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SMART BROKERING: How do you minimize risks while maximizing rewards?

Sep 1, 2000 12:00 AM


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BUSINESS CARDS, LABELS, INVITATIONS AND EVEN REFRIGERATOR MAGNETS - MANY QUICK PRINTERS HAVE DABBLED WITH SUCH SPECIALTY ITEMS, BROKERING THEM OUT TO VENDORS AND MARKING UP THE PRICE FOR A NICE PROFIT. ALTHOUGH RELATIVELY COMMON AND INFORMAL AMONG QUICK printers, brokering can carry the same risks and demands the same consideration as a big-ticket job handled by a professional print broker. It's just as vulnerable to unreliable customers, questionable profitability and production snafus as a typical four-color print job - and this time, you, the quick printer, are the actual buyer.

Being an informed, conscientious consumer can lessen your risk to any of the above factors and help expand customer relations, your capabilities and your bottom line.

"Brokering offers us a way to keep some of our larger customers happy," explains Stu Marty, owner of Wright Printing, a $708,000 quick-print shop in Normal, IL. Often brokering acts as a value-added service that quick printers can offer to their top customers, and provides them with a little extra income on the side. Marty is quick to add, however: "If I could operate without any brokering and still keep those top 25 customers happy, I would."

REDUCE RISK

"The reason you make money brokering is because you're assuming risk," says Thomas Crouser, principal of Crouser & Associates (Charleston, WV), a management consulting firm for small and quick printers. He explains that in brokering, printers assume two types of risk: product and customer.

Product risk is relative to a printer's knowledge of the product he or she is brokering, the frequency with which it is brokered and the item's end cost. The more unusual and complicated the product, and the less familiar the printer is with it, the more likely he or she will specify or order it incorrectly or end up with an unreliable vendor. And, when a quick printer acts as a broker, he or she also becomes the legal print buyer - if the customer refuses to pay, the printer must foot the bill (see "Sales conditions: Get 'em in writing," on next page).

To reduce product risk, Crouser suggests only brokering products that are in demand and fairly uncomplicated, such as business cards. "Certain business forms, computerized forms, multipart overlay envelopes, etc. - we tend to dissuade a printer from brokering very sophisticated products like those, which could cost $10,000 if the job gets screwed up," he says. If the request comes from a top-25 customer, Crouser advises that it would make good business sense to tackle the job. Otherwise, don't offer the service and decline off-the-street requests.

Customer risk refers to the trustworthiness of the print buyer, which is usually based on how well the printer knows him or her, and, how dependable that buyer has been in making payments. Many quick printers only broker for their preferred clients.

"We avoid brokering for off-the-street customers if possible," says Roy Nix, owner of Nix On Time Printing, (Columbus, GA), a quick-print shop established in 1981. "We do not encourage brokering as a rule, and try to limit it to our better customers." Nix prefers to keep brokering on the sidelines and focus instead on his shop's own printing.

Some printers are not picky about who they'll broker for. This is obviously riskier: You know nothing about the walk-in customer's credit history, much less how reasonable he or she is if there's a problem. Insisting on a down payment or payment up front can provide you both peace of mind and financial security.

And whether the client is off the street or in your Top 25, consider what the job will cost you if it falls through. "With large brokered jobs I rationalize the risk," explains Travis Strickland, owner of Studio Designs Printing (Milledgeville, GA), a six-employee quick print business. "What would happen if the customer refused the job and I had to take the loss? Can your business afford to take a loss like this?"

TRINKET TROUBLE

Trinkets - the bottle cap openers, magnets, clickers, CD wrap splitters and other doodads that act as promotional items - can prove a profit black hole for some quick printers. Brokering out the occasional trinket for a top customer is fine - it helps keep customer relations positive. When trinket brokering dominates sales, however, it may distract the printer from his or her chief and most profitable strengths.

"We've measured in company after company that the top 25 accounts supply you with 50 percent to 75 percent of total sales. If you're in a market with 2,000 accounts, and your top 25 are producing 25 percent to 30 percent of sales, our thinking is you probably don't have any real accounts and you are busy doing trinket business," notes Crouser. Because trinkets are typically low-cost, high-fuss items, they can drive up the number of a printer's transactions with little return.

