In recent years, it has become apparent that print brokers are handling an increasing amount of work. Trade shops are growing everywhere, while some commercial printers continue to struggle. In fact, some major commercial printers use the trade shops themselves. In this issue we’ll take a look at this development and examine why customer acceptance of brokers is growing; how their prices can be so competitive; who is using the service; and how commercial printers can compete.
A typical broker is a former commercial-print sales rep who was earning good money but wanted to be independent in order to increase his earning potential. He may have been limited by his employer’s potential, service offerings or compensation structure. Or he may have wanted more control over the number of services available to his clients.
I recently read an interview with a print buyer, a manager of corporate communications for a U.S.-based plastics manufacturer with 13 locations. She spends approximately US$150,000 on catalogues, peripherals, and brochures to market the company’s products. She said she receives ‘tons’ of cold calls and generic mail pieces but does not accept cold calls unless the call is pertinent. She outsources all her printing to a designer who brokers her work. “It is wonderful because he takes care of everything and returns the final product to me,” she said.
More and more companies are focusing on their core competency and looking for single-source solution providers, including print. Brokers thrive because they provide full service at competitive and often cheaper prices than commercial printers. How can they be cost competitive?
Let’s take a look at a typical firm’s figures for a typical project that a commercial printer may quote at a competitive cost of $100:
The printer’s materials include paper, ink, plates, and so on. Printers typically mark up the cost of paper to handle the expense for acquisition, handling and financing. This is necessary since payment for ordered paper is due 30 days after production starts. The paper merchant will typically be paid before the printer receives payment from a customer.
A trade printer, on the other hand, typically has paper supplied by the broker so the firm does not incur the expense and, therefore, does not markup the paper.
Most of the trade shops that I have been in are non-unionized, smaller operations usually managed by the owner. These factors result in lower costs because they reduce wages and supervisory expenses. The broker leaves the manufacturing cost to the trade or commercial shops.
These expenses include facilities and equipment. A commercial printer may need to locate near customers, allocate attractive space for sales reps, and flashy customer rooms for meetings and viewing. Few trade printers would have these needs. Some trade printers offer space to brokers, however, it is not uncommon to charge the independent broker rent for the space. Commercial printers often need to have the production capability to do most things in-house from prepress to bindery. As we all know, it can be very capital intensive to cover the full range of services and often there are miscellaneous pieces of expensive equipment that are underutilized.
Trade printers, on the other hand, often focus on one aspect of production, like prepress, print or bindery. Even within these services they further specialize in areas such as small offset, digital printing or large-format press work. By specializing, they can achieve higher utilization of equipment and reduce their factory expenses.
Since commercial printers offer a combination of services, they require more complex systems to estimate, manage production, track costs and invoice. All this can be simplified and, therefore, be less expensive for trade shops to manage, thus realizing significant savings on systems and salaries.
For commercial printers, selling expenses include marketing materials, sales, salaries, advertising and other sales expenses. Trade shops have minimal selling expenses and may advertise in trade publications and directories, which is more direct than marketing to a typical business print buyer.
For the broker, sales expenses are limited and he, or she, often starts by offering services to known prospects or former customers with whom he already has a relationship. This reduces the need for major investments in marketing materials and personal marketing efforts. However, this assumption is not to downplay the importance of marketing and new business development, regardless of what business you are in.
Commercial printers have not been known for generating stellar profits. Trade printers’ margins tend to be higher since they can exploit higher equipment utilization and reduced expenses. Successful brokers can generate higher profits because they are usually smaller firms with direct owner control of the operation.
If a typical commercial print job from a commercial printer costs $100, a broker using trade services could buy it for 30% to 35% less and, provided he maintains lower operating and administrative costs, enjoy a healthy profit margin.
Who is using brokers’ services? One trade printer recently confided that almost 50% of the work the shop does, is destined for the U.S. market. In America, brokerage firms have been a significant source for print buyers for almost two decades now. This trend is also happening in Canada, although we may be a decade behind. I am aware of a number of major organizations that use brokerage or facilities-management firms to manage their print procurement while they focus on their core businesses. More and more designers and creative shops are buying print on behalf of their customers. Customers are looking for one-stop-service from many different sources.
What can commercial printers do to compete? It really comes down to focusing on the business fundamentals. Know your customers’ needs and recognize that they are frequently changing. Provide exceptional service, quality and a competitive price. Finally, manage your business. Efficient operations require high equipment utilization, controlled administration and overhead costs. Lastly, specialize. Since you may not be able to be all things to all people, focus on what you are really good at.