Welcome to NPOA’s 1st Owner’s Conference

1. Welcome to NPOA’s 1st Owner’s Conference New Orleans – April 18-21, 2013

2. General Session Presented byJohn Stewart, Q. P. Consulting, Inc. Producing Profits Has Changed Little Since Prehistoric Times!

3. In prehistoric times (before 1960) there were two types of cavemen and women…

4. Those that worked 24/7 and trained their family members and employees to hunt…

5. Risking their lives and facing“mammoth” challenges

6. If they were lucky, and worked hard, they were able to bring home food to feed their families…

7. While others stayed at home or the office doodling, chipping stones…

8. Dreaming, drawing andpainting on their office walls…

9. AND some, believe it or not, instead of hunting, stayed home to pursue their artistic nature by making pigmentsand mixing inks! This is “Jocko man” mixing berries to match PMS 266 – it’s his 4th try!

10. Ok, now the Serious Stuff…

11. It’s time to stop dreaming, doodling, chipping at rocks and painting on your office walls… This morning I am going to share with you critically important, and publicly available statistics, to help your firm improve your profits in the next 12-24 months.

12. Key Ratios & RecommendationsFor Profit-Oriented Companies

13. Big Firms & Small Firms… Whether you consider yourself at the top, the middle or even at the bottom in terms of either profits or sales, the studies that have been co-published by NAQP and QP Consulting, Inc. (soon to be by NPOA) can help you improve your firm’s profitability in 2013 & beyond! Ok, so what have we uncover in these types of ratio studies?

14. Some of the key ratios we will cover in today’s seminar… • Leader vs. Laggard Performance • Profits Per Employee • Sales Per Employee • Sales Per Press Operator • Sales Per DTP Employee

15. Overview ofOur Industry Based upon…

16. Study Results & Industry Overview

17. 2011 Income Analysis

18. 2011 Expense Analysis

19. Historical Analysis 1983 vs. 2011 Let’s all sing – “Where or where have all the flowers (Profits) gone?” 24 years and COG +/- 1.5%; OVHD down 3.3%; Payroll up 8.2%; Owner Comp down 6.4%

21. Now a closer look at “Leaders” vs. “Laggards”

22. Industry Leaders vs. LaggardsWinners vs. Losers

23. Key Ratios - Fiscal Year 2011 PROFIT PROFIT AVERAGELAGGARDSLEADERS Sales Volume $ 1,202,058 $ 1,264,159 $ 997,797 Payroll as % of Sales 32.5% 38.4% 27.2% Owner’s Comp. % 11.5% 0.8% 24.2% Sales/Employee $ 122,931 $ 107,697 $ 137,438 Total Payroll/Employee $ 44,495 $ 45,081 $ 43,354 Owner’s Comp. $ 138,236 $ 10,113 $ 241,466 State Of The Industry 2011-12

24. What Can You Do To Boost Your Firm’s Profitability & Value? Monthly Financials – Organized properly Standardized Chart of Accounts Demand Ratios Next to each Expense! Make sure all payroll expenses are clarified Remember bookkeeper/CPA works for you! Set goal for reducing total expenses by 2%

25. Profits per Employee?

26. We require two things to calculate Profits per Employee before we can compare your performance against peers: Owner’s Compensation–All the money that is left over in the business after covering all the expenses of the business but before paying the owner a salary or fringes. Excess Earnings– Owner’s Compensation less a Fair Market Salary for the owner. For that, we use the following formula: ($14,000 + 4% of sales) X 1.18% to account for payroll taxes, etc.

27. Owner’s Compensation Owner’s Compensation–The total amount of funds and benefits paid to or on behalf of a single owner – salary, taxes, healthcare benefits, cell phones, entertainment, personal travel, corporate profit. Must be clearly demonstrated via records and on financial statements. It does not include benefits or salaries paid to spouses or partners, unless of course you would sell the spouse or the partner when selling the business. Salaries paid to these individuals are legitimate expenses of the business. If the amounts are excessive (over market amounts) then this is added back to owner’s compensation.

28. Profits Per Employee…How to calculate? (2nd Qrtl) EXAMPLE: Sales of $727,500 and 5.4 FT employees + owner (2nd Qrtl) Owner’s Comp. 9.5% or $ 69.112 Owner’s Comp. $ 69,112 – Less Fair Market Salary $ 50,860 Excess Earnings = $ 18,250 Profits Per Employee $18,250/5.4 = $ 3,379 * Fair Salary Calculation = $14,000 + 4% of Gross Sales; Above represents an average company with a SPE of approx. $113,700 and owner’s comp. of 9.5% Data based upon Quartile Analysis $500,000 - $999,999, 2012 Benchmark Study

29. Profits Per Employee…How to calculate? (Top Qrtl) EXAMPLE: Sales of $733,600 and 4.5 FT employees + owner (Top Qrtl) Owner’s Comp. 25.4% or $ 186,341 Owner’s Comp. $ 186,341 – Less Fair Market Salary $ 51,146 Excess Earnings = $ 135,195 Profits Per Employee $135,195/4.5 = $ 30,043 * Fair Salary Calculation = $14,000 + 4% of Gross Sales; Above represents an average company with a SPE of approx. $135,628 and owner’s comp. of 25.4% Data based upon Quartile Analysis $500,000 - $999,999, 2012 Benchmark Study

30. Sales Per Employee The industry’s simplest of all calculations – Total Sales divided by the total number of bodies (including owner, sales reps, mother-in-laws, spouses, partners) required to produce the work. It matters nil whether or not these individuals are paid to produce this work!

