Printers Praise New Digital Pricing Study

Below are just a few of the printers who have praised the value of our latest industry report, “The 2019-2020 Digital Color Pricing Study.”  You’ll find the very latest info on pricing digital products and services when you dive into this new study. Many printers have admitted that after studying the report, they were either over-charging or under-charging for products such as envelopes, rack cards, newsletters and carbonless forms.

The new Digital Pricing Study is quickly earning its reputation as a “must-have” study for firms relying more and more on digital printing as a major source for their income.  NPRC’s newest report features the very latest info on pricing more than 16 digital products. Visit our Bookstore for further information about this brand new report.

I was undercharging on envelopes…

“I always enjoy receiving the pricing studies and I learn something every time.  I have been doing printing for over 45 years and still learn how to price things better.  Through the Sweet Sixteen pricing study, I learned I was undercharging on envelopes (which surprised me) so this will more than pay for the cost of the membership and Pricing Study.”

Wayne Clark, Graphics North Printing
Fairbanks, AK

Keep up the good work…

“John, thank you for all your work in providing the printing industry with the “Sweet Sixteen” Digital Color Pricing Study, and the many other studies you have published for us for so many years. It always helps to know where we are at and not to leave money on the table. Keep up the good work.”

Arie Teomi, Lasting Impression Direct
Cleveland, OH

Knowing our prices are reasonable…

“I always look forward to receiving your reports, particularly the pricing studies. They’re my best source of data to be sure our prices are within a reasonable range, and the best confidence-builder I’ve found against buyers who say our prices are too high. Knowing our prices are reasonable means I look for better prospects, rather than caving on prices.”

Steve Blatman, Ink Spot Printing & Copy Center, Inc.
Frazer, PA

Confidence that our prices are fair…

“Your studies have been a big help in keeping me in business for more than 28 years. I have used the industry pricing studies over the years to make sure our prices are competitive and adjust where necessary. This gives our customer service representatives confidence that our prices are fair and reasonable. I cannot understand why many more print shop owners do not take advantage of these valuable studies, especially when they can get them for free with just a little effort.”

Mike Geygan, Minuteman Press
Lebanon, OH

The study gives us information… to stay in business…

“I want to thank you for including my firm in your annual pricing study. Even though my company is extremely small, the study gives us information necessary to stay in business. Unlike the bigger companies, which can try random pricing strategies, we need to only use fact-based strategies which the pricing study provides each year.”

Ralph Dunavant, American Printing & Promotions
Manassas, VA

This information has helped me be sharper in our pricing…

“I have been participating in your surveys for more than 20 years. As I look back over those years, I realize that I have referred to your surveys more than any other source of pricing information in the printing industry. It is concise, accurate and timely. I would have to say that this info has helped me be sharper in our pricing, win more bids and make more money. Thanks so much for your efforts.!”

Jon Robson, Auburn Document Centre
Auburn, NY

A fantastic job well done…

“John, thank you again for a fantastic job well done. We eagerly await each of your studies, as they are crammed full of helpful insights, sage advice, and of course ‘real-world’ data and pricing information. Your studies start to pay for themselves from the first page!”

James Jepsen, General Manager
Local Copies Etc., Santa Maria, CA

 

 

 

Spouse’s Salary Not Part of Profits!

We’ve talked about this before but it is worth repeating. There is a big difference between what a couple takes out of a business in terms of salaries and other benefits and what is or would be considered profits. Remember, when it comes to valuing the worth of a business, a typical real-world valuation relies upon calculating what is called excess earnings or profits., not necessarily what a husband and wife might take out of the business – those are really two different animals.

A quick example is in order. First, let’s assume Ajax Printing & Signs does $450,000 per year in sales. Bob and Karen, the owners of Ajax Printing, each withdraw $40,000 in salary and benefits each year. They employ one full time employee and one part timer. Their calculated sales per employee (SPE) is a relatively healthy $128,500.

In recent years Ajax has been reporting an average pretax profit of $25,000. When Bob sits down to arrive at the value of his business, he estimates the total profit for his company is approximately $105,000 based upon combining the two salaries and then adding to that number the “corporate/company profit” of $25,000.

