My uncle has a screenprint shop with annual revenues of 600,000. He borrowed money from us last year for his business and is looking to borrow some additional cash from us. He has let me look at the company's books. I was wondering if a cost of goods of 38.7% (1/3 of income is from corplast) and wages of 32% (including his salary and 3 full-time,1 part-time employees) is typical for the screenprinting industry. I work in a very different industry and those percentages would be considered very high. He has not raised his prices in over 5 years, and even though we are encouraging him to increase them, he is refusing. He says we don't understand his industry and he will lose a large percent of his clients if he raises prices (seems to me he may not have a business if he doesn't try).
The first loan was from a relative to a relative with no questions asked. But with his additional request we are trying to make an informed decision. Any comments (other than to find a new relative!) would be very much appreciated!
Thanks!
Lynn
Loaning money to relatives is usually because they can't borrow from the normal financial institutions. Most bankers that are not familiar with a particular industry will refer to the Robert Morris book. It is a culmination of financials for various SIC (standard industry codes) If you compare your uncles #'s to the Robert Morris you will get an idea of where his company falls on the bell curve. Pricing has to be at a level that will produce a profit. Has he discussed his business plan. Some times fear of raising prices is commensurate with fear of marketing. If you do enough marketing and the pipeline is full, it's easier to raise prices. Also, does he have any major clients that account for more than 12% of volume? Many companies let to few companies be too much of their volume. This leaves you hostage to that client.
We don't screen print,mostly vinyl and digital print. Our cog (labor & materials) is 35%.
Good luck
JB
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Lynn,
One of the biggest factors your relative may be dealing with is fear of loss. Like the rest of us that do screen printing, we have to compete with some companies tat are able to buy direct from the coro manufactures and therfore can sell cheap based on high volumes.
In the new era of internet marketing, we in the sign and printing business are finding more and more that customer loyalty is a thing of the past. When you look at the prices posted on web sites around the country you must calculate where you fit in. If you can take their prices and add in what it would cost to ship their products to your zip code and you can live with that total
you may be OK. You can even add in a little for convenience.
Also keep in mind that I am now paying almost twice as much today for coro than I was last summer because of the oil prices. It takes a while but you can blame a lot of your pricing on oil. We are at the point that we only quote pallet pricing after checking with our supplier for an up to the minute cost of material. We must maintain a reasonable proffit margin to stay in business.
We have also diversified our company to the point that we now offer offset printing, wide format color digital printing, custom embroidery and lazer engraving along with our vinyl cutting and screen printing. My wife and I do all this with one full time and three part timers with our high school age son making deliveries for spending money and gas.
Raising prices is happening all around us and we have to follow suit to stay affloat. Used to be, not long ago, we could fill up our diesel pickup for the cost of a pair of magnetic signs. Now it takes two pair. We have raised our prices too, but we have not figured out a way to keep up with the oil companies. I just read where Exxon-Mobil made a record 36 plus billion in proffits last year.
WE ARE WAY BEHIND.