Print Business Growth: Should I Focus on the Top Line or Bottom Line?

Guest Interview

Mark Coudray, a certified Master Profit First Professional and Architect of Catalyst, a group of results-driven consultants

To attract potential buyers for your print business, you must generate the level of growth today’s sophisticated, cash-rich private equity groups expect. But that’s hard to do when so many simultaneous changes make it challenging to focus on achieving the fastest results.

At LaManna Consulting Group, we rely on experts such as print-business entrepreneur and consultant Mark Coudray for guidance on business growth. A certified Master Profit First Professional, Mark is like a personal fitness trainer for business. He focuses on solving problems and getting results.

In a recent interview with our blog team, he acknowledged that every business client is different: “Some businesses need help with production or marketing. Some need financial help. Some need a whole business redesign.”

One thing he knows is that “The companies most at risk for having limited value to buyers are those who have been in business a long time and have not evolved as a company.”

The companies most at risk for having limited value to buyers are those who have been in business a long time and have not evolved as a company. Share on X

Here, we ask Mark about what numbers matter most and possible strategies for growth.

Should a business owner focus more on improving the top line revenues or bottom line revenues?

MC: Bottom line. Net profits and cash flow are things that business purchasers are after. If you’re selling a business and you want to get the most for your business, the deal will be a multiple of your cash flow.

I’m not a big proponent of focusing on the top line, because the top doesn’t mean anything. The things that are most important are the gross margins which are the available dollars that you pay your expenses with.

So I look at the gross margins, and how much of the total revenues flow through to the bottom line. What is the percentage of net profit to gross margin?

What gross margin ranges should a seller target?

MC: It depends on the business that you’re in and the markets you’re selling in. Some markets are incredibly price sensitive and it puts a lot of downward pressure on profitability.

There are ways to improve your competitiveness and margins overall, but I’m shooting for 10% net profit on top-line sales.

In a Profit Professionals podcast, you discussed how timing of gross margins helped your clients remain profitable in 2020, even though some clients had lost 90% of their traditional revenues. How does gross margin timing work?

MC: First of all, it’s important to consider COVID as a disruptive “event.” It threw all previous projections and historical measurements out the window. When you look at it as an event, you realize there are only three things that can happen: Things can get better, stay the same, or get worse.

What got better during COVID was that it removed a lot of the legacy connections that have been propping up forever — such as weak employees, weak markets, and weak customers.

COVID leveled the playing field and enabled companies to redefine what they wanted to engage with and what they could get rid of.

From my own client base, every company that was using the Profit First methods came out of COVID with more profit than the year before, even though their top-line sales in 2020 were much lower.

When you understand the elements that affect your profitability, bottom line, and cash flow, you can rebuild your business like Legos.

If you’re just measuring how much ink you put on paper in a given a month, you’re not looking at the right things.

First, systems need to be designed to have the least amount of friction so you can enable jobs to be turned around fast.

Then, design your ideal customer profile and take steps to get more customers like your ideal customer. Chances are, you want fewer people who are looking solely for the lowest price and more customers who recognize the value of paying more for better service and extra value.

Re-evaluate how you price jobs. Give each customer a choice of what they are willing to pay for. Some customers will choose to pay a higher rate for fast-turnaround jobs. Others will be willing to wait a few days or weeks if it means they get a lower price.

For the first 30 years of our business we focused on the top line only. We were profitable in the 2-6% range but we were doing the wrong kind of work. If we had problems such as delays in receiving materials or employee no-show, we didn’t reach our break-even point until the last four hours of the last day of the month.

When I switched that thinking to activity-based accounting, we dropped our breakeven day to Day 15 by bringing in our higher value work at the beginning of the month and using 100% of the margins to cover the costs for the month..

By offering different levels of service based on the customer’s needs and focusing on expense recovery at the beginning of each month. we started making double-digit profits for the year.

What type of accounting platform and MIS system should I use?

MC: By far the most common accounting system is QuickBooks. Some are using Xero. Some are using info out of their MIS system. But Print MIS programs are being used less and less.

Many MIS systems used in the print industry are closed. They are dedicated solely to the printing portion of your business. There is no API interaction that lets data flow from one program to another. In today’s world, that is a big negative.

Today, data integration is happening everywhere. You must be able to efficiently use all of the data coming out of your bookkeeping system, production systems, mailing system, and MIS system. Job data shouldn’t have to be entered more than once.

Some Print MIS programs are evolving. Look at the systems from Durst and EFI. Their front ends incorporate e-commerce and web-to-print. They remove friction by enabling customers to enter print job data into the workflow.

This is all happening because print-service providers are evolving into one-stop marketing services platforms. Services that must be integrated and automated not only include print, but also email marketing, websites, content development, social media, and online chats.

How does e-commerce affect growth?

MC: It’s a huge opportunity, even though web-to-print e-commerce isn’t the same as direct-to-consumer e-commerce.

We’re seeing in many cases integration of e-commerce and fulfillment of e-commerce components are key growth areas. Retail clients can now build their own POP kits online via e-commerce. Then, the print shop handles the production, assembly, and fulfillment of the kits. We’re seeing that a lot in the area of POP, promotional products, and textile areas.

Have print shops been adding e-commerce as a result of COVID?

MC: Most everyone had e-commerce capabilities before COVID, but the pivot during COVID was more of an extension of capabilities.

COVID highlighted the deficiencies and limitations of the e-commerce platforms that many print-service providers used. As a result, many printing companies have pivoted away from print-specific e-commerce programs to continually evolving e-commerce platforms such as Shopify on Magento.

How does outsourcing affect bottom line growth?

MC: As we learned during COVID, the biggest limitation of outsourcing is the inability to control shipping and logistics. Anything that you can directly control provides an opportunity to improve your bottom line.

Should print shops offer graphic design and branding services?

MC: Yes. Branding agencies, graphic design firms, and marketing firms are all merging together. Some have even begun providing printing services.

At one time, marketing agencies and advertising agencies were responsible for placing big orders with print companies. That is changing now that job runs are shorter and turnaround times are quicker. Plus, more people can have direct access to printing technologies through the cloud. The individual agency is being cut out of the picture.

How can I use analytics to better run my business?

MC: First, you have to go back to school. This doesn’t mean going back to a classroom or a university setting. There are plenty of online assets that can help you learn more how understanding data can help expand your horizons and figure out what’s going on in the business.

Then, you need to understand the intent of what you are measuring. What kind of data are you collecting? Why are you collecting it?

Using analytics is different than using monthly and year-end financial reports to make future plans The majority of financial data is backward looking. It’s reporting on events that have already taken place.

With forward-looking managerial accounting and predictive analytics, you can use your Q1 data to predict what is going to happen in Q2, Q3, and Q4. You can use analytics to get indicators that show what will happen to your business over the next 3 months, 6 months, and 9 months.

Making a few timely changes based on forecasts of what will happen next can really help improve your profitability.

Most print shops seem to be waiting for analytics tools they can buy off the shelf and immediately put to work. But waiting for something easier to use won’t give you the competitive advantage you need now.