Unfortunately, that’s not how a valuation works, not even a simplified one! Even assuming that the salaries being paid to both Bob and Karen are perfectly reasonable based upon their contributions and expertise, you cannot count or include the salaries and benefits paid to both of you when calculating profits or excess earnings – the latter being the fundamental calculation in determining the value of a business.

“Unfortunately, that’s not how it works out. Even assuming that the salaries being paid to both Bob and Karen are perfectly reasonable based upon their contributions and expertise, you cannot count or include the salaries and benefits paid to both of you when calculating profits or excess earnings – the latter being the fundamental calculation in determining the value of a business.”

Why? Because while it is assumed that a new owner would would take over Bob’s duties and responsibilities, he certainly could not perform the duties of Karen as well. She would have to be replaced. Like most buyers who purchase a company run by a husband and wife team, the buyer has to replace both spouses when he or she purchases the business. The new owner will almost certainly be required to hire and train an individual to assume Karen’s responsibilities! Karen’s $40,000, for the purposes of a valuation, is considered nothing more than one more salary or business expense required to operate the business, and when Karen leaves she must be replaced.

What if Karen is really only working part time and could be replaced by someone at a much lower salary? If that’s the case then indeed the excess salary previously paid to Karen would indeed be included in calculating excess earnings & profits.  Calculating true “excess earnings,” the actual amount a business generates after covering all of its real-world expenses, is one of the most involved calculations we perform in arriving at company valuations.

By the way, just to clarify and avoid being called a sexist, the names, duties and responsibilities of Bob and Karen could readily be switched and reversed in the above discussion. Bob could be working for Karen and we have no intention or desire to imply who works for who in this situation. Note a similar article detailing what is paid to a spouse and how it impacts valuations appears elsewhere in this blog.

NPRC Releases New Digital Pricing Study

NPRC has just released its latest research report, the 2019-2020 “Sweet Sixteen” Digital Color Pricing Study! The new report, packed with the very latest pricing info, and including literally hundreds of average and median prices, is now available for immediate shipment. The new study covers more than a dozen of the industry’s most popular products and services in the digital printing arena.

The 90+ page study offers an up-to-the-minute look at what printers are charging for services such as flyers & catalog sheets, postcards, rack cards, carbonless forms, newsletters and digitally printed envelopes, just to name a few. Click here to view the entire table of contents.

Each page in this brand new study is packed with pricing info you can use to cross-check your own pricing against printers around the country.

Most products and services included in this study include average and median pricing, a 10% high and low extraction, plus pricing based on a per unit basis such as pricing per sheet, per click, per envelope and even pricing per carbonless set. This feature makes it easier than ever for readers to obtain pricing for unusual quantities or quantities simply not covered in the report.

Due to on-going concerns regarding copyright violations, this study and possibly future NPRC studies, will no longer be made available as a PDF. Instead, we will only provide “hard” copies. Most orders are processed same day as received and are shipped out via USPS Priority Mail.

Available for sale beginning July 18, 2019.
Retail Price Only $245. Hard copies only!
Click below to visit the NPRC Bookstore for more details.

NPRC BOOKSTORE

 

Who Pays the Tariffs?

The Myths About Tariffs?

Recently, we got curious about the real story behind tariffs and who actually pays them and who really benefits. President Trump is a fan of tariffs and implies that we (the U.S.) are going to rake in billions of $$$ with the new 25% tariffs being imposed on China as of midnight, May 9, 2019.

As we conducted some very brief research on the web, I uncovered some very interesting stuff that really opened my eyes.

Do Countries Pay Tariffs?

First, governments or countries don’t pay tariffs on the products they export or import. Second, it is the importers of products that pay the tariffs and ultimately those tariffs, or the bulk of them, are paid by the consumer! 

The Idiot we have for President doesn’t seem to understand… Speaking at a rally in Florida later Wednesday (May 8, 2019), Trump said the new tariffs were because China “broke the deal.” “You see the tariffs we’re doing?” the President asked his supporters. “Because they broke the deal!” 
 
“The vice premier is flying in tomorrow, good man, but they broke the deal. They can’t do that,” he added. “If we don’t make the deal, nothing wrong with taking in over 100 billion a year. We never did that before.”  << The idiot president talks like a 3rd grader, and seems to be implying that is good news… what he fails to mention is it will be Americans who will be paying those “100 billion a year.”
 
