“Most of the world will make decisions by either guessing or using their gut. They will be either lucky or wrong.” ~ Suhail Doshi, CEO, Mixpanel.
One of the biggest lessons I’ve learned in business is that data, correct data, does not lie, and when we can learn to both measure and analyze the data in our business and industry, we can make better decisions for a better tomorrow. Now, to be honest, this is a lesson I had to learn because paying attention to data isn’t innate to how I do things, but looking back at the times in business when I learned this, and when I properly used it, things always turned out better!
What data should screen printers and apparel decorators study, both in the shop and in our industry?
Let’s start in the shop.
"What gets measured, gets managed." ~ Peter Drucker
Throughput. What do you actually sell? After visiting hundreds of shops throughout the years, the one thing that is most commonly measured is sales. Pretty much everyone knows their top-line revenue number, but the one thing the is most commonly not measured is throughput -- what actually gets sold to create that revenue. Whether its imprints, impressions, t-shirts, or time, knowing what created your revenue numbers is key to managing your business, understanding what you need to continue to produce to be profitable, and how you need to price your services. In the land of a P&L, it's pretty simple.
(-) Costs of Goods Sold
= Gross Profit
But if you divide each of these numbers by the sum of your throughout, you can really start to understand what your basis is for production, profitability, and pricing. Lets look at it this way:
Revenue = $1,000,000 / (200,000 shirts) = $5 per shirt
(-) COGS = $600,000 / (200,000 shirts) = $3 per shirt
= Gross Profit $400,000 / (200,000 shirts) = $2 per shirt
(-) Expenses = $350,000 / (200,000 shirts) = $1.75 per shirt
= Profit $50,000 / (200,000 shirts) = $.25 per shirt
Not a lot of margin for error in this scenario, is it? This means if you priced a shirt that costs you $3 at $4.50, you would be losing $.25 per shirt unless you start printing over 200,000 shirts annually.
Action. Find your baseline and start measuring throughput in front of the entire shop. If your shop needs to produce 5,000 units a day, or 100,000 impressions a month, put it on a display monitor, or a whiteboard, and start measuring production, daily, in front of the entire team. This will be a great visual of what winning will start to look like because everyone will know when they met their goal and are in the black/or green for that day/month and you can start to track your growth as your efficiency increases.
Cost Per Print. Very few shops I have visited measure or know how much it costs them in labor, supplies, and overhead to make an impression. Knowing and measuring your throughput helps to get you there. In the scenario above, it costs $1.75 a shirt (all in). Once you start to measure the total number, you can break it out into direct costs and indirect costs. Direct costs are what it takes to actually print the shirt, labor, supplies, equipment expense and the production space. The indirect costs are the costs that don’t go into printing the shirt, management, marketing, office space, etc. Optimizing production and investing in automation can be lower your cost per print and allow you to compete in a quickly changing market and by first measuring your overall costs, and then looking at each of your costs centers, you can prioritize whether your need to invest in a new automated press (link to press page), increase your screen making and setup times, or automate screen cleaning, or packaging.
Where is the industry going?
The interesting thing about looking at a print shop;s revenue, throughput, and costs, is that we can take a look at the industry as a whole and start to see what the future will look like. In the 1990's, the US industry was disrupted by lower costs-per-print manufacturing internationally. Over the past 10 years, we’ve seen a resurgence of US manufacturing due to lower run size and faster turnaround times for more localized markets, which has helped the industry revenue increase over 30%. Shops are smaller than before, shirts sell for more, and run sizes and shorter. The next industry shift will once again change how we operate and COVID-19 has increased expediency of this shift as the traditional print shop > broker/promo/distributor > retailer > consumer model is quickly changing to print shop > channel > consumer. This means lower run sizes but more revenue-per-print opportunities for the print shop and the ability to own more of the supply chain if shops can develop their own channels for sales of garments.
In summary, start by managing and refining your data, use it to optimize your operations and make investments to do so, and keep tabs on what’s happening around you so you can shift ahead of the curve instead of being let behind it.
To explore the concept further, be sure to tune in on Friday to the next episode of #ROQShopTalk where we'll expand on the implications and possibilities with data in our industry even more.