The real problem with “profit laggards” in our industry is that they don’t know they are laggards. Most printers blame the economy, Covid19, vendors and the internet for most, if not all of their problems.
Many of these troubled companies simply ignore their own profit and loss statements. When they do examine them, they often are not even sure what to look for.
Profit laggards (those in the bottom 25% in terms of profitability) often have no idea whatsoever how poorly they are doing, especially when compared to printers in the top 25th percentile. They just figure everyone must be having the same problems they are facing.
When troubled firms look at key expense items such as “cost of goods,” “payroll costs” and “overhead expenses,” they have no idea whatsoever how those expenses compare to others – especially those firms falling into the top 25% in our industry in terms of profitability.
One of the big reasons for this is that they have so little information to work with when it comes to financial data. Our surveys show that most profit laggards lack properly prepared financial statements. Even when they do have decent statements, their statements fail to display key ratios adjacent to expenses (expenses expressed as a percent of sales).
Lacking ratios that they can use to compare their performance against others, it is no surprise that many of these troubled companies are so ill-prepared when a double whammy like Covid19 comes along.
Operating Ratio Studies
Fortunately for the industry, the National Printing Research Council (NPRC) has continued a 35+ year tradition in the printing industry of publishing key financial reports detailing profitability in the printing industry. Described as either “Operating Ratio Reports” or “Benchmarking Studies,” these popular reports provide an in-depth look at profitability in our industry.
These reports examine our industry in terms of annual sales, key expenses, and owner’s compensation. In addition, comparative breakouts include independents vs. franchises, single vs. multiple, association memberships, offset vs. digital, and firms with high reliance on brokering vs. those that broker very little.
As for sales, the latest study, the 2019-2020 Financial Benchmarking Study, provides breakout data for firms with sales as low as $400,000 to those reporting sales of $2.5 million and higher. Another valuable breakout includes an analysis of firms based upon their reported sales per employee.
As the study notes, firms with SPEs of $140,000 and higher are significantly more profitable than those with SPEs in the $80,000 to $115,000 range. The higher the SPE, the greater the odds that firms will indeed survive these turbulent times.
Profit Leader Quartiles
Of all the breakouts offered in the current and previous benchmarking studies, none is more revealing than when the study presents breakouts based upon “Profitability Quartiles.” In the most recent report, profitability quartiles are defined as:
• Bottom Quartile 0.5% – 9.9%
• 3rd Quartile 10.0% – 15.9%
• 2nd Quartile 16.0% – 21.9%
• Top Quartile 22.0% – 31.0%
The current Benchmarking Study not only analyzes profitability for the industry at large (all participants), but it also provides profitability quartiles breakouts for both independent and franchises.
Other breakouts offered include peer groups vs. non-peer groups, firms employing sales reps vs. those with no sales reps, and breakouts based upon geographic location.
Profit Leader vs. Profit Laggard Ratios
While the Benchmarking Study provides hundreds and hundreds of expenses and their corresponding ratios, there are a few that standout. Below are some key $$$ amounts and ratios that are discussed in this study.
Please not that the firms falling into the bottom quartile were in serious trouble pre-Covid19. One can only imagine the struggles the bottom 25% of our industry is facing in this new era of extended quarantines, wearing of masks and reductions in staffing.
| Bottom Quartile | Top Quartile | |
| Total Gross Sales | $1,448,004 | $1,037,417 |
| Cost of Goods | 30.6% | 29.0% |
| Payroll (Excl. Owner) | 38.8% | 25.8% |
| Overhead Expenses | 25.2% | 19.4% |
| Owner’s Compensation | 5.4% | 25.7 |
Doomed to Failure
If you fail to control your payroll costs you are most likely doomed to failure. You may not close your doors, but you are endangering the future survivability of your firm. When it comes time to sell, it will have little if any value and will command only pennies on the dollar.
If your firm fails to control overhead expenses and tends to report expense ratios that fall into the bottom quartile (as depicted above) you are probably doomed to failure. You cannot consistently achieve or report bottom quartile ratios as shown above and expect to remain in business! Things have to change and it begins at the top.
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