13 Apr VP Jon Cartu Publishes – Is Your Commercial Printing as Profitable as It Seems? –…
As is the case with any successful business, it’s one for all and all for one. Yet based on my experience in both newspaper publishing and commercial printing, I’ve often questioned the fair distribution of expenses across these two divisions.
When too few or too many expenses are misallocated to commercial printing from the newspaper side, it can distort the profit lines of both areas and lead a company to make poor decisions based on inaccurate bottom-line reporting.
I’m a strong proponent of truth and fairness in our industry and don’t tolerate well one side of our business profiting at the expense of the other. We either all succeed or fail together as one cohesive unit.
Often in our business I’ve seen individuals on both the commercial and the newspaper side of the business warring over expenses as if they were in competition with one another instead of all on the same team, with the same goal, which is overall profitability and sustainability for the company.
Keeping accurate track of what expenses are allocated from operations to commercial isn’t always an easy task, nor is it a perfect science. Although most of us believe we’re doing a fair job distributing expenses to reflect accurate costs in both areas, I believe we need to take a closer look at how we assign expenses on a regular basis, and make appropriate adjustments to reflect true profitability in commercial and our expenses in both production and commercial.
However, I realize that many of us are content to sit back and let the newspaper take on the lion’s share of expenses to reflect a stronger bottom line for commercial. To some, it seems to produce a false sense of security that at least one area of the business is doing well. After all, with faltering circulation, losses in advertising revenue, classified a mere shadow of its former self and profitability in newspapers challenged day in and day out, what’s wrong with shaving a bit of expense from production to show a healthier profit in our commercial division? In my opinion, there is a lot wrong with it.
So, I’ll climb down from my high horse and go over some of the gray areas I believe need to be carefully evaluated and adjusted accordingly to reflect accurate accounting practices in operational and commercial print expense and profitability.
Shades of Gray
Most of our properties allocate some form of overhead to commercial. When we create quotes for customers, we throw in 10 percent or so for overhead to cover the cost of electricity, gas, water, property taxes, etc. figuring that the amount of expense moved into commercial can be accounted for under this general category. But how much thought really goes into the percentage verses actual use? Perhaps someone looked at this percentage/formula a few years back when you first got into the commercial business or maybe a well-meaning accountant pulled a number out of a hat?
Granted it isn’t always easy to arrive at an accurate number for allocating utilities, but it is an expense that can make a huge difference in the big picture. The amount of time and use is a utility expense associated with commercial verses newspaper production and it can vary greatly from week to week, with busy weeks verses slow periods presenting a moving target for even the best accountant. I don’t pretend to have the exact solution here, but I propose that you calculate hours of commercial running time and newspaper publications running time and make as fair an assessment as possible to arrive at a division of expense.
As you work through this exercise, you obviously understand that the press and mailroom are not running 24/7. So, who pays for the time that the lights are burning, and the heat or air conditioning is cycling on and off? Right now I’ll bet that your core publications division is paying for all downtime and commercial is sitting off on the sideline. Appropriately and fairly allocating any gray area of expense takes research and a bold business decision. The decision is yours on how to allocate expense in the utility area.
To be clear, if we were to sort through each little allocation on an ongoing basis, we probably would have so much time invested we wouldn’t have any time left to do our day job. I’m not suggesting that we go overboard with this but merely recommending we look at things from time to time to make sure that as commercial work varies allocations follow.
Areas to Consider
The following are some questionable areas of expense worth looking at that we may put little thought into and can subsequently be absorbed into operations. If your management is okay with this, that’s fine. Just keep in mind that while these expenses may be considered covered in the general overhead area of commercial, but they are real costs that may be skewing production expenses and contributing to a false margin in your commercial area.
Many of our properties may already have separate expense lines for some of these categories and that may work fine for you. I’m bringing these areas up simply to generate thought and focus attention on many of the less reviewed of parts of our operation and detail how those expenses can affect us.
Software updates and maintenance: Contracts for software updates and maintenance exist for many of our inserters, press controls, mailing/labeling systems, copiers, printers and other production equipment. These expenses can add up to a pretty penny and need to be considered when looking at commercial overhead.
CTP contracts: While we all account for plate usage on our quotes and our expense lines, we also have both hardware and software contract expense for our computer-to-plate equipment that is probably falling under production expense. Depending on your coverage, this is not a small expense. This area of cost can easily be fairly allocated by taking a simple plate count, arriving at a percentage and allocating the contract expense based on that percentage.
Cell phones: A small but constant expense, normally charged to the department the phone service lives in and if this service is for a commercial salesperson, it will be allocated appropriately, but often the operations director is the person directly in charge of commercial and many hours of cell phone time can be related to interactions with customers and commercial details; likewise with land lines….