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Mark Coudray stops by to discuss why the last 20 years of screen printing won't be like the next 5 years. We chat about what shop owners need to do to stay competitive and get ahead. Mark also talks Amazon, TeeSpring and VC funding and what you need to be thinking about.
Bruce: Hello, everybody. This is Bruce from Printavo, simple shop management software. Today, we've got a very special guest, Mark Coudray, from Coudray Growth Technologies. He's got an incredible program as well that's under that umbrella that we'll about today with a massively vast amount of experience in the printing space and just nearby industries. So, I'm super excited to be able to pick his brain. Mark, thanks for joining us.
Mark: I'm happy to be here, Bruce.
Bruce: Mark, just give us a quick couple of minutes about your background and the different major steps so that people can get a sense.
Mark: Well, you know, this is a new generation of printers that are coming up right now. I've been involved in the decorated apparel industries since I was 19. I started my first company with $200 in my parent's garage when I was 19 years old. That was 44 years ago. That business is still running as a functioning decorated apparel company. It acted as an incubator for all the work that I've done within the industry over the last 40 years. I was and still am very active with SGIA. I've been a speaker for the Imprinted Sportswear Shows, a writer for all of the trade press, Screenprinting, Impressions, printwear, etc., for over 30 years, 35 years. So, the old people all know me in this business. The new millennial generation coming on may not be as familiar with the work that I've done.
My personal philosophy is I'm driven to find a better way and share it with others. I'm a strong believer that information needs to be discovered and shared for the benefit of the entire industry as well as for the benefit of individual companies. So that's kind of where we are right now, is we're in this new phase, tremendous amount of new information and new processes, etc. being discovered and implemented as we move into the digital economy.
Bruce: Okay. So talk about the digital economy. What are we talking about? Are we talking about, you know, blogging and e-commerce or...?
Mark: No. This is where people make a big mistake. When they hear, you know, digital, they hear digital marketing. And when they hear, you know, that type of scenario, they think of social media, email marketing, web stores, e-commerce, those kinds of things. Those are all parts of the digital economy. The bigger difference, the difference between the industrial economy and the digital economy is that in the industrial economy which was everything from the last 300 years back from about 2,000 prior 300 years was about building high capital investment factories and, you know, tooling up for mass production runs. So the runs were long and the unit cost was low because you were amortizing over these long runs.
The digital economy is fundamentally different. It's all about data. It's about the discovery of patterns and trends within that data, and it's about a unit of one. So it's the exact opposite of what the industrial economy is. And this is one of the reasons why I've departed the continued technical development on the printing side and then focusing on the business side because today's world, we have a whole new range of competitors. We have people that are specifically intending to disrupt any industrial model that they can find. And in the last few years, they've discovered the decorated apparel industry and we're in the midst of some major disruption with that right now.
Bruce: So, when you talk about data, are we talking about, you know, more financial data? Are we talking about production data? Is it the whole gamut?
Mark: It's everything. So, everything that we do generates data. So I'm looking at things, for instance, in our print... If you're looking at, as an example, your print shop floor management, right? Every job that runs through the shop, you're gonna have the number of colors that you ran on that job, the print sequence that you ran. So, at the end of the month, I can go in and say, "Okay, what were the five most common colors of inks that we use? What was the most common four-color job, the most common five-color job?" Be able to take a look at the run lengths of different size orders, be able to literally dissect the behavior of our business so we can create more efficient and optimized models to take advantage of the current situation that we have as well as the emerging markets which is to understand other people or other opportunities that would take advantage of these patterns that we've just discovered.
Bruce: Got you. Now, part of the piece about the data aspect though is acting on it and what to act on in kind of sorting that. Is there ways to think about as far as, "Okay, the first thing we should be looking at is, you know, are we collecting all the payments?" I see a lot of shops that just aren't even collecting on their receivables.
Mark: So, I call that accounts deceivable. It's money on the books that we can't put our hands on. That's one aspect of it. I'm glad that you brought that up, actually, Bruce, because in the Catalyst program, which we'll talk about in a few minutes, I've had the opportunity to take a look at dozens and dozens of financial statements of all size companies, from tiny companies to really big companies. And what I've found is that over 80% of those companies are struggling with cash flow. They're struggling with business cycles and they're struggling with the money that comes in.