Consider whether you can make a market in the product you are about to broker: Can you see yourself selling it in the long-term? When it just opened for business, Bulldog Graphic Communications (Chatham, Ontario), an integrated design and printing business, often got caught up in trinket sales, such as T-shirts and magnets, with labor-intensive, low-return results.

But now the Canadian company sticks to products it's familiar with - large-format and full-color work. "If I don't see us doing that service in the future, I'll try stay away from it," notes John Lyons, partner and CEO. The printer enjoys 25 percent of its profits from brokering sales and has the time to focus on its core strengths.

"I would be careful of low-end brokered sales," Strickland agrees. "You can easily find yourself spending hours filling out order sheets, researching products or dealing with picky customers, and all of this may just be over a $100 order for wedding invitations!"

By focusing on your print shop's strengths and limiting brokering to higher-end, traditional jobs, you can avoid falling into the trinket trap. If you do receive many requests for trinkets, make it profitable for yourself: Establish a minimum order.

DON'T SELL YOURSELF SHORT

Markup on brokered items varies greatly in the quick printing industry. Some printers mark up as little as 50 percent, while others enjoy a 200 percent markup. Although the actual percentage depends on the product and what the customer is willing to pay, the printer's market savvy plays a key role in pricing. In some cases, a printer that tacks on a small markup just doesn't know any better, is out of touch with product demand or dismisses the cost of overhead and labor.

"I know of many printers who will tell you they brokered out a job that cost them $100 and sold it for $150 - and then brag about their easy 50 percent profit," recounts Marty. "Of course, they didn't make 50 percent. That particular job yielded a 33.3 percent margin of profit, or $50, which still has to help cover overhead and labor. If half of that $50 makes it to the bottom line, the printer is brokering work successfully."

Notes Strickland, "Remember that an in-house job that sells for $1,000 typically has a gross profit of $750, or 75 percent. This leaves a cost of goods of 25 percent. A brokered job that sells for $1,000 typically has a cost of goods closer to $750 - with 33 percent typical markup for a job of this size. This makes the cost of goods 75 percent, leaving only 25 percent gross profit. There are many printers who do not understand this. These printers are not only bringing their company's overall gross profits down, but also leaving a lot of money on the table."

Industry experts recommend at least a 150 percent markup on the cost of an item, and as high as 200 percent if you are one of the only printers in the area who will broker it or if the product is in high demand. It's also crucial to factor in overhead and labor when marking up a price - otherwise, your profits can shrink considerably. Likewise, when setting your budget, make sure to separate your brokered sales from your actual print sales to avoid consuming that extra profit.

"We have been in $700,000 print shops, but when you strip away the brokered sales and look at what that shop is producing, they are more like a $400,000 print shops" notes Crouser. The printer, however, sees itself as a $700,000 shop, and so increases its overhead and wages based on that amount of sales. It ends up spending all of its gain from brokering.

"When budgeting, we look at this as a $400,000 print shop, and try to set up wages and overhead based on that, Crouser explains. "Therefore, when we get the $700,000, it becomes extremely profitable."

KNOW YOUR VENDOR

Many quick printers cite lack of control over the printing process, and subsequently, quality and delivery time, as a drawback to brokering. As the interface between the vendor and the customer, the quick printer must deal with complaints and check on a job's progress. It can be a difficult position if you are unsure of your vendors' capabilities or have been disappointed by them before. It's important, then, to select your vendors wisely and treat them as an extension of your own business.

"Almost all of our brokered work goes to vendors who take the time to call on us and develop a close working relationship," notes Marty. "It is much easier to do business with `friends.' This kind of face-to-face relationship can make a real difference when those rare problems happen to occur." If a major mishap develops in the job, it's crucial to have a vendor who is professional enough to be upfront about the true cause of the problem, delays in delivery time and price increases.

"We try to treat our vendors as if they are in the office right next door - like we're printing to the office next door," explains Lyons. The company sticks with known vendors with which it has established a relationship. It does, however, demand punctuality from its suppliers: "When the vendor is late, it makes us look bad," notes Lyons. He adds, however, that Bulldog does not "pass the buck" if there is a problem with a job. Rather, the company works with the supplier toward a solution, all in an effort to create a seamless transaction for the print buyer.