May 13, 2019 – “President Donald Trump’s chief economic adviser Larry Kudlow said that American consumers would bear a burden from the escalating trade war with China, contradicting the President.” Of course President Trump will quickly call this “Fake News” as he identifies any news that he doesn’t like. 
 

An Example of Applying a Tariff

Let’s keep it simple, and assume Costco decides to purchase $100,000 worth of TVs from Sharp TV in China.

Let’s continue to keep it simply and assume new tariff on Chinese TVs is 25%. The product is shipped by Sharp and arrives in LA. Customs and Border Patrol inspects shipment and scans code for the TVs. (Note that every single product large or small imported into U.S. has a special import code). CBP calculates the amount owed ($25,000) and sends an invoice to the specific importer, or in this case Costco. Costco has 10 days to pay invoice.

Now Costco has a number of options: (1) They could have talked to Sharp prior to placing their order and arranged for some type of discount or rebate from Sharp to help them offset some of the new tariff; (2) They could eat the entire cost of the new tariff and accept lower profits, but of course that would impact their investors; (3) They could pass on the new tariff costs, or at least some of those costs, by increasing the price to their customers; (4) they can cut-back on purchases from China/Sharp and go instead to another TV manufacturer in another country not subject to the new tariffs.

They could also use a combination of the above.

Citizens Pay Tariffs

However, in almost all cases, governments  simply don’t pay tariffs, the citizens of the country importing the goods pay the tariffs. President Trump brags about the billions of additional $$$ that will be raised and deposited into the U.S. coffers, but he fails to point out that it is U.S. citizens who will be paying those tariffs, not China nor its citizens as he often seems to imply. 

Yes, it surely gets a bit more complicated, but when Trump brags about collecting billions more from tariffs,  he is really unintentionally bragging about sticking it to millions of American citizens who will end up paying these new tariffs. Donald Trump doesn’t really understand tariffs, but then again he doesn’t understand many things! 

What’s Your Net Worth?

Net worth is considered by many financial experts as the ultimate number that you need to track regarding personal finances. Net worth is the total $$$ remaining if you sold/liquidated everything you own and paid off all of your debts. Tracking your net worth over time will put you on the road to financial independence or retirement… Or, maybe not!

How do you calculate your net worth?

To calculate net worth, add up the value of every single one of your assets. That would include the value of your home(s), your cars, all checking and savings accounts, brokerage accounts, retirement accounts, your business, and everything else that could be liquidated. When it comes to valuing your business, you should have a detailed, logical method for justifying that valuation, just as you would when justifying the value of your home – i.e. comparables, recent sales, appraisales.

Next, subtract the sum of all of your debts. This would include all real estate mortgages, credit card debts, notes payable (personal), loans, as well as all other personal obligations and liabilities.

The resulting total is your net worth. With that net worth in hand, examine the graph below and compare yourself against other American households as depicted on the accompanying graph. (Editorial note: Nothing lends itself more towards creating and updating your personal net worth on a periodic basis than an Excel Spreadsheet. Keep it on your desktop and revise as needed.)

Other notes regarding net worth…*

Note that the top 1% represents roughly 1,259,817 households in the U.S. 

What about the top .1% (one tenth of one percent) in terms of net worth? There are approximately 125,981 households in the U.S. that would fall or qualify for the top one-tenth of one percent (.1%)  in terms of net worth, and they would have a net worth of at least $43,090,281 or greater.

* Data extracted from an article by DQYDJ (Don’t Quit Your Day Job) at www.dqydj.com

 

Benchmarking Study Table of Contents

Check out the Table of Contents of the just-released 2019-2020 Financial Benchmarking Study.  This study is packed with down-to-earth comparative P&L analyses comparing firms based upon annual sales, profitability, sales per employee as well as percent of brokering, offset and digital printing. The study even compares franchise vs. independent performance.

Click the link above or the artwork to view Table of Contents

 

How Important is “Price” Among Print Buyers?

A few days ago we were making a fruitless attempt to clean up our office when I came across something that’s been up on my bulletin board for at least 15 years. It is an article that was published in Graphic Impressions magazine in 2003.  The title of the article was: The Top Questions Creative Agencies and Print Buyers Ask Of Potential Print Providers.” The subhead was just as intriguing –  In a Digital, On-Demand World, It’s About Much More than Price.