Now, a perfect example of contrast, and I'm sure that you can appreciate this because your business is run as a cloud service, software as a service, ultimately a platform as a service with API integration where other people can plug into it. And you work off of what's called a monthly recurring revenue model. So, every month, you know that the credit cards are gonna be charged automatically and you're gonna have X amount of business every month. There'll be a certain amount of attrition and there'll be a certain amount of onboarding of new clients. But you're gonna be pretty level in terms of the months. Even seasonality is not really gonna affect you all that much because people need your software in order to run their business. So, that's a really good model. It's good for cash flow because you're collecting the money on a regular basis.
When we get into a custom model where people come in and they don't take a deposit, they print the job, and then they give the customer terms and don't get a credit card or a check on delivery, they convert their cash to receivables. And in the process, they bankrupt their business. They can't grow if they don't have cash to be able to move forward with.
So this is one of the things we really look at. Actually, I have a program called Profit First, and it focuses on accounting for the business in a different way. You know, traditional accounting will tell you that profit is sales minus expenses. That's classic. So, what've done and I'm working within an organized framework to do this is we've just flipped the equation. Profit is now defined as sales minus profit equals expenses. And when you do that, it changes completely your focus on cash flow and it really puts the emphasis on taking care of your expenses and keeping them as low as possible because you're always gonna be in the deficit if you account for your profit first.
Bruce: Now, are you seeing this issue with shops that are, call it, you know, 20-team members?
Mark: I'm seeing it with shops that have one team member. In fact, just yesterday, I had two conversations with two different shops, both roughly the same size. These were medium sized shops and between $1 and $2 million range. One of them had $200,000 of cash in the bank in their working account. The other one was like, "I don't know how we're gonna get through the week. We don't have enough money to buy goods." And so this is a classic issue of not understanding the cash cycle, not understanding how the pieces fit together, and not understanding how growing your sales, you can literally grow yourself out of business if you don't have your cash under control.
Bruce: Got you. Now, are you saying there's something wrong with having the capital in the bank like that as far as...
Mark: Oh, no.
Bruce: Okay, okay.
Mark: What it tells me is that, just by contrast, you've got a company that understands what they're doing and they're managing their cash and they're keeping their expenses under control. They're not living beyond their means. You know, when you've got people that have got, you know, four, five, six different credit cards, they've got open accounts with all their vendors, it's too easy to think that you're flush with cash when all you're doing is hiding the expenses in other areas. You're just deferring the ultimate reconciliation of paying those bills.
Bruce: Sure. So, if a shop is managing cash, say a shop of 20 or so people is listening in, you know, they're running a profitable shop, but are there some tips or maybe one tip or takeaway that they can say, "Okay, we should look at this as far as our books go," that they might not have known about? And that was good, we were about through talking about how the profit and to switch the equation to revenue minus profit minus expense.
Mark: Right. Yeah, so that's called the profit first model. And there's actually a guy, his name is Mike Michalowicz and he wrote the book called "Profit First." It came out last year and it's revolutionizing small business. People can buy it on the Amazon. We are profit first certified professionals and I built a model around this industry, specifically because the techniques are so powerful. You can do these in your personal life as well as in your business. So, the first thing that I look at to get to your question, if you got somebody that's running 20 employees, the first thing that I do is a check to determine if they have more people than they really need for their business. So, with 20 employees, I would expect that business to be doing at the very least $2 million dollars a year in revenue and ideally, $4 million of revenue. And if they're doing really great, they would be doing $6 million of revenue with 20 people.
So, the first thing we'll do is we'll look at the revenue in relation to their labor expense. And so then, we'll also take a look at whether they're doing just contract printing or whether they're doing full garment supplied programs, etc. And the second thing that we do is we look at their margins, their gross margin, which is, it's really not exactly a perfect gross margin but the easy formula is sales minus your cost of goods including your inbound freight and your labor to produce that.
So, I look at the percentage of labor to cost of goods, percentage of labor to top line sales, and percentage of the material cost to top line sales. And there are specific margin ranges that are target ranges. And if you're outside of that range, if you're selling your products too low, you're turning a high dollar amount but you're not generating any revenue that allows you to get ahead of where you are.
Bruce: What is that range for, call it, a 20-person company?
Mark: It really depends on what they're selling. I mean, if somebody is selling a bunch hoodies, if their business is primarily hoodies, it's gonna be a different margin than if it's just basically a cotton T.
Mark: So, I normally like to see just the raw material cost between 25% and 33% of the top line sales.
Bruce: Got you.
