Archive for December, 2009

Who Should You Be Doing Business With?

Monday, December 7th, 2009

Throughout the year I look at who we’ve been doing business with and how their orders compare. We use the traditional approach (Paretto 80/20) that shows us a relatively small number of customers account for the majority of our orders and profit. When I apply this approach it’s easy to see who is taking up most of our time and to compare if they are generating sufficient order size to make it worth our while. About a year ago we did this and were shocked to find one customer accounted for 66% of our press time, but they only accounted for 18% of our revenue. What does this mean?

When something this extreme becomes evident, I have to ask myself, “how did I allow this to happen?” The answer is not always an easy one. In this case, we were doing such a good job, the client kept feeding us more and more of their work. We were not their only vendor, but we were one of the only ones that could do their most demanding work. Over a period of about a year, we saw a shift in the mix of orders coming to us. They became more and more technical, while at the same time the order size was getting smaller and smaller. We found ourselves in the position of spending two to three times the production run time in set-up (registration and color adjustment.) So, for every hour of running time, we would have two to three hours of set-up. That was horrible to be sure, but it got worse.

Since the customer was sending us more and more work, they demanded greater price concessions due the volume of their orders. We quickly found ourselves in a position of having to agree to lower overall prices while their order size diminished (supposedly due to the economy) and more difficult work. There was no way we could recover the set up time over the run length and before we knew it, we were in big trouble. This was only compounded when they started to stretch out their payments to us, further impacting our ability to run the business. Overall, a very bad situation.

There are many lessons here. Number one, don’t get caught being asleep at the wheel. This is a perfect example of being so busy being busy that you don’t realize what’s gong on until it is too late. We all want to be responsive to our customers, but business is a two way street. If you can’t be profitable, AND get paid within a reasonable time, you mind as well not do the work.

Second, know what your ideal customer profile is and try to exceed it. When order sizes shrink, so must the set-up and changeover time. You need to know what the smallest size order you can do will be. Otherwise, you’ll find yourself being suckered into doing runs of 12 pieces with a 7 color front and an 8 color back. Suckered may not be the right word, more like coerced. There are a million justifications for having to do really short runs, but we all have to stand firm, or have a policy in place to account for these kinds of situations.

Third, compare the profile of each of your current customers with that of your ideal customer. If you don’t have enough ideal clients, you need a plan to fill the pipeline with new prospects so you can mirgrate away from the time consuming, profit robbing, customers you currently have.

This last year has been generally awful for most printers I talk with. While the economy seems to be getting better, it is still fragile at best. At the very least, we are coming into the slow time of the year and we all need to be especially mindful of these kinds of situations so we don’t accidently find ourselves in big trouble even though we seem to be busy.

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