SPE – A Critical Ratio in Covid-19 Era!

The biggest challenge confronting the printing industry today is how quickly individual firms are reacting to sudden as well as prolonged declines in sales. The declines are no longer looked at at temporary, but rather something that may be with many of us for many, many months to come.

With dramatic declines in reported sales for the past five months, many printers are now closely reexamining what were once deemed to be minimum staffing levels – All of this as a result of Covid-19!

Declines in Sales Projected to Continue

Sales Per Employee (SPE) has long been considered a primary productivity ratio in the printing industry, and it has now moved to the forefront of discussions as to how best firms should deal with the current economic upheaval facing our industry.

Put in the simplest of terms, SPE essentially answers the question as to how many employees should it take to produce XXX in sales. According to our survey data, sales already took a dramatic hit in the March – July time frame and most printers are projecting those decline to continue well into 2021.

Approximately 80% of our industry claim Covid-19 has had a significant to catastrophic impact on their business.

In light of these projected declines, owners need to be countering these projected declines with equally robust reductions in employee staffing as well.

“In light of these projected declines, owners need to be countering these projected declines with equally robust reductions in employee staffing as well.

SPE is always based upon annual sales, actual or project. It is calculated by dividing annual sales (excluding postage income if applicable) by the total number of of FT equivalent employees, including all working owners.

Whether or not an employee takes out a salary (such as spouse or other family member) is not factored into this calculation. If the individual contributes in any way towards the production of the “product” or “service” they are counted. This would include all regular employees, spouses, partners, in-house bookkeepers or outside sales reps.

If a firm reports $1,200,000 in annual sales and utilizes or requires an equivalent of eight (8) employees (including the owner and his/her spouse) their SPE would be  $150,000. Contrast that with another firm doing almost exactly the same sales volume (very similar sales breakdown) but requires 10 employees to produce those sales their SPE would be $120,000!

If you currently employ eight employees, including yourself and a sales rep, you should expect, assuming proper pricing and the right equipment, to produce produce $1,500,000 in sales!

An SPE number can also tell you how much in sales can you expect to produce with a specific number of employees. If you currently employ eight employees, including yourself and a sales rep, you should expect, assuming proper pricing and the right equipment, to produce produce $1,500,000 in sales! This is based upon data taken from the SPE quartile analysis chart below.

SPE Quartile Analysis based upon 2019-20 Digital Color Pricing Study.

Don’t Smile Yet!

Before you start patting yourself on the back or giving your manager or spouse a “high five,” it is important to note that SPEs can vary dramatically within a single study or report. NPRC not only calculates individual SPEs in order to obtain averages and medians, it also ranks the SPEs from low to high (after excluding outliers) and then divides the list into four quartiles.

So while you may be eager to pat yourself on the back for achieving an SPE of $136,000 you should be aware of the fact that the average for the top quartile in that study was $184,939.

Remember too, that the SPE reported for each quartile is just that – an average of that breakout, meaning that the actual SPE range within a quartile (See  Top Qrtl. below) was probably in the $160,000 to $215,000 or possibly more.

Note the close similarity in SPEs reported in a variety of NPRC industry surveys.

Turning a Blind Eye to Sales Declines

When sales suddenly decline precipitously, it is only human nature to initially excuse to ignore the event as a one-time drop. Many printers will simply view a sudden drop as an “outlier.” The natural reaction by many is to assume that sales will recover quickly. Historically speaking, sales have indeed recovered quickly – that is, of course, until Covid-19 came along.

“Historically speaking, sales have indeed recovered quickly – that is, of course, until Covid-19 came along.

Not only did sales plummet in March, but the dramatic decline in sales continued throughout the 2nd quartile (April – June). Average 3rd quarter sales, according to our most recent survey, are projected to be even worse at $174,597. Median sales are predicted to be even worse at $156,681.

Based upon input from survey participants, industry sales are are not expected to recover anytime soon!

What about the 4th quarter? Yes, while survey participants projected a slight improvement in 4th quarter sales, that projection of $307,025 for the 4th quarter is still 26% below what was reported for the 1st quarter.

Future of the Industry?

The facts are pretty clear. Robust sales are not going to return anytime soon. There is a great deal of pessimism in the industry, and while many tell us they are in it for the long haul and have sufficient cash reserves, most also candidly tell us they think the odds are about 50-50 that we will see any improvements before July 2021.

Knowing that sales are not going to recover anytime soon, it is probably long-past the time for owners to take a close look at staffing, including where they can make reductions.

Knowing that sales are not going to recover anytime soon, it is probably long-past the time for owners to take a close look at staffing, including where they can make reductions. Hopefully, the easy staff reductions have already occurred. Terminating “bad apples” as well as “excess” employees has already occurred.

Unfortunately, as we continue to muddle through the 3rd quarter and prepare for the 4th quarter, owners will now have to make some of the hardest decisions in their careers – terminating good productive employees with good attitudes.  Some owners will be shocked by that statement, but having to terminate good, productive employees is simply a harsh reality – one that at least needs to be seriously considered.

“… owners will now have to make some of the hardest decisions in their careers – terminating good productive employees with good attitudes.

You either have enough sales to support these employees at pre-Covid-19 levels of productivity or you don’t. What kind of decline in SPEs and owner compensation are you truly willing to absorb before you will act? That is indeed a question only you can answer.

 

 

 

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