Mark: So, that's inbound sales, I mean, your total top line sales minus your material costs and the freight to get it in to you. So, I wanna see it somewhere between 25% and 33% in that area.
Bruce: Got it.
Mark: My direct labor, I typically am gonna be looking somewhere in the neighbor of 9% to 15% for my direct labor. And so, with those numbers there, I mean, that's a very broad generalization until we can actually take a look at how a business is actually running where they are.
Bruce: Got it.
Mark: There's other factors also. We look at their GNA and their overhead expenses, what are they're paying for rent, how much space do they have, how much space do they have relative to how much volume they're doing. So, that's revenue per square foot of allocation. So, there's a whole bunch of these different metrics that we use that will tell whether your business is healthy, whether you're overextended, percentage of your day, the size of your runs. Where a lot of these printers get into trouble is that with the economy moving towards smaller run sizes, they spend their time changing jobs over. And basically, when the press is spinning, you're making money. And as soon as the press stops and you change over, you start eating into the profitability.
And typically, what happens is the breakeven changeover is about four to five jobs in a day. So, if you're turning four to five jobs in a day, chances are that you're basically breaking even on the stuff that you're doing. So, there's a lot of stuff that's going on. I'm seeing all kinds of patterns that have never been discovered before. Pricelists, when I started going in the analyzed pricelists, started applying the classic kinds of analysis that you would do in business school and you're starting to look at pricing behavior, it's incredible the effect of price breaks on the revenue for a business and especially in the area of less than 100 shirts. I don't want to get all technical and go into it but essentially, every printer that I've looked at that sent me a price list that's based on a declining like 12-piece, 24-piece, 48, 72-piece pricebreak, they're basically flat-lined in terms of their revenue generation between 24 pieces and 100 pieces. They make the same amount of money over that entire range if you were to go in and just multiply the unit price times the number of pieces that they actually produced and plotted it across there. The behavior is...
Bruce: So, what are you saying, they should be charging more in that range?
Mark: No, they need to be using a different pricing strategy, a different pricing model. The model that we use, it works really well from a cost accounting standpoint for long runs. You know, and the way it works... Hang on, my screen has been nuts here. It works really well if you have big runs like 500-piece runs. Your setup cost divided by the number of units, that gives you the amortization of the setup cost based on your number of units and then your running time, which tends to be pretty constant, times the number of units. And so, that works really well, 500 pieces, 700, 1000, 2000, that works great. But on the lower end of it, it's not...
Bruce: What's a quick tip to re-look at pricing for those ranges?
Mark: You know, I don't even want to get into it because it's too... I need to...
Bruce: It's very detailed.
Mark: I need to do a webinar on this because people need to be able to see it.
Mark: And I'm actually thinking about doing a free webinar that I'll post, you know, on Facebook and all the various groups and things like that. I do these free webinars, you know, throughout the year that cause people to take a look at their business differently and realize that, "No wonder I'm working so hard and not getting ahead. The system is built against us."
Bruce: Yeah. Ping me, as a side note, when you do that. I'd love to help promote you.
Bruce: So, this kind of gets into... You've got all of these tips and tools. I know you wrapped it up in this program you call the Catalyst program under you Coudray Growth Technologies. You know, I was very impressed by it and we did the Printovation Conference this year, so we're pushing hard on business education. We do tons of these and blogs and everything else. And so, what is the Catalyst program? What do you get in and what do you see your customer's get out?
Mark: So, it's a very simple formula that I use and it's held true. And this is generally a conservative approach. Number one, if you do the work, you're gonna get the results. Every single person that's done the work has gotten the results. And I tell people... You know, they say, "Well, how does it work?" I said, "Simple. You give me a dollar and for every dollar you give me, I'm gonna give you $10 of new revenue back. You can do as much as you want or as little as you want." And it makes it simple for people to realize that, yeah, there's a big result as a result of doing it this way. There's not risk that's involved. You're gonna get an outcome. So, you give me $1,000, you're gonna get $10,000 worth of new revenue coming back minimum on that. And a lot of times, that's $10,000 worth of recurring revenue, which is a huge difference between a one-shot kind of a thing.
Bruce: Sure. You're talking about shops getting into recurring revenue. How? Selling what?
Mark: Well, that's what we do.
Bruce: Okay, okay.
Mark: So, I mean, it requires us to look at our business differently and a big part of what I'm doing right now is just literally teaching people how to define their value, how to discover the value that they bring to their market and their customer base and their community. And it's different for every situation but there are so many things that you can do that are not related to the decorating of the garment that you add value to the business experience that you have.
