Archive for May, 2009

Are Paper Prices Just a Shell Game to Rip You Off?

Friday, May 22nd, 2009

Are paper prices going up, or going down? You might expect that the recession would force them down, but it isn’t that easy. Why even worry about it? The simple answer is because paper is such a large part of printing. Dick Stahle of Spectrum Press, a web printer, says that they are doing jobs where paper eats up 75% of the bid. Even on sheetfed jobs 50% to 60% paper expenses are not unusual. So, if as you might expect with the recession and all, if paper is going down, shouldn’t you expect to see much more favorable pricing?

Paper prices are a true commodity item and are generally ruled by the law of supply and demand. Currently we have a situation where several paper mills have closed. Mill floor inventories were sold at bargain prices. The printers who took advantage of those deep discounts could lower their prices, at least temporarily. Unfortunately we aren’t seeing much of that inventory in the market currently.

One of my local printers found themselves in a difficult situation because they took advantage of a great paper buy and passed the savings along to their customer. The sales rep admitted later that he didn’t discuss the reason for the low price with the customer. Big mistake. Shortly thereafter the customer came back and wanted to reorder. The mill closeout stock was no longer available and to say that the new price upset them would be an understatement. No amount of talking could persuade them that they should have been grateful for a previous bargain. Tempers flared and the customer took his printing business elsewhere because he, “could no longer trust them!” Wow, you’d think that once the situation was explained the customer would have been happy. No way. They get a big discount because of a windfall paper buy, then they expect it all the time, even if the printer loses money–how is that fair?

The truth is that mill closings decrease supply, which should in turn, increase the price. Prices however, haven’t changed much lately. They aren’t trending up or down. Why? Because demand is also down. It is also true that  the printing industry has been taking it on the chin during this recession/depression. Some say that nationally printing sales are down by as much as 40%. The decrease in supply plus the decrease in demand, equals status quo.

Supply and demand doesn’t tell the whole story. Print customers have also been suffering during this economic downturn. When there’s less capital coming in there is less ability to pay out, so they cut back on marketing. We don’t need that brochure right now, or the direct mail package can be simplified, or let’s squeeze  the printers for better prices. 

Printers all over the country have responded to this demand by lowering prices, often to dangerous levels. Some take no-profit jobs just to keep the presses busy. Once one printer cuts costs, competitors follow suit, or else risk losing business. In this scenario no one wins. The printing customer loses, because even though they might get a temporary advantage, in the long run they are unwittingly contributing to driving their suppliers out of business. When the recession ends, they will find that their choices of vendors have shrunk and prices will go higher than ever. The printer loses because lowering the prices to the bone removes any margin for error.  Printing as I’ve discussed in previous blogs such as Quality, Price, and Service–Pick Two (link), is a low profit, equipment intensive business. To leave a press idle is an enormous drain. Thus it is better to run it at break even, at least for awhile, than it is to go dry. No printer can survive long working at break even because break even doesn’t really exist. Sooner or later someone is going to make a mistake that will require a reprint. Since there isn’t any buffer, the bottom line quickly shifts from break even to loss.

For those print buyers out there, let me say that we know that things in this market are tight. There is a real temptation to make up for your slim profits by riding your suppliers or changing to new ones. Please be cautious and reasonable. Just because a desperate printer offers a great price doesn’t mean you should take it. The reason for that price could be that they are on the brink of bankruptcy, or some other problem that you don’t know about. The danger in this reckless pricing is that it establishes low water marks that can’t be sustained. You will want to keep the lower prices and maybe insist on it.  That’s just the nature of business, but resist the temptation. Try and work with printers and other vendors who run lean but still profitable businesses. Trust me, pardner, you won’t like your options if at the end of this downturn all the guys in white hats are gone, and the ones in black are all that’re standing.

When I became a broker, I dreamed I could serve customers best by hand-carrying their jobs to printers who were the best fit, instead of attempting to bend their jobs to fit the printer where I was employed.

Re. Golden Eggs–Butcher the Goose!

Saturday, May 16th, 2009

On becoming a print broker: I dreamed I could serve customers best by leading their jobs to a printer who was the best fit, instead of attempting to force them to fit the printer where I was employed.

goldenegggooseIf you had a golden goose, in this case an employee that charged you nothing for their services, and you didn’t have to pay any health care costs, matching social security, expense reimbursement, or overhead either, wouldn’t you be dancing up and down with joy? You’d think so, but in the case of print brokers it isn’t true.

The golden goose is subject to be spat upon, derided, and treated, if not illegally, at least unjustly. Oh sure, when everything is going smoothly, that statement isn’t true, but in the real world, sooner or later some transaction is going to go south. That’s when printer’s bring out the steely knives and prepare to skin the goose.

For example, I have been doing business with a certain printer for approximately 20 years. Twenty years is the equivalent of an entire military career, to put it into perspective. For the whole 20 years they have been aware that I am a print broker. No surprises there.

The company was recently sold to a firm in California. It doesn’t bother me that the folks out-of-state don’t know me from Adam and are concerned about my business practices, they should be. What bothers me is that people I’ve worked with for twenty years aren’t defending me as hard as they can. In twenty years, the printer has never had to write off an iota of bad debt from any of my customers. Could any of their sales people boast the same record? I’d be willing to bet, not.