31. Historical SPE Data 1996-2012 2012-2013 Pricing Study published Q. P. Consulting, Inc.

32. 2011-2012 Industry Average SPE

33. Sales Per Employee by Quartiles:(All firms 2011-2012) Bottom Quartile… $107,697 2nd Quartile… $122,319 3rd Quartile… $127,767 Top Quartile… $137,438

34. Industry Payroll Crisis

35. Payroll Cost Net Owner’s YearPercentPercent 1983 24.3% 17.9% 1987 27.3% 14.7% 1995 28.8% 13.6% 1999 30.8% 11.5% 2005 31.7% 13.4% 2011 32.5%11.5% 27-yr change+ 8.2% - 6.4% The Payroll Cost Problem

36. The Continuing Payroll Crisis Payroll as % of Sales Bottom Quartile 38.4% 2nd Quartile 32.9% 3rd Quartile 31.4% Top Quartile 27.2% Please note this crisis has come about NOT because owners are paying their employees too much, but because they typically employ too many employees for the work required.

37. Make Gains in Sales Per Employee that are Greater than Increases in Payroll Costs per Employee

38. BENCHMARKING DATA INCREDIBLY VALUABLE AS TOOL FOR OPERATING A PROFITABLE FIRM

39. They don’t know how to do their job. Solution – Training They don’t know what is expected of them. Solution – Standards There is no extra reward for performing well. Solution – Merit pay or bonus systems. Why Employees Don’t Do Better

40. Key Productivity Ratios revealed in the latest industry Pricing study

41. Annual Pricing Study Tracks Key Productivity Ratios... A brief look at three key ratios used by profit-leaders in our industry: • Sales Per Employee (SPE) • Sales Per Press Operator • Sales Per DTP Employee All data and ratios extracted from the 2012-2013 Industry Pricing Study.

42. 2012-2013 Industry Pricing StudySPE Quartile Analysis

43. Selling prices for most items are increasing at about the rate of inflation (DTP and copying charges are exceptions). Profit Leaders and Profit Laggards charge about the same prices. Many studies* have shown that the price of a product tends to rank only 4 or 5 in a list of purchasing criteria used by most buyers. Increasing prices is a far, far easier path to increasing profits than lowering prices in hopes of capturing more sales. Thoughts on Industry Selling Prices *Dependability, quality, turnaround time, ease of doing business, price, special technologies, unique capabilities, geographic location

44. Little variation in pricing from one geographic section to the next, yet variations of +/- 30% above and below average price are quite common with markets. Argument that, “Everything else being equal, people will make decisions based upon lowest price” is totally unsubstantiated by the facts. Owners who view their products as nothing more than commodities and must be sold as such are missing many profit opportunities. There is no product better defined as a “commodity” than food*, and yet price variations (not costs) of 32%, 36% and even 43% can be found between identical products sitting on store shelves everyday! Additional Comments on Industry Selling Prices *Cream Cheese, 39%; qt. milk, 34%; LeSeur Peas 41%; lb butter, 29%

45. Factors Cited by Print Buyers When Selecting a Printing Firm If you tend to buy items based upon pricing, you are also likely to sell on that basis as well.

46. Participants by Average Sales Per Employee Average Pricing Study SPE $125,800

47. Provide employees with best equipment possible Be prepared to pay higher wages/benefits to employ the best, most productive employees Provide sufficient room for production and a pleasantworking environment Track and measure employee performance & productivity wherever and whenever possible Spend 30 minutes a day managing your business. Demand that others do their jobs as well Set reasonable written goals for you and your business! Tips for achieving higherSales Per Employee

48. Sales Per Press Operator

49. Sales Per Press Operator Average Sales Per Press Operator $259,000 2012-13 Pricing Study published Q. P. Consulting, Inc.

50. Sales Per Press OperatorRevised per data from 2012 Pricing Study RATINGANNUALWEEKLY Excellent $350,000 and up $7,200 Very Good $300 - 349,999 $6,600 Average $275 - 299,999 $5,875 Fair $250 - 274,999 $5,365 Poor (Disastrous) Less than $250,000 $5,100 *Assuming 49 weeks available Above chart is based upon sales per FT Press Operator. Dollar amounts represent full retail printing price of printing, including paper, plates and other costs. However, these prices exclude DTP charges and Bindery. Seem impossible? Six runs of 1M 3-part NCR per day, or its equivalent, would easily get you to the $350,000 or “excellent” category. Similarly, two runs of 4/4, 2,500 ea., 8.5x11, on 100# coated (total 10M imp) would easily put you at more than $500,000 annually, even accounting for very competitive pricing.