And so, this is what I do, is I show people in a commoditized market like the decorated apparel industry is where people think, "Okay, I know a guy that prints T-shirts." Everybody knows a guy that prints T-shirts. And so, you're just... in the consumer's eyes or the buyer's eyes, you're just interchangeable with anybody else. So, what I do is I teach them to look beyond the decorating on garment to all of the other aspects that they can add value into a situation. So, for instance, if you're doing school work with schools, instead of just, you know, giving the school a box full of T-shirts, you know, that's sorted by size or whatever, when you're finished with the deal, you put together a program that's got order sheets and you've got organization at the classroom level, you've got organization for the volunteers so that it makes it very easy for them to get a successful outcome and collect the money and you always do different kinds of things. If you're doing an online store, an e-comm stores like Shopify or InkSoft or, you know, any of the other ones that are out there, what are the tips that you need to do in order to get the maximum value out of that pop-up store? And nobody is doing this. It's like, "Okay, you've got the store out there, how do we maximize the interaction with that store? How do we leverage the parents and the grandparents and the aunts and the uncles and the people that are associated with sponsorships to the schools?" There's all kinds of things that we can do to multiply the effect that we can bring, you know, through the use of decorated apparel.
So, we teach all those principles in Catalyst. For small shops, the entry-level program is a program called Catalyst Growth. It's a subscription program. So, it's monthly recurring revenue. There is no contracts. You can start or stop whenever you want. There's about four lessons per month. So, basically one week, they get a business generation module which shows them how to generate business that month with the lesson. You know, you do that, you're gonna pay for your tuition for that month out of the business generation module. Then there's a business school module which teaches basic business practices like cash flow management and how to read a financial statement and how to determine your cost and things like that. Then there is a time management and productivity module that shows them how to make the best use of their time throughout the course of the day. And then the final module is called business blueprint. And this essentially allows them, over a period of three or four or five months, to build a solid business plan that they can use as a roadmap to drive their business into the future.
And then, every week on Thursday, there is an accountability call. It's a group call setup through GoToWebinar. We usually have about 15 people a week come on to that call. And during that call, I hold everybody accountable. "So, this is the lesson for this week, what are you gonna do? Who's your target for it? How are you gonna do it?" And then the next week, you report your results and, you know, I hold you accountable for what worked, what didn't work. And the really good thing about that is it's super motivating for people. They hear somebody come on board...
I had one of our current Catalyst members. He's been in business for 17 years. He has been in the $250,000 a year range and so, roughly $20,000 a month forever. And he said, "We doubled our monthly revenue in the first 60 days and it's holding. It's actually growing beyond that." His last monthly numbers that he gave to me were north of $55,000 for the month. It's the biggest month he's ever had. And this is progressively growing for him. About six weeks ago, he sent me an email and he said, "For the first time in 17 years of running this business, I feel like I have a business." And to me, that's what Catalyst is about.
Bruce: That's awesome. What do you see, like, for a business like that? We talk to so many businesses that wanna get organized with Printavo but on your end, you know, we see some...there's a lot of good shops that are like, "Okay, we know we gotta get efficient and we know we gotta improve this." We do see a lot of that still are, you know, doing carbon copy, paper invoices, you know, and it scattered all over the shop.
Mark: [Inaudible 00:23:32] you know, notes on the back of a legal pad.
Bruce: Yeah. And, you know, is it that, you know, it's just how they've been doing things for the last 10 years or is it that the kind scrappy attitude of an entrepreneur, they get stuck in that process? Because I wonder, as a technology-based person, I say that's sounds crazy, right? Or is it that they, like, maybe they take advice from a shop and that's how they got the inspiration to do things that way. Where does that come from?
Mark: Well, here's the thing. You said a key word there, which is entrepreneur. The vast majority of people in our business are self-employed individuals. They are not entrepreneurs, all right? So, they got into the decorated apparel business to provide a second income. They are coaches and firefighters and things like that that set up in their basements for their off time. It's a second income for them.
Mark: Right? Something to do during the off-season like for teachers and coaches. So, they are looking at it and they are looking at their pricing in relation to their wages. So, let's just say somebody is making $50,000 a year. That's $25 an hour. So, if they can make $50 an hour printing the job, that's twice what they're making in their regular jobs. So, they go, "Man, I'm making bank here." But they don't realize that that extra $25 has to pay for materials and supplies and working capital and profit and everything. They don't understand the business part of it. They're looking at simply from a wage-earning standpoint.
