It’s frustrating. Your revenue is up and the production floor seems busy. Your staff is working all out and new accounts are knocking on your door. By the looks of it, the business is working well. Unfortunately, the P&L still looks the same or even worse. You might be working hard at trying to win the wrong race. Or you may be getting caught up in that revenue trap and overlooking your value-added dollars. If so, you’re not alone.
Compared to last year, you probably have more jobs, customers and even more volume. But at the end, you may have less margin. I guess it’s like running as fast as you can on a treadmill, a lot of activity but very little for progress. Being busy is not the same as being stronger. If your top line is growing, but your profitability isn’t keeping pace, you’re not building a stronger company you’re just building a busier one.
Not All Revenue Is Equal
Top line revenue is not the only number you need to be looking at. Many companies jump right to evaluating projects and clients only by top line revenue and even gross margin. They may overlook though the contribution these projects make in value-added revenue. When you evaluate the mix of your work, you can see the varying amount of value-added percentage of revenue that an offset job has vs. a digital job vs. a wide format, or a promotional product job has. And while they all contribute to your value-added break even for the month – they all contribute at different levels. Hence, the top line revenue number on these jobs becomes secondary.
Exceed Your Value-Added Breakeven
The illusion of growth can creep in through a series of decisions that, on their own may seem reasonable. As more and more printing companies have diversified their services, an important factor should be to understand what the average value-added contribution is for each of those services. For example, replacing a $10,000 stitched booklet project with a $10,000 promotional product project will not be anywhere near close to the same in value-added dollars. Yet the top line is the same. Both projects can be good, and both projects could have a decent gross margin. It’s just that their contribution to your overall breakeven is significantly different. Take them both, but don’t confuse the two.
What To Look At
As you look at your leading and lagging indicators, be sure to understand the amount of value added that’s coming in every month and compare that to what your value-added break-eve. My experience is once you’ve exceeded your value-added threshold, that’s where the true profits fall to the bottom line. Conversely, if you fail to reach your value-added breakeven threshold for that period, you will not be profitable.
You already know that running a printing company is not easy, it’s even harder without a disciplined plan. Know your numbers, direct your team towards higher value-added work when possible, and don’t get enamored with top line revenue dollars.
Mike Philie helps owners and CEOs in the Graphic Communications Industry validate what’s working, identify what needs to change, and create a practical path forward.
PhilieGroup | mphilie@philiegroup.com | LinkedIn
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