a local or national scholarship program to perpetuate the workforce of the future. Let’s get started!

For more information on PGSF, to download files, or how you can support its programs, go to www.pgsf.org.

John BerthelsenJohn Berthelsen retired from his position as CEO of Suttle-Straus in Waunakee, Wisconsin after leading the company for over 35 years. He is now working with individuals and companies to create the future employment workforce, support education and increase funding for the Foundation.

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3 Steps to a Better Workflow Now!

Posted Wednesday, September 26, 2018 by Pat McGrew, Director, Production Workflow Services, Keypoint Intelligence.

Sometimes it’s a good idea to go back to the basics, so let’s start with defining workflow today in 2018. This is a tall order because how you define workflow depends on where you come from in the print world, the jobs you’ve done, and the things you need to manage. Let’s divide the world of workflow into two parts, and call one business workflow and the other production workflow.

On the business side, we’re worried about raw materials like paper and ink. Business Intelligence workflows track materials from the loading dock on the way in to the production floor, and then track deliveries. This is where business accounting happens, and where you gather business data to guide strategies about what products you want to sell and at what price.

On the production side, we’re worried about the tasks and processes used to move a job from the point where it arrives in the shop for production to the point where it is ready for delivery. The focus is on automation, efficiency, and processes to manage problems when they arise. In some cases, the process reaches back to a crossover point with the business workflow if the sales team estimates and quotes the job. The focus, however, is on the production of the job.

How do you even know if your workflow works, and what can you expect out of a 2018-inized workflow? Here are 3 steps to help you achieve a better workflow now!

1. Know what you need. To know what’s best for your workflow, you need to understand your business inside and out. The best way to confirm your knowledge is to walk the workflow through all of its variations. This will be easy if you only do one type of work, but most shops will see variations in the work that comes in. Jobs may differ in terms of the devices that are used, how they are printed and finished, or even how they are packaged for delivery. Your goal is to understand ALL of the touchpoints for each job.

2. Take notes. Once you’ve walked through the process, make a note of any points along the route that seem to cause slowdowns. It might be issues with meeting customer color requirements, challenges in getting customers to approve proofs, or even achieving consistent quality. If you have been part of a merger or an acquisition, you may find that there are duplications in processes and software solutions that make it harder to move work through the shop. Make a note of everything that you find!

3. Optimize your workflow. Now it’s time to find ways to optimize. The next few blogs will look at the key areas of workflow: Creative and Composition, Job Entry and Management, and Core Workflow. The goal is to give you pointers for optimization with the best workflow intelligence at hand!

Sponsored by Canon Solutions America

Workflow

If you have stories to share, I’d love to hear them! @PatMcGrew on Twitter, on LinkedIn, or all reach me.

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Employees Prefer a Retirement Paycheck

Posted Tuesday, September 4, 2018 by Joseph P. Trybula, CFP®, AIF®, Printers401k.

The shift away from traditional pension plans means today’s employees are largely responsible for their own retirement security. Yet many seem to long for the “good old days,” at least in the sense of knowing they will receive a monthly income throughout retirement.

What role should companies play in the retirement security of their employees, especially as it relates to steady retirement income? And how can employees best meet the need for a retirement income they can count on? Those were among the questions explored recently with about 1,000 U.S. employees.

While 54% of the survey’s respondents said they retain primary responsibility for their own retirement security, 27% said companies are primarily responsible, and 19% believe it’s the government that has primary responsibility. Asked if they would prefer a set retirement paycheck for life from their employer over a lump sum of money to invest themselves, 58% preferred the steady paycheck. Interestingly, that sentiment came not only from Baby Boomers, but also from Millennials.

Employees want to partner with employers

Employees continue to want to partner with their employers in the planning and execution of their retirement savings, the survey found. In fact, they said they want companies to be more involved in providing for their retirement security in the next five to 10 years; 61% of respondents agreed with that sentiment, compared to just 9% who said the employer should be less involved.

When asked whether they would prefer to set aside part of their salary into a company-sponsored retirement plan or into the Social Security program, about three-quarters said they prefer to channel their money to the company plan. In fact, 56% said they would prefer to save on their own rather than paying into Social Security, if those were the only two choices. Forty-four percent preferred Social Security to saving on their own.

This information, which was gleaned from MetLife’s Role of the Company Survey, released in April 2018, aligns with research that found a crisis in financial confidence among single female retirees; close to half of those surveyed are not confident their savings will last through age 90.

Annuities and advisors increase confidence

The concept of a paycheck for life could be realized, even without traditional pension plans, through the purchase of annuities. Among single retirees, 71% of women with an annuity felt confident that they could live the retirement lifestyle they want, compared to 56% of those without an annuity. The figure was 68% for single male retirees, whether or not they owned an annuity.

The same research shows that working with a financial advisor can have a significant impact on retiree confidence. Three out of four single men and women retirees who work with an advisor were confident in living the lifestyle they want, while 66% of single men and 54% of single women who do not work with an advisor feel that way.

Note from the editor: The Printers 401k® Success by Design Program is a collaboration of 401(k) specialists who assume specific fiduciary duties for your plan. The solution is designed to fulfill your fiduciary obligations, allowing you to continue serving as the plan sponsor without the liability and responsibility.

Companies that have participated in the Printers401k® Program have been able to:

  • Reduced Risk and Work
  • Lowered Liability and Plan Costs
  • Improved Plan Operations and Investments

CLICK HERE TO GET STARTED ON DELEGATING YOUR FIDUCIARY DUTIES!

Contact Joe Trybula CFP®, CPFA® today at 800.307.0376 or to learn more about the Printers401k® Program, or request a free Plan Analysis Report which provides you with a snapshot of your plan investments, costs and plan operations compared to other plans in the industry. This analysis can reveal strengths and areas of concern along with solutions to improve your retirement plan.

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