February 2003
Analyze before you buy
Thinking of buying new equipment? Make sure you do the ROI first

Joseph Webb, president of Strategies for Management and co-founder of TrendWatch, made some very insightful predictions in his recent paper Ten Undeniable Trends Affecting the Printing Industry. Two pertained to the acquisition of new equipment and technology.
• Investment in new technologies will remain rapid and printers will have to continue to scramble to retool and reshape their businesses.
• Keeping old equipment is costing printers more money than ever. Printers must become more productive by replacing older, less productive equipment with fewer models of newer, more productive equipment.

To these predictions, Steven Johnson, president of Print Image International, added his own observation: Quick printers make the investment in corporate technology and then sell time and techniques that help small businesses compete with their larger competitors.

During the last 20 years, printers have been under continuous pressure to invest in new equipment and technology, not only to remain competitive, but also to stay in business. This affects printers of all sizes, from the small shops to giant Quebecor.

As customers become more demanding, turnaround time becomes a major factor. Equipment vendors often can present arguments that justify investment in new technology with time-saving in production. It is your job to go out and get the work, which will make the investment a success.

All decisions must be analyzed to ensure management makes informed choices

Printers have used the acronym ROI to mean Return On Intuition. As equipment becomes more complex, the price tag climbs higher. But a poor investment decision will have greater impact on a small organization than on a large one. Therefore, all decisions must be analyzed to ensure management makes informed choices. Another key reason to analyze is so that management can devise a business plan. If you don’t have a plan and you don’t track the progress of your investment, you don’t know if it’s successful, and if you are not progressing to plan, managers don’t know when to implement changes and what items to change.

For example, if you were to buy a new copier, you would need to justify the investment based on two key factors: anticipated volume of copies and anticipated revenue, often measured as cost per copy. If your volume does not meet expectations, you need to take action to increase volume, which may include doubling marketing and sales efforts, reducing price, or establishing contract services with new customers. If you do not meet your revenue target it could be due to competitive pressure or to pressure from specific customers.

The key to success is to have a plan to track to and the ability to track volume and revenue on specific pieces of equipment. Failing the ability to track revenue by specific equipment, tracking volume is usually quite manageable.

One thing to be cautious about is tracking where sales come from. Your business needs to grow with new equipment, unless the new machine is only meant to replace obsolete equipment. When tracking activity by equipment you need to measure if work has migrated from one piece of equipment to another. Therefore you also need to track against the total volume and revenue history.

To calculate your Return on Investment you require information on fixed and variable costs and revenue projections. The fixed costs include lease, purchase or finance costs, staff requirements, facility changes or renovations and software requirements. Note that staff requirements are part of the fixed cost. That’s because, under many circumstances, copier operators are full-time, and you allocate only a portion of their wages to each copier, regardless of the volume of copies. The variable costs include operating costs, including maintenance and toner, and consumables.

Projections of volumes and revenues, based on average selling price per copy will be required to complete the calculation. The information can be tracked in a spreadsheet. For more detailed planning, I would suggest calculating the monthly revenue and volume estimates to ensure tracking and comparison purposes. You don’t want to wait for a year to find that you’re off track and won’t reach projections.
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
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