So what’s the problem? The problem is that the new owners want to make me as the broker, totally responsible for the customer’s debt.  Completely ignoring the fact that I neither receive the end product, nor gain any profit from it.  A generally accepted definition of broker is “A broker’s function is to arrange contracts for property in which he or she has no personal interest, possession, or concern. The broker is an intermediary or negotiator in the contracting of any type of bargain, acting as an agent for parties who wish to buy or sell stocks, bonds, real or personal property, commodities, or services. Rules applicable to agency are generally relevant to most transactions involving brokers. The client is considered the principal and the broker acts as the client’s agent. An agent’s powers generally extend beyond those of a broker. A distinguishing feature between an agent and a broker is that a broker acts as a middle person. When a broker arranges a sale, he or she is an agent of both parties.”

If I was a real estate broker and the homeowner defaulted on their loan would the bank attempt to collect from me? Of course not. That would be ludicrous in the extreme.

Why would a printer insist on making the broker personally responsible for someone else’s debts?

I’m baffled. I’m  particularly baffled at the reaction of friends who have worked with me for a whole career.

If someone could explain the logic behind this attitude by printers, I am all ears. As I see it, I bring printer’s work on a silver platter and it costs them literally nothing for my services. I do want a small discount. A discount equal to what they pay their sales representatives in commission. That’s only fair isn’t it? I ask for a level playing field, and for that I give up any benefits their in-house reps get. I know I’ve written about this before, but it’s a point so often ignored, that it needs to be hammered in. What is the real cost of matching social security, health benefits, retirements (401K’s), expense reimbursement, and overhead? If it doesn’t come to double or triple their commissions, I’d be surprised. My discount is the biggest bargain there is.

It is grossly unfair to demand that brokers pay for a customer’s obligations if their in-house sales reps aren’t personally liable too. But if they tried that one, the state Labor Commission’s would probably climb down their throats. Payrolled employees have safeguards. Independent contractors, like print brokers, are legally abandoned. There is no real protection for an independant contractor.

So why do they do it? Why do they try to kill the golden goose?  Because they can. I’ve had suppliers tell me that they work with other brokers and they don’t have a problem with the terms. I’m sad if that is true. If true it means that brokers are so used to poor treatment, that like the whipped dog, they keep coming back for more. It just doesn’t make sense. But then again, if business decisions had to make sense, the banks wouldn’t have been willy-nilly giving out non-disclosure loans for homeowners. Our whole economy has suffered because of that one.

In return, you might ask, what do I do to protect the printers? I have contracts with my customers stating that they accept the legal obligation the vendor. I have a contract, that if the printer doesn’t subbornly refuse to sign it, gives them third party rights in all transactions. And I provide any and all credit or other information, if terms are required. Do you still require my neck? Come on printers, stop trying to kill the golden goose. We are on the same team. Let’s work together.

Bargain With Life for a Penny…

Tuesday, May 12th, 2009

Many years ago there were three young ambitious friends. They met while working for a small start-up business newspaper. One went on to get a Masters in Marketing. Another created a newsletter business. And the third became a printing sales rep.

Time passed and they lost track of one another. The one with the Marketing Masters Degree jumped  into direct marketing and began to create a name for himself. He was invited back to his home town to start direct division for the largest advertising agency in the city. The newsletter guy struggled but kept afloat. The printing rep found out how to make a prosperous living by securing good customers, and taking good care of them. He did well.

All three had different business philosophies. Mr. Marketer believed in charging top dollar for his services. The newsletter guru believed in being the lowest priced, and the print rep felt the real answer was somewhere in-between. Being the highest priced would drive some customers away, but being the lowest would create disrespect. When it’s all about the lowest price, someone will come along and find a way to shave off a penny or two. Price is a very shaky foundation to build on.

Fast forward a few more years. The newsletter man lost his business and moved away somewhere  to the Northwestern United States. The direct marketing guy teamed with another well-respected direct marketing entrepreneur and discovered  that he could charge even more than he previously thought was over-the-top for his services. And the print rep steadily built his customer base seeing  year-by-year increases.

Eventually, the Marketing fellow, sold out his business to his partner and began an affiliate Internet business. He caught the wave at the beginning and has been very successful. The print rep became a self-employed printing broker and began making more money than he had ever seen before, not as much as his friend, but pretty comfortable nonetheless.

Today, the newsletter guy has been off the radar for too many years. Hopefully he is doing well. The Internet affiliate master has a big office with many people working for him that do mysterious things on the Internet that even he doesn’t pretend to understand. He drops in from time-to-time just to satisfy himself that all is well and count his big bucks. “It’s a tough job,” he acknowledges, “but somebody has to do it.”

The printing broker is still doing well, but has definitely seen a drop in business because of the Internet. He is concerned about the future of the printing industry and his place in it. Maybe a little late he decided to enter the fast paced world of the Internet. If you can’t beat ’em, join ’em. He’s now on social sites like Facebook, Twitter, and LinkedIn. He’s learning terms like SEO, Links, Widgets, and Plugins. He’s writing blogs, books, and developing training materials to help printers, customers, and prospective print brokers become more successful in their businesses. In short, he’s reinventing his career at a time, he thinks, when he should be resting in a golden hammock.

What’s the moral of this story? If you bargain with life for a penny life will pay no more. There’s a temptation during tight times to cut prices. If you own a company your salesmen will all whine that, “Our prices are too high–we can’t compete.” Don’t give in to this cry, because it is very difficult to raise them again after you have established a low water mark. If you compete on being the lowest price you may as well start making your bankruptcy plans now.

What about the middle road? The middle of the road has its dangers too. That’s where the traffic is the highest. It is very difficult to establish your own identity when you are in a flock of me-too’s. Long-term success depends on splitting off from the pack and becoming your own person, or company. Be unique and find a way to charge more for your services than the going rates.  Sock some of it away so you’ll have extra dollars to take advantages of opportunities that may come your way. Maybe you too can catch the next big wave and beat me to that golden hammock.

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