Authored by Bob Wagner, who at the time worked for the Xerox Corporation, the article discussed a survey conducted by the Rochester Institute  of Technology (RIT) in 2003. The survey was distributed to 250 creative advertising and design agencies in 2003. Yes, I recognize that is 15 years ago, but I believe the findings are as accurate today, if not more so, as they were in 2003. If you disagree with that conclusion let me know by using the email link below.

Those surveyed were asked to rank each of eight factors or considerations that typically go in the decision-making practice of selecting one printer over another. Buyers were asked to grade each factor on a scale of 1-10, with 10 being the most important criteria in selecting a printer. The graph below illustrates the findings of that survey.
 

I think if printers were to take this survey, they would rank “pricing” much higher.

I’ve always found this article fascinating because it has confirmed one of my theories on pricing – one of which being that an average print buyer, presented with a list of valid selection criteria, will inevitably select factors other than price as being the primary or #1 factor for selecting one printer versus another. 
 
Unfortunately, many printers concentrate so much on price that they fail to realize they could be charging more for their services and products if they promoted other factors as strongly as they do “Price.” I can understand why many printers concentrate on “Price” because to be blunt they oftentimes rank quite low on some of the other, more important factors cited by print buyers.
 

This job was due four hours ago.


Are you really dependable? Many printers “talk” a good game when it comes to dependability but they often perform really poorly. They are not dependable, and it is “hit or miss” for the average customer. They drop by the shop at 3 p.m. to pick-up the job they were promised only to be told it isn’t quite ready. If the truth were known, they job that was ready to be sent to the digital printer at 10 a.m. still hasn’t been sent, and it needs to be cut and folded when it is finished. The fact that the job isn’t ready often doesn’t seem to phase the staff and the reason for that is that no one in the company considers deadlines that critical.
 
What about “print quality?” Given today’s digital technology, it would seem hard to get a failing or low grade in this area, but some printers prove that it can be done! Many firms get a passing grade on the printing side, only to end up failing when it comes to finishing and packaging.
 
What about “turn-around Time?” Many printers prefer to stick to traditional time-worn schedules rather than demonstrating to customers how quickly the job can be turned around. It is frustrating to watch owners and top CSRs set delivery dates as far out as possible, not because the firm is that busy, but rather to avoid complaints from the graphics department or the back shop that the promised delivery dates are pushing the system. Really? Give us a break.
 
Ease of doing business? Believe it or not, many firms are not that easy to deal with but they don’t even realize it. Sometimes it seems like there’s a constant battle going on between the customer, the CSRs and the production team in back. The interactions between a customer and the printing staff ought to be a fun experience, not a struggle or clash of personalities. Nonetheless, that’s exactly what print buyers often report when it comes to calling up their printer to discuss an upcoming project. 
 
We welcome your feedback. Send us an email at membership@printingresearch.org and give us your feedback. We would love to gather your opinions and share them with others. Have a great day.
 
John Stewart, Executive Director
National Printing Research Council (NPRC)
 
 
 
 
 
 
 
 
 

Wife Needs Help Pricing 24-Page Booklet

Wife Needs Help With Pricing
24-Page Booklet With Cover

By John Stewart, Executive Director NPRC

Last week Mary (my wife) came into my office and asked me to help her price a 24-page booklet. A woman had just come into the shop and asked for a quote and Mary needed to get back to the customer quickly. She asked me for help in working up a price. “Of course I can,” I said. “I’m the expert on stuff like this. In fact, I can even sell you a copy of the latest 2018 Digital Color Pricing Study at a heavily discounted price.”

“Oh shut up,” she said. “Just work out the price for me and then you can go back and play with your Excel files.” she added. With no real options to consider, I grabbed a nearby copy of the pricing study and started jotting down some notes.

“Oh shut up,” she said. “Just work out the price for me and then you can go back and play with your Excel files.” she added.

The problem with using many of the pricing studies that we have published over the years is the fact that no matter how extensive they are, it is virtually impossible to find a nice, neat answer for every job, every quantity and every size that comes in the front door.

Why? Because there is no way our pricing studies (or any pricing study for that matter) can anticipate every possible scenario. Cover or no cover? Finished size 5.5 x 8.5 or 8.5 x 11”? Bleed or no bleed? How many pages? And of course, what’s the finished quantity? Also, what kind of delivery time is the customer requesting?