Now, an entrepreneur, on the other hand, is someone that sees a problem in the market. And they go out and say, "I can solve this problem." They solve the problem and they build a system around that problem and then they start teaching other people how to use that system to solve that problem while they either go out and sell or they go on to the next opportunity. So, entrepreneurs are rarely working in the business. They're working on the business and optimizing the systems and finding ways to create this consistent lead flow, consistent lead generation, consistent sales process. I mean, don't even get me started on the sales process. People hate their customers. If you read the forms, they're always talking about their PITA customers and how they wanna fire this guy. It's like, man, it just makes my skin crawl, because these are the guys that are writing your check. They just don't get it. They just see the customers interfering with their ability to print T-shirts. And that is so wrong that...it's just such a paradigm, such a perspective that we have to change if they ever wanna get ahead.
Bruce: One hundred percent. That's something that we push. You know, I read an interesting article. When that United incident happened, remember? When they pulled the gentleman off the plane. And it was an opinion article and he was talking about how companies will get to a point where their customers become... You know, when you start, you cherish your customer. You do anything you can just to make the sales.
Mark: And you're accountable to him because you're doing the work.
Bruce: Exactly, exactly. And there's this point where a company can shift and their customers become like a bothersome to them doing sales.
Mark: Annoyance. They're an annoyance.
Bruce: Exactly, which is interesting to see at such a large scale there and at, you know, a smaller scale on a print shop.
Mark: That's a very good point, Bruce, because if you look across business today, the democratization of access to anything, it used to be that the customer had no voice. So, the business would be like, "Yeah, complain, there's a million other guys like you out there." Now, one person can bury a company. You know, if it's a bad experience and they do a video that goes viral, the social media impact on even a small local business can be devastating to that business. You don't see it too much in the last couple of years. The United incident is a perfect example of where cell phone videos captured the event that took place. It went viral and the company didn't respond to it very well and, you know, all of a sudden, they do a lot of economic damage. It cost them hundreds of millions of dollars in valuation of the company as a result of that happening.
So, in today's business world, it's all about the customer and the user experience and the customer journey. And this is another big thing that we talk about in Catalyst, is how do we define that customer journey? How do we define the user experience and create a user experience that people want to share with others in a viral way? And there's a lot of different things that we can do. We use social media for that. Social media and Twitter and, you know, Facebook, those are all just tools. They're just delivery channels for what we wanna do.
So, this is where the difference in the digital economy, those things are tools within that economic model. So, how do we use them to our maximum advantage? The kinds of things that you are doing with your business is a perfect example of alignment with the digital economy moving forward. And the challenge that you face is the migration of shops from the industrial mentality into the digital economy where your model is built to survive.
Bruce: Yeah, definitely. I'm gonna hit you with a hard one, Mark.
Mark: Good. These soft ball ones have been easy so far.
Bruce: So, you know, venture capital is a finicky thing. I think my personal opinion is it's very trendy. It goes and comes in different areas when they feel that they can just, you know, suck a lot of value and then pull back out. I'm not to saying it's bad or good. It's just that's how it is. You know, you've got Teespring's in Walmart, Amazon Merch, Walmart Promo Products. I'm sure Custom Ink is not sitting quietly here. I think they're in the stores or starting to get in the stores.
Mark: Well, Custom Ink has a partnership with Walmart right now.
Bruce: Oh, it was Custom Ink and Walmart, not Teespring.
Mark: Teespring has got a whole different set of problems but they got a ton of investment, $55 million from Andreessen Horowitz and a couple of other venture capital funds. They went the whole incubator route, the Y Combinator incubator route which is the classic way that 500 startups or Y Combinator...
Bruce: Yep, textiles and...
Mark: Yeah, there's a whole bunch of those. I'm very, very, very familiar with the whole vulture capital sequence and how they operate and what they do. And so, go ahead, I'll let you finish your question.
Bruce: For people that don't understand as well, just a quick briefer here, a lot of investors will put money together and pool it into different areas where they feel there's a lot of opportunity. Opportunity doesn't always drive profit per se. You know, it could just drive what's called growth, which, honestly, could be any sort of metric that they create now like users for Facebook or Twitter or likes or activity, things like that. And so, that money is thrown into things now coming into this space as there's been seen an opportunity to grow quickly like Teespring that you mentioned. And so, first of all, what does a print shop owner need to think about of any size and what are kinda your thoughts on the area. And then I want to get into after some action items that they need to really start writing down or thinking about so they don't become, you know, like you mentioned before, the Blockbuster.
