Cutting Costs to Keep More Cash
Trimingham describes how creatively reducing expenses can allow you to earn more in the long run and keep your valuable workforce on the payroll.
Letting employees go is often the first thing that comes to mind when cost cutting comes up. Layoffs may work in the short term to help the bottom line, but eliminating the jobs of diligent employees can demoralize and overwhelm the remaining workers. Then, when things get busy again, you’ll lack quality staff and won’t be able to meet customer expectations. Fortunately, we have many other options to consider when we need to cut costs.
The simplest method, for starters, is to take a tour through the company that begins at the sales process and then follows through into the art department to uncover wastes of time and money. This needn’t be an exhausting procedure. You can focus on certain aspects of each area and profile those that are typically the most important so that the whole process can be more effective. An objective walk-through often pulls out the largest issues of waste and then spreads into the smaller causes that contribute to them. This method is best accomplished by first understanding the purpose and mentality behind cutting costs and then rolling this attitude into three divisions of a company’s process: lead generation, lead conversion, and product fulfillment in artwork.
The cost-cutting mentality
The first step in cost cutting is to organize everything into similar areas. The next is to prioritize and combine elements whenever possible. The final step is to properly stage each prioritized group in a flowing system of production.
Your profits will flow directly in proportion to the effectiveness and efficiency of your businesses system. This may sound great in theory, but putting it into practice can be a little more challenging. The easiest way to make headway in a task like this is to break down each area and then look for leaks or drags on the flow of the business process. A clear concept of system improvement is similar in a sense to improving the sorting and processing of information and products.
The reason for approaching cost cutting with this type of organizational mentality is that typically the largest barrier to reducing expenses is lack of systemized controls. Without a workable system in each area of a business, cutting costs in one area will often just spill extra workload into another and increase costs elsewhere. Focusing on efficiency and process will allow a far leaner system to operate smoothly.
We’ll use an example company model called XYZ Screen Printing for the purposes of this review. This model may not fit your business exactly, but it should give an idea on how to work through the different areas of the process. You can then convert the suggestions in each division to what makes sense for your own review.
XYZ Screen Printing relied primarily on ads in the telephone directory and word of mouth to generate leads. Its one-man sales force spent the majority of his time on servicing existing customers and dealing with walk-ins. The challenge in this area was the same as in the rest of the company’s systems—the need to reduce costs and increase results within the same amount of time, using the existing labor force.
XYZ started with the most important technique—to envision the end results. Using this type of destination thinking would then trickle backward into the support areas that needed to be adjusted to make the changes happen. XYZ wanted a 25% increase in new business and a steady growth of 20% on existing customers in a year. Realizing this goal would require some significant changes.
The first step was to organize. They started to sort all of the incoming leads and define how they were generated. They could use the information to find the average cost per lead and see where adjustments to the lead-generation process were needed. A review of just two weeks worth of charted leads displayed some surprising results. The most important conclusion of the research was that no leads came from the ads in the phone book! In fact, the majority of the leads were from referrals or highway signage.
XYZ, armed with this information, was able to better address cost cutting in lead generation. In this case, saving money meant minimizing the cost per lead. XYZ couldn’t generate a true cost per lead from what the shop spent because the phone book didn’t generate any leads at all. Instead, the business changed its focus to make the reduction in money invested yield some measurable results. The adjustments included the following:
1. Change immediately to the least costly ad in the phone book or to just a simple line listing.
2. Redirect 40% of the funds budgeted for lead generation into direct-response mailers or newspaper inserts with a very strong response component (percentage off, free shirts, etc.) to drive leads with a traceable element.
3. Develop a VIP referral program using 30% of the funds with a traceable card and really cool awards (like a Nintendo Wii) that would motivate referrals.
4. Create a simple Website that could be used for searches instead of the phone book with 20% of remaining budget.
5. Save the remainder of the budget.
Properly cutting costs in lead conversion was a touchy area at XYZ, because the sales force had a set method in how to deal with the sales process. As such, the company found it necessary to conduct a short review of three areas:
1. Total time/costs invested with clients before sales were closed.
2. Cross reference this information with the different level of each sale--1 being low level, 2 being moderate ($500+), and 3 being high ($1000+).
3. Balance any pattern of time/cost investment against the level of sale, and consider the art component at this point (investments of art time, spec art costs, and revisions prior to closing the sale).
This review quickly showed what you might expect. There was no pattern that regulated the time/cost vs. the level of a sale. The important conclusion at this point was that it was not inconsiderate to quickly qualify clients’ orders (and the potential of future business) to a certain level of sales service at the very beginning of the process. Failure to qualify sales service can be very expensive.