It is virtually impossible to provide easy-to-read tables that can provide pricing for all the possible scenarios. What often ends up happening is that we end up using interpolation and other simple math tricks to arrive at our best estimate for a job, using data available in one of these pricing studies.

As we often note in the introduction to pricing studies – the prices we report are not necessarily “prices as they should be, but rather prices as they are.” There’s a big difference. Nonetheless, the average and median prices we present in this and other studies tend to represent “fair market” pricing for the products we survey, especially if you are interested in comparing your price to what others might charge for the same job! 

Mary’s Specific Project

I asked Mary to give me the specifics and I would help her come up with a price. Here’s what she provided:

  • A 24-page booklet with a separate cover. (6 11×17 signatures, 4/4 on 100# coated text and a 4/4 cover on 100# coated cover.) No bleeds. Saddle stitched with a face trim.
  • Quantity: 750 copies
  • Normal, 4-5 day turn-around required

Ok, so I grabbed a copy of the 2018 Digital Color Pricing Study and dove in. First, I checked pages 58 and 59 where we report pricing for newsletters & booklets. The first problem, is that while we provide pricing for 16-page booklets and 32-page booklets, we don’t report pricing for 20-page or 24-page booklets so we would have to do some interpolation with the prices that were provided.

Mind you, when we report pricing for specific quantities and sizes of booklets, we provide a lot of info like average and median pricing for completed quantities, pricing per individual book and we even suggest a range in pricing within which you are probably “safe” to quote. We call it a “majority low” and “majority high” range. Nonetheless, we cannot provide pricing for every possible size and format. Sometimes, that’s up to the reader to tackle.

Second problem, although once again minor, is that while we may provide pricing for quantities such as 100, 500, 1M and 2.5M booklets, we don’t report pricing for 250 or 750 booklets. Another interpolation being required.

Here Are My Notes For the Quote

Raw Pricing from 2018 Pricing Study

Booklet Size                Qty 500       Qty 1,000

 16-page + Cover             $1,987              $3,415

32-page + Cover              $3,246             $5,762                

 

Revised Pricing Notes (with 24-page booklets added)

Booklet Size                Qty 500       Qty 1,000

 16-page + Cover            $1,987                $3,415

24-page + Cover*           $2,616               $4,588 << simple interpolation prices

32-page + Cover             $3,246               $5,762

* With a 24-page booklet being precisely between a 16-page and a 32-page in terms page quantity, it was simple math to add the lower quantity price and the higher quantity price and then divide the total by 2. Some folks might consider using a weighted average, but that’s probably overkill for most.

Ok, we’ve got pricing for the right size of booklet, but we don’t have pricing for the right quantity. Once again, at least in this case, we turned to simple match to calculate the price for 750 copies. We kept it simple. ($2,616 + $4,588)/2). The final answer for a quantity of 750, 24-page booklets with a separate cover was $3,602 or $4.80 per book.

Finished? Not quite! When you start looking at all the pricing information available just on these two pages it can be overwhelming. Is some of the pricing data skewed by a few high numbers in our data base? Possible but not likely, but we nonetheless offer both average and median numbers so that folks can consider modest differences in those two prices. The median price is sometimes a safer bet, but the averages are typically what we use. Sometimes (as in this example) the difference between the average and median price at the 500 quantity was less than $150 or about $0.20 cents per book.

Someone looking at just these two pricing pages (pages 58 & 59) would also see that we offer a “majority low” and “majority high price” as well – thus throwing another variable into the pricing mix.

Mary’s Final Price

Ok, so what did Mary finally decide to go with after looking at the $3,602 price I provided? After looking at that price and considering various alternative prices, she decided to go with $3,189 or $4.25 per book.

How did she select that final price to quote? In all honesty, she says she sort of used her gut instinct, then reached up into the air and came down with that final price.  Less than two hours transpired between the time the customer first walked in the door and the time Mary emailed her with the final price. Within 15 minutes the customer email Mary and gave her the Ok to proceed. They stressed the fact that it was definitely needed by Friday end of day.