Mark: Right, Blockbuster Video. Yeah, I don't wanna see our mom-and-pop industry go the way of the video rental store. You know, that's a classic parallel type of a model. So, let me simplify it really easy for people to understand. The way venture capital works is they look at industries that are functioning in an inefficient and archaic way in a declining business model. So, basically, anything that's functioning in an industrial economy business model is a target for disruption. They discovered the decorated apparel industry because the minimum market size for them to disrupt is a billion dollars in revenue.
In the decorated apparel industry, depending on who you talk to is anywhere from 18 to 46 billion depending on whether you include retail in that or brands like Nike and Adidas, etc., promotional products, all those kinds of things. So, it's a very big industry that's flown under the radar. And now, they see it as an industry to disrupt. You nailed it when you said they're not interested in profit. The whole point of venture capital is to show migration of customers from a declining model to a model that's growing. And what they do is they get in early, they disrupt the industry, they use very aggressive sales techniques, they intend to be negative in terms of negative capital, which is what makes it so hard for us to compete against them because they've got money to spend and they know that they don't have to be profitable to do it. So, let me spend $30, $40, $50 million to [inaudible 00:33:52] very strong web presence, very strong television, radio presence.
Once they've got people on to the platform, then they'll take the business public via an IPO, initial public offering, or they'll sell it to somebody else like Amazon. And Amazon has already got an infrastructure that's designed to accept new clients. And so they can pick up somebody like Shirt.Woot and turn it into Merch by Amazon. And then, you know, invest $100 million and $100 million for Amazon to invest is nothing. It's absolutely nothing for them. So, they've got huge dollars that are going into migrate our customers on to their platforms and the experience that they deliver.
So, getting to your question, what can the local guy do? Number one, get your act together now. Otherwise, you will be gone. There's no question about it. The market is gonna consolidate. There's all kinds of ripples and repercussions that go through this. For instance, if people start migrating to big platforms like Walmart and Amazon and the small companies start going away, what's that gonna do to the distributors? Distributors are gonna have to sell their shirts someplace, right? And a lot of these distributors already have platforms that are out there that are shop-based platforms. They're web-based that you can tie into their catalogs. And guess what? They're accumulating all that data from every shop that's using their order systems and their catalogs and their flow-through the process, their designers online. You know, it doesn't take a rocket scientist to figure out that if your market is declining but you understand the purchasing behavior and where that purchasing behavior is taking place, that you could then partner with somebody like Amazon or whoever. There's a bunch of them that are out there. Scalable Press is another one. There's at least a half a dozen that are out there that now, all of a sudden, the distributor can start funneling orders into these platforms and have the platform produce it for them. They still sell their blanks but they just are doing it in a way that is direct to the consumer and the small guy is gone.
Bruce: Gotcha. What is something that needs to be paid attention to? You said get your act together. I'm assuming you're talking about, like, you know, if you're just inefficient, time to get it together. If you're not collecting money, time to get it together. Running a profitable business that's growing, what about shops though that are a little bit further along too? We talked about the 20 person, maybe they're doing $2 to $3 million a year.
Mark: Right. So, here's what I find. Shop owners, you know, company owners typically will say, "Yeah, this is all good and great but I am so busy right now doing all these different kinds of things that I can't devote the time to this. I can't find the time. I'm barely making it as it is." So, that's why I include the time management and the productivity into the Catalyst program because just because you're busy doesn't mean that you should be busy doing the things that you're doing. Too many shop owners are busy being busy. They're spending time and allocating time on the things that don't generate a return on that effort.
And so, the return on effort is a big score that I use. It's like, how much did we spend today and how much direct revenue resulted from that? If you're stuck in meetings all the time, is that meeting really necessary? What's the cost of that meeting, right? If you've got five people in a meeting and the average value of a person in that meeting, you know, is $25 an hour or $20 an hour, even for, you know, a fairly large shop, that's not an uncommon number at all. You're spending $200, $300 an hour with people in a meeting. What comes out of that? What was the value of that? What did you get for that investment in there?