Vendors equally prize a good relationship with their dealers, because their partnership only profits if each party respects and trusts each other. "There must be trust between resellers and vendors about client confidentiality," stresses Randy Hearly, national sales representative at Independent Printing (DePere, WI), which, as part of the Proforma (Cleveland) network of vendors and distributors, prints jobs from business cards to annual reports. "It is important to be working with good resellers, much like it is important to work with good vendors. It has to be a win/win relationship."

The bottom line? To the customer, your vendor's delays and mistakes are your delays and mistakes. Choose a supplier who lives up to your own standards.

REGAIN CONTROL

As with any business practice, to be successful and in control means to be informed. Particularly with brokering, which carries some risk, quick printers must keep up-to-date on industry practices to make sure they're not falling behind. All of the quick printers contacted for this story stress the importance of attending quick-print industry events, participating in printing e-mail lists and on-line discussion groups, and networking with other printers to help determine if your operations are in step with industry practice. Otherwise, you might be at risk of short-changing yourself.

Because brokering tends to be fairly informal among quick printers, some businesses fail to establish sales terms with their customers. They figure an oral agreement with a long-time client is good enough, and they don't want to risk scaring away a potential customer with any type of legal talk or contract. This, however, is risky behavior.

"Many times people do everything by word of mouth, and if you do that, you're being careless," warns Vince Mallardi, president of the Printing Brokerage/Buyers Assn. International Inc. (Palm Beach, FL), a trade organization representing print buyers, resellers and vendor subcontractors. "If you're careless, you're running the risk that if something goes wrong and somebody doesn't pay or hold up their end of the bargain, you're hanging out to dry."

If a customer is unhappy with the order and refuses to pay, the quick printer is stuck with the bill, and with no way to legally reclaim the money. Or, if the customer misunderstands or is unaware of a condition of sale - for instance, that quotes are only valid for 30 days - he or she may react to a price increase by dropping out of the sale.

Trade customs, which are generally understood and honored by most printers, can protect a printer from any of these scenarios - if they're given in writing to the print buyer during quotation.

"A person who relies on trade customs for protection is not relying on much - generally in court the customs are way down on the list of things that would be considered in a dispute," advises Thomas Crouser, principal of Crouser & Associates (Charleston, WV), a management consulting firm for small and quick printers. "A printer should take the trade customs, change the title to `Terms and Conditions of Sale,' and print it on the back of the estimate and work order. Now, there is something that can be relied upon in court should the need arise - and hopefully it won't."

Wright Printing Co., a 25-year-old quick-print shop in Normal, IL, utilizes trade customs to keep print buyers and suppliers informed and in check. The customs are printed on the back of Wright's quote sheets and on a large poster facing the shop's front counter. Should a problem arise with a print order, and fault traced back to the customer, Wright uses the trade customs to head off any dispute. "If it is definitely the customer's fault - which really is rare - we would stand by our industry's standard trade customs, and hopefully convince the customer of his or her responsibility," explains owner Stu Marty.

"If the problem was caused by the vendor, we would insist they redo or compensate us for any lost revenue," Marty continues. "This gets very sticky, so it pays to spend more time checking everything over and over."

It also pays to get the customer's written approval on orders - no matter how small. "We are very careful with brokered work to make sure all specifications are correct. But we make customers sign off on all brokered sales, no exceptions! If fact, we probably had less than one percent returned on our brokered sales," notes Travis Strickland, owner of Studio Designs Printing (Milledgeville, GA), a quick-print business that employs six.

The lesson? Even though you may be dealing with small items and not actually be doing the printing, you are technically and legally the print buyer. Get sales terms and customer approval in writing.

A good way to keep informed about quick-print industry practice, and to get honest, helpful advice from colleagues, is by participating in a printing listserv or online discussion group. Some resourceful sites to visit include:

Printer's Idea Exchange>, www.prntix.com. Maintained by Roy Nix, owner of Nix On Time Printing (Columbus, GA), this site bills itself as an "information-packed website for printers," and indeed lives up to this claim. It offers three e-mail lists for print shop owners, buyers and graphic arts professionals; interviews with industry gurus such as John Stewart; and common-sense columns from those who actually own and run their own quick-print businesses.

PrintImage International>, www.printimage.org. This association for quick and small commercial printers offers a listserv at its website. You must be a PrintImage member to access and join the list.

If you know of another outstanding Web resource for small and quick printers, send a line to associate editor Samantha Hoover at samantha_hoover@intertec.com.