A bit of background is in order. The client is a fairly large Baptist church that does an amazing amount of outreach and fundraising for charitable projects around the world. Although Mary and I are not Baptists, we found ourselves agreeing and admiring how much outreach this church does around the world. The church plans to distribute these booklets this weekend to solicit contributions for its ongoing efforts. Looking at the dozens of photos demonstrating all their projects and outreach, even Mary and I were impressed. 

The woman who originally brought the job to us to quote apparently had full authority to make the final decisions. As it turned out, we surmised, based upon teh fast response and Ok to our quote, that we were the only vendor they had turned to – whether it was due to our reputation or a reference we will probably never know. By the way, this is a good time to note that not every customer in every market is looking for the lowest price. Far from it, despite all the naysayers out there that keep insisting how their markets are different and that most customers are only concerned with price.

By the way, I also know that some of the good marketing experts out there would also be yelling and screaming at us that we should follow-up and ask what else can we do for them. We didn’t and probably won’t.

Oh, by the way, this article is being written on Thursday, Oct. 18th.  The job was due tomorrow. I just checked with Mary and asked her how the job is coming. Remember, I have no day-to-day involvement with the operations of our small printing firm, so I know very little about what is going on most of the time. Mary told me that the job was actually picked up about an hour ago (24 hours earlier than promised) and the customer was really pleased.

Second Thoughts & Fears

If you’ve been in this industry for 10 years or more there are always lingering fears and questions when running what for us is a fairly large job.

  • The nightmare scenario has always been receiving a phone call from the client within 30 or less after have delivered the job. When someone announces Mrs. Smith is on the line nobody wants to talk to her about the job because we assume the worse, like a complaint about missing signatures, or a misplaced photo or one entire signature being out of place in the booklet. Yes, that happens, but then again they sometimes just call you to thank you for a job well done.
  • Of course, there is always the second guessing about the price. Would we have gotten the Ok to print had we quoted an extra $200 or $300? The answer in this case is almost a definite “Yes.” Nonetheless, we know the price was inherently fair. As it turned out, it actually ran much smoother than expected, even with a couple of minor problems with our booklet maker.

 

Selling “Partner” Increases Business Value!

The Endowment Principle
And Valuing Your Business

By John C. Stewart, Executive Director, NPRC

“The endowment principle suggests that an owner of an object tends to attribute a higher value to that object because he owns it. Consequently, the owner of a business may think that the business has a higher value than it actually does, merely because he or she started it, nurtured it, etc. You should take this into account if your valuation falls far below the owner’s asking price.” (From Print Shop for Sale, Chapter 1)

I would love to have $10 for every time I have heard an owner tell me that they would rather shut the doors, close the business and walk away before they would accept an offer they consider too low. It is amazing how many owners simply point to the many years they have worked building the business, the sacrifices they have made, and the “blood sweat and tears” they have invested to build their businesses to justify the value they have placed on their business.

Tell owners that they have made a major mistake loading up their small businesses with equipment that really isn’t need, or tell them that after all is said and done they have earned a decent salary over the years but they really haven’t generated any significant “excess earnings” and as a result their business is worth very, very little.

Sadly, many owners wait too late to sit down and attempt to value their business. To be blunt, some put this task off because they suspect the value will not be what they were dreaming of or counting on a few years ago. Other owners simply have little or no idea as to how to arrive at a value for their business, and they are unwilling to take the five or six hours it might take to get a better grasp on valuing a business.

Some make a half-hearted attempt by using some outdated multiplier, while others rely on advice offered by a well-meaning uncle or business broker, most of whom know little about valuations in the printing industry.

Valuations Based Upon Earnings

Most important of all, many of these owners simply do not understand the basic valuation principle that notes that, “for a business to have any real value to a potential buyer, it must be able to produce enough cash flow to pay the new owner a reasonable working salary and then produce enough ‘excess earnings’ for the buyer to be able to purchase the business from the seller over a 4-6 year period of time.”

“For a business to have any real value to a potential buyer, it must be able to produce enough cash flow to pay the new owner a reasonable working salary and then produce enough ‘excess earnings’ for the buyer to be able to purchase the business from the seller over a 4-6 year period of time.”

The biggest mistake made by many owners contemplating the sale of their business is to initially combine the salary and perks paid to both the husband and wife and look at that combined total as the “profit” generated by the business. Once combined, the owners then use some type of multiplier, add a value for assets, and arrive at a final selling price for the business. Oh, if were only that simple!

