01 Jul Time-Based Revenue Opportunity
What happens to your revenue when you make a small change in production? You might be surprised to find that a very small change can make a huge difference at the end of the year. Let’s take a look at Time-Based Revenue Opportunity.
by Bill Hood, ASDPT Fellow
Screenprinting isn’t like other types of business. Retailers sell stock and service companies sell their time, but screenprinter create decorated products from stock and price the results on a combination of stock and time. And, of course, there are other factors such as the quality of the work produced, the difficulty of dealing with a particular client, and much more.
This can lead to accounting problems. Screenprinting businesses have to account for their raw materials and processing costs, but they also have to work out the value of the finished items they create.
Most screenprinter try to calculate the value based on marking up their costs and how long it will take to print the job. This is where they run into a problem. You see, there is more to the time than now long it takes to print the job. You also have to add in the downtime, for setting up and tearing down the job, but also the time when you are not printing.
For example, you may think that your press is printing at a speed of 300 substrates an hour, but if you have an order for 300 substrates the value of that one hour is far more than just an hour of production. If you have two orders for 300 one-color jobs, what is the time between those two jobs when they are back-to-back? Let’s see; 5 minutes to clean the ink out of the screen and move it aside, then another 10 minutes to place the next screen in the press, align the new screen, place the ink in the screen, and make a sample print, adjust the press settings and make another sample print. Now we know that for that one job there were 15 between the jobs. We can then allocate an additional 15 minutes to the hour it will take to print the 300 pieces and charge appropriately.
“Ah, so we price for 1:15 minutes versus 1 hour?”
No, every job takes a different amount of setup and tear down and not all jobs run at 300 pieces per hour. Sometimes you have to slow down when printing a particular ink. If the screenmaker made an error and put the image on a mesh count and thread diameter that does not allow the operator to print with a single pass, and he has to make two passes, it adds even more time to the cost.
But wait a minute, we need to talk about that downtime. I am amazed at how so few shops actually know how to calculate their downtime. They usually know how much the net earnings were for the previous month, but everything else is almost always a guess. And, of course, you should never charge by guessing.
When I get called into shops, most are looking for ways to improve their bottom line, i.e., to earn more money. It is not unheard of to double production and revenue in many of the shops and in a worst-case scenario it is usually possible to vastly improve quality and production so that they can produce more work at higher margins. I begin the owner’s or plant manager’s office where I ask a few simple questions.
What is your average number of production hours in a single shift of 8 hours?
What is the average number of printed substrates per hour?
What is your average net margin per printed piece?
How many workdays did you average last month?
Many owners will state that they produce for five hours out of an eight-hour day. While this may be an average that is discussed on social media, it is usually incorrect. When timed, the actual production time may be as low as 3 hours a day. The other answers vary but are usually close to 100 for a manual textile shop with one press or 350 for a single semi-automatic shop. The margin is almost always around $2., and most shops work around 21.75 days a month on average.
When I ask the single semi-automatic shop owner or manager, “Did you earn a net margin of $77,000 last month?” The answer is always a resounding, “NO!”
I don’t do all the calculations in my head, because I have a Time-Based Revenue Opportunity Calculator that instantly tells me if one of the numbers is off. I refer to it as my Truth-Teller.
At that point, I show them the actual numbers I plugged in and explain how I arrived at the $77,000. Then we begin a discussion about which numbers they were guessing at rather than speaking with knowledge. They usually only get the days worked right. Those with better accounting practices will usually know their net margin, so that leaves us with production hours and the number of printed products per hour. They often tell me that they are constantly checking the press speed on the automatic to assure that the operator is not adjusting it up and down. So that means that their problem lies in the number of production hours in a single shift, and it usually comes down to not properly estimating their downtime.
When I ask what the net earnings were for the previous month, they pull out their accounting records and see that it was actually $53,900
We then adjust the number of production hours to a number that gives us real net earnings of $53,900. Now, we have to move into the production department to find out what is creating all that downtime. And, yes there is a huge difference at the end of the year between 3.5-hours a day and 5-hours. If you are pricing based on 5 hours, but only producing for 3.5 hours, you have a hole in your pocket and your money keeps falling out of your pocket. It’s time to make some changes!
Below is my calculator. Go ahead and put in your own number in the first four fields, and see just how close you are to your actual net earnings. If you want your own Excel Spreadsheet, you can download it here. It is slightly different because with the one for download you can enter the difference between a manual and semi-automatic press to see the difference in revenue opportunity, but it works with the same fields.
You can use the calculator to compare many other things. For instance, if you have two presses and want to see the difference in revenue between the two presses just plug the numbers in. If you want to know the difference between the revenue brought into by two employees, just plug the numbers in.
If you want to see how much more revenue you earn by moving from 300 shirts an hour to 305 shirts an hour just change that one number and see the answer immediately. Or if you really want to see the increase in revenue if you can save just one minute of press time daily you can add .01666 to whatever your daily production hours are, i.e., 5 hours becomes 5.01666. In a shop with 5 hours of production, printing 300 pieces per hour, at $2 net, for 261 days that one minute can earn an extra $2,599.56 in one year.
What are you waiting for? Get started now searching for ways to cut waste of time and start earning more margin for the work that you do!