The main issue was that everyone deserves good service, but those who account for smaller sales need to have less time allotted to them from the start. This is smart systemizing. It also made sense across the board to systemize and script out a large portion of the sales process to make it cover all the bases, keep it brief, yet make sure the clients’ needs were met. A script was a solution where a salesperson on the phone or in person would use a list of pre-designed questions on a sales sheet to guide customers and collect the information in the best way to serve their needs. Clients appreciated the shorter meetings—as long as it was emphasized that it was their time that was valued, as well as that of the salesperson. Practicing the script was important so that no one would sound robotic or inflexible to clients.
Cutting costs by scripting sales required some investment into quality scripts that could be quickly taught to new employees and salespeople. Scripts were used for the phone sales, outside sales, and inside (walk-in) sales. The well designed script program easily saved hundreds of dollars, made the company appear more professional, and prevented the omission of important details in the sales process, which could have cost a lot more money.
Even though the phone script was not that complicated, it was something the sales associate at XYZ initially resisted. They had their habits, and it was tough to retrain them. A good, objective review of what could be achieved with phone scripting with the goals added in helped convince sales that the scripts (qualified by sales level) were valuable and motivated them to give it a shot.
Product fulfillment in the art department
The next step of the process at XYZ was cutting costs in product fulfillment in the art department. Included in this area were the art department’s development and production processes. In the interest of keeping the informational overload to a minimum I highlighted the main areas in each department that relate to the biggest impact on cost cutting. XYZ realized the biggest benefits by following the 80/20 rule and focusing on the 20% that would contribute the most gains. The company achieved the best results in each area by using the destination process of visualizing the ideal scenario and then backtracking to see what was blocking it from becoming reality.
Art department—developmental The biggest roadblock in this area of XYZ’s art department was the emphasis on all custom artwork and the tendency to have multiple revisions on smaller jobs. The ideal destination for this would be to have several catalogs of quality artwork for the smaller, repeat customers to pick from and keep the custom work for the larger orders that can absorb more of the cost. The revision issue was a common one for a smaller shop. The main desired result was to have a barrier and accountability imposed more on the client so they’d be required to accept the cost and value of art changes. The following steps were implemented to resolve the two art developmental issues:
1. Allocating hours per week to creating stock art for in-house catalogs.
2. Contacting qualified freelance artists to help develop catalog art, if necessary, with offset funds from stock art charges. A small usage fee on stock art would help budget for the creation of new pieces so the art book would continue to grow and wouldn’t get stale (Figure 1).
3. Sales staff was retrained and encouraged to qualify orders in process to guide them towards stock artwork when doing so would make sense.
4. All approvals and revisions were directed through a salesperson instead of the artist so that all steps could be documented with each level of revision billable when agreed upon.
5. Art revisions now made through a PDF sheet along with e-mails so clients can follow the artwork’s progress and find out about related costs. This system motivated clients to accept responsibility for selecting a revision option and to do so very judiciously.
6. Five troublesome customers were given new pricing and informed that they were unable to receive multiple revisions unless approved first. Three left and two shaped up noticeably. The net result was hours saved and more developmental time that, ultimately, led to better clients and less focus on non-profitable customers.
Art production The production area at XYZ had difficulties with separations failing on press, as well as excessive time spent color matching. Ideally, the shop would have all separations tested before going to press in order to boost success rates beyond 85% and discourage unnecessary orders for color matches for customers—or charge them accordingly for Pantone simulations. The following changes made a strong impact on the art production areas:
1. Artists were retrained on separations using a digital testing method to double check all separation sets (Figure 2). Success rates on separations were logged and incentives were given for maintained rates of more than 90% over a three-month period.
2. The increased use of stock art reduced the instances of separation problems and opened up more development time.
3. Several separation aids were developed to indicate what colors would look like when printed. This allowed XYZ to make more accurate estimations on pieces with underbase/opacity variations.
4. XYZ selected 25 inks standardized them as a set ink palette with a color-swatch book produced for the sales and art departments (Figure 3). All customers were directed to choose from the stock ink book first, as a standard fee would be charged for any color matches outside of those selections.
5. XYZ integrated the new ink palette with the stock art and company sales scripts to reduce required input from the art department and place more responsibility on the client for selecting their colors on simpler jobs.
The right attitude
You can apply these practices to your own shop and, with the right attitude, carry them over into the printing and shipping departments to process everything more efficiently and start effectively staging jobs and ganging orders. Within every thought of reducing costs and spending is a seed of growth. The goal of systemizing and efficient processing is really about the ability to handle higher volumes with less stress while creating room for profitable growth in each area that you change. Cutting costs is more about creating room for more cash flow than saving nickels.
Thomas Trimingham has worked the screen-printing industry for more than 15 years as an artist, art director, industry consultant, and head of R&D for some of the nation's largest screen printers. He is an award-winning illustrator, designer, and author of more than 45 articles on graphics for screen printing. Trimingham can be reached through his Website, www.art2screen.com.