Let’s clear up something immediately. Combining your salary and perks with whatever is paid to your spouse and then claiming that represents the “net profit” or “net earnings” of the business is simply wrong, wrong, wrong!

Only If You Are Selling Your Spouse

Of course, the only exception to the discussion above would be in the event that you are actually including your spouse (husband or wife) along with the list of other assets that will convey when you sell the business. I know at least some readers are whispering to themselves,“Oh, if I could only do that I would…”

“Ok Mr. Stevens (the new buyer), here is the final paper work for the sale of the business, and you will notice that it includes a Ricoh digital printer, a state-of-the-art estimating system, a Heidelberg folder, padding rack, a Sakuri 40” cutter and my wife. She will stay on with the business until you decide to trade her in or sell her to another print shop.”

The point in the sarcasm noted above is that when a husband and wife sell their business to an individual buyer, it is typically assumed that the buyer will assume some or all of the responsibilities of the primary owner, AND if there is a “working” spouse involved in the business, the new buyer will also have to hire someone to replace that spouse or partner. So the money paid to the spouse that was initially classified, counted or included as part of “net profit” or “owner’s compensation” is really nothing more than payroll that must be assumed by the new buyer.

What about the value of the hard assets that are normally sold and conveyed with the sale of the business? Yes, the value of assets used in the business are also included in most valuations, but in the end, the value of assets are typically modest or minimal compared the value of the business when considering “excess earnings” or profits.

A Disgruntled Client

I once had a client who actually stopped communicating with me (he was acting like a small child) when I told him that his decision to purchase one piece of equipment after another, especially in the past 3-4 years had actually negatively impacted the value of his business. It seemed like he was bent on buying equipment and he bought and bought, using the argument that the more production capability he brought in-house the better and more productive he would be.

Sometimes it is better to broker than to invest in equipment that is only used two or three times a month. Just remember, the very last thing you want to do in the last few years before you sell your business is to start adding a bunch of new assets.

Assets never contribute on a $1 for $1 basis when it comes to valuing a business, but “excess earnings” can easily end up being multiplied by a ratio of 3 to 5 in caluclating the final value of a business.

Buyers Like Profits, Not Assets

Newly acquired assets are quickly depreciated, oftentimes far faster than shown on the balance sheet. To consider the investment cost for a new piece of equipment can or will be recaptured at the time of sale is pure folly. Buyers are not interested in buying shiny new equipment. They can do that on their own without your help.

On the other hand, buyers are interested in buying businesses that produce real “excess earnings,” “cash flow” or “profit” above and beyond what required or necessary to pay a single working owner. The bottom line? Excess earnings are always far more valuable than even the best net assets, no matter all the bells and whistles.

Drop me a line with any of your questions at: johnstewart@printingresearch.org

 

Major Pricing Variations a Myth!

Pricing Variations Between Markets
A Myth Says Industry Pricing Expert

By John C. Stewart, Executive Director, NPRC

As publisher of key industry pricing studies for the past 30+ years, there is one recurring comment I  hear repeated week after week and month after month from printers around the country, and those comments deal with pricing variations from market to market.

The comments go something like this: “John, just received the latest pricing study and I really like it, but I couldn’t help but notice that many of the prices in the study are much higher in my market than what is noted in the study.”

Of course, I also hear the reverse as well, “John, just received the latest pricing study and it has been a real eye-opener, but I couldn’t help but notice that many of the prices in the study seem a lot lower than what is charged in my market area.”

When it comes to pricing practices, printers, don’t like to hear the validity of their pricing assumptions being questioned. For 10-25 years, they’ve always heard statements like, “Hey, pricing is far different in my market” or “I could never charge those prices in my market. If I did I would be out of business.”

“I could never charge those prices in my market. If I did I would be out of business.”

Many printers simply make assumptions about pricing, as well as repeat things they’ve heard in the past. They will state things like, “Obviously prices are higher in densely populated markets than they are in smaller markets,” or they will note something like, “Prices on the West Coast are typically higher than other regions of the country.” The latter being pure conjecture on their part, and is lacking any substantive evidence to back up such a claim.

Do Prices Vary by Market?

