Comparing the numbers
Ratios can be useful and effective methods for analyzing your business
The heart of a printing company’s MIS system is the estimating information used for pricing decisions, production plans, scheduling and business analysis. Over the years, there have been significant changes in the way companies use this information. The focus now appears to be on estimating the price as quickly as possible, while using the information to improve the organization has fallen by the wayside. Real-time data is not necessary for business analysis, but periodic reviews provide significant benefits for any business. Let’s look at some of the information available, how to get it and what to do with it.
Won-lost or lost-lost?
The won-loss ratio provides a macro view of a shop’s overall competitiveness. Typically, you’re looking to win at least 33% of the jobs you bid on. If you produce 100 quotes while bidding against two companies, and you win 33 of bids, you’re on track—your pricing is competitive. Exceeding 33% means you’re doing something right. Your pricing, service or quality could be outstripping your competition; this may be an opportunity to raise prices slightly.
If you are winning less than 33% of bids, it’s time to review and determine why. Is it price? Do you have good relationships with your prospects? Are you competitive in that market? Is your prospect just using you for a check price? Should you be focusing on other prospects or markets? This is the type of information you need before you can fix the situation. And remember, with limited resources, you need to focus on the areas that provide the best returns.
An estimate log will identify how many estimates you do; the number of orders processed will identify the jobs you won. This information can be compiled weekly, monthly or annually. Also, consider categorizing information by market, product type, client and sales rep. This information produces valuable performance indicators and allows you to track changing trends.
Depending on your operation, you might need to do an actual-to-estimated cost comparison for every job. Actual costs can change during production because customers request changes. An actual-vs.-estimated calculation will identify these changes, making it easier to recoup these costs from the customer.
These comparisons are also valuable for reviewing your estimating standards and assumptions and creating an ongoing feedback loop that promotes continuous improvement. Information categorized by activity can pinpoint needed adjustments and improve accuracy.
There are a number of ratios using purchase data that printers use as standards. A common one is ink costs expressed as a percentage of paper costs. The standard pegs the ink average at about 10% of paper cost. This standard quickly determines an approximate cost for ink and establishes a rough check for more detailed ink calculations.
This method is more appropriate for manual estimating systems or simplified spreadsheet systems where speed may be valued over accuracy. Typically, computerized estimating systems do detailed calculations based on standards, formulas and ink-mileage tables without taking up extra time from the estimator.
Paper as a percentage of the total job cost is also a useful figure. Some printers go on the assumption that paper should represent 25% of the value of the job. However, your figure may vary. A detailed record of your specific average will yield a benchmark to review your estimates and determine ballpark pricing.
Tracking the average labour cost as a percentage of sales can be a very important indicator. Detailed accounting records track hourly wages paid to production employees and those same records contain gross sales amounts. On its own this figure may not seem earth-shattering, but tracking it over time tells managers a very interesting story. A decrease indicates a higher rate of production, improved efficiency and use of automation. A rising percentage means efficiency is decreasing, letting you know it’s time to pull up your boot straps.
I am not recommending substituting ratios for a formal method of estimating, but they can be very useful in identifying and tracking changes in your business. I’ve offered only a few ratios for your consideration. Look to the CPIA/PIA ratios studies prepared annually for both Canadian and U.S. markets for more ways to track your business. They are useful tools for detailed operations analysis.
Bob Dale is the president of Pilot Graphic Management Services Inc., a company providing management consulting and custom training for organizations. He is also on the executive of the Toronto Club of Printing House Craftsmen. Bob can be reached at (416) 410-4096, or via e-mail at firstname.lastname@example.org.