Too many times I hear well-meaning printers claim that pricing obviously varies from one geographic market to the next as well as from markets distinguished by population density. While sincere and well intentioned, most of these comments are not based upon hard cold facts, but rather more so on “gut feel.” Labor costs may indeed be higher in one area than the next, but those costs may be offset by lower material costs. 

The hard cold facts are, with rare exceptions, that you will find far greater variations in prices for specific products and services within a single market than you will find as you explore and compare pricing from one market to the next, or from one region  the next. 

“The hard cold facts are, with rare exceptions, that you will find far greater variations in prices for specific products and services within a single market than you will find as you explore and compare pricing from one market to the next, or from one region  the next.”

So, when someone emails me as they did the other day and says he is from San Francisco and the prices there are much higher there than they are in other places in the country I politely tell him/her that unless he has already conducted a professional pricing survey and “shopped his competitors” that he will generally discover that his assumptions are simply incorrect.

Pricing Digital Envelopes

Industry Pricing Studies Validate Pricing Practices

Industry Pricing Studies Validate Pricing Practices

Here’s a perfect example of what I am talking about. According to one of our newest reports, the 2018 Digital Color Pricing Study, the national average price for 1M 10/24# 4C digitally printed envelopes is $291. The median price is $281.

According to the recent 2018 Digital Color Pricing Study, we know that franchises are about 11% higher than independents. We also know that when we look at average pricing based upon population density, we find that average prices vary between $271 and $294 for that specific product. That is equivalent to 5% +/- of the national average. If we examine average pricing for this product based upon geographic regions (Northeast, Central, Southeast, West, etc.) we find that prices vary by less than 5% from one region to the next.

However, while prices for these #10/24 digital envelopes vary only modestly when looking from one region to the next, or from one geographic market to the next, we know the situation is far different when we drill down to individual markets.

We know for a fact that when we look at individual markets such as Oskosh, WI, Jacksonville, FL, San Francisco, CA or Greenville, SC or similar markets we will discover far greater (sometimes huge) variations in pricing for a specific product WITHIN each of those markets, than we will discover going from one market to next. 

Small Markets & Pricing Variations

As an example, let’s take a relatively small town or city where there are 10 small format quick printing operations. Now let’s survey the price for those 1M 10/24# 4C envelopes. What do we find? We will find a much larger variation in pricing for these envelopes within this small market than we will find when we look at national or regional pricing for this product.

While we know the average price for 1M envelopes is indeed $291 with average variations in pricing running in the 3-7% range, if we conduct our local survey we will uncover pricing for this specific product varying between $175 (40% lower) and $350 (20% higher) among those 10 printers.

1M 10/24# White Wove, 4C envelopes (no bleed)
Average Price… $291

Median Price… $281

When we closely examine pricing variations within individual markets, we typically discover pricing variations of 20-40% +/- of what we report for national average price. Now, some of the erratic and inconsistent pricing can indeed be attributed to “real-world estimating mistakes.” However, the vast majority of pricing variations are more likely explained due to dramatically different approaches to pricing by individual owners and the perceived value they assign to various products  – as opposed to differences based upon market size, region, as well as differences due to material costs, labor costs and overhead costs.  

Most readers who call or write us with questions regarding specific prices published in various industry pricing surveys tend to do so based not out of sheer curiosity, but rather as a rationalization for justifying their own prices, especially when their own prices may vary by 30-40% or more from what we report in our pricing surveys.

My Challenge Today

Surveying and capturing pricing for specific products is not for the faint of heart or for amateurs. If you want it done right be prepared to spend $400-450 or more!

If you have some misconceptions about pricing, or would simply like to confirm that you are indeed “in the ball park” in terms of pricing, I would encourage you to consider hiring a professional price shopper to survey 10-15 printers within your own market.

For details on what is entailed in hiring a shopper click on the link below. Please, whatever you do, don’t take the cheap way out and hire your cousin Susie, or have your press operator Bob call around for pricing during his lunch break.

For years I have told clients that, “If you’re going to survey customers, at least do it professionally,” (Go here to read more about these surveys.) Don’t grumble about the cost. Be prepared to spend $400-450 because that’s my estimate of what you should be prepared to hire a “professional shopper.”

If you do act and hire a shopper I would love to receive a copy of their written report and your analysis. Thanks for listening. Send your comments, criticisms or questions to johnstewart@printingresearch.org