So, it comes down to making good choices with our time first. Let's open up our time so that we're making good choices with it and that we're doing things that are gonna move us ahead in the future. The number one thing that people can do is understand your customer base. Where is your business coming from? What's the average size orders? You know, there's a whole series of metrics. The very first lesson that you get in Catalyst is how to analyze your customer base to see what we have to work with.
And we developed what's called the latent value of that customer list. I know what the metric risks are for an automatic shop, for a manual shop, value per customer, value per order and we go in and we analyze each one of those clients. And you're gonna start seeing who you should be doing work with and who you should be modeling for your future customers. So, it all comes down to the data. And it's actually frightening when you get into these shops that think they're doing really well and you realize, they're sitting on a house of cards and all it would take would be a flood in Houston or a hurricane in Puerto Rico or a hurricane in Florida if you were there and it would completely wipe your business out. You just couldn't recover if there was a disruption in anything that kept your work, you know, coming in on the regular basis that it is right now. They're completely unaware of that and unprepared in the event that that would happen.
Bruce: Got it. You know, I think the understanding your customer base obviously ties back to that value example with the schools and exactly doing the above and beyond for the school so they have no reason to hunt around. I wanted to touch on something you mentioned before where you said that businesses up to $3 million a year are the most vulnerable. Did I get that right? Or is it from three to eight?
Mark: No, three to eight is called the killing zone. So that's the part where they're too big to be small and they're too small to be big.
Bruce: Now, why is that the most difficult? Is that just because labor expenses, they're trying to grow?
Mark: At that point, you're dealing with, you know, a payroll that's probably approaching $80,000 to $100,000 a month. You know, so you've got huge pressure on cash flow. You've got huge pressure to grow. You got downward pressure on margins because you're competing with high-volume multi-production, you know, print shops. There's all kinds of economic pressures that come into play. You've got new competitors. You've got volume sizes that now fit the offshore model. And there's brokers out there that can get a 10-day turn around on offshore production and bring it back into the United States in 10 days or less. So there's all kind of areas that the local small guy doesn't have to concern himself with. So, now if he is growing, he's got big overhead and he's got downward pressure on his margin. So it makes it really, really hard.
Bruce: Okay. So, someone between the $3 to $8 million revenue range, what should they be focusing on to either exceed out of it or do you recommend staying under? I mean, it's hard for someone who gets the three, I feel like just to say, "Okay, we're gonna..."
Mark: There's a lot of companies that get to $3 million just by winging it. You can get to $3 million on word of mouth referrals and advertising which is the most common way of advertising. When you get to $3 million, that breaks down. And if that's your primary method of growing your business, is your local reputation, you geographically don't have a big enough pool to continue to grow with that method. And it's not consistent and predictable enough. It varies. You'll get a big clump of stuff coming in all at once and then they'll be nothing. And you don't know what's in the pipeline, you're literally at the mercy of the word of mouth.
So, what I tell people is that if you're getting into that, if you're in that $2 to $3 million range right now, you absolutely need to get in and analyze what's going and understand the inside of your business. What I found with Catalyst members is, often times, we will realign their client list and based on the latent value of that list, you actually shrink the number of customers that you're working for, solidify the relationship with the ones that are profitable and then literally with fewer customers, you're making the same or more than you were with, you know, the big customer list.
And we start using a variation of the 80/20 principle, which basically says 80% of your profit comes from 20%, the top 20% of your business. And with a company that is doing $3 million in business, they are typically gonna be doing anywhere from a 100 to 300 orders per month. Using the 80/20 principle, we could basically say 80% of that's gonna go away. So, you're still gonna get your profitability out of 60 orders a month instead of out of 300 orders per month. And imagine what that would do in terms of opening up the time to concentrate and focus your efforts on the ones that are giving you the bigger results.
Bruce: Sure, sure.
Mark: I mean, that's kind of a high-level view of the mechanics but the thing is this is a process. And once you have a process in place, you can duplicate it and you can scale it. So, when I see organic growth with a company going up, we take a step back, look at it, do some realignment and then get all the pieces in place and create the strategy, the business plan, the lead generation model and then we penetrate and go after the target clients that are gonna meet that profile that we know is profitable for us. And the difference can be enormous for a company that size. I mean, we're talking in the neighborhood half a million dollars of profit, not top line sales but profit to that business when you understand your margins and where they're coming from properly.
Bruce: Sure. Okay, so the guys between three to eight, essentially is it a race to get to eight? Is that what you're...?
Mark: Yeah, there's a lot of different ways that we could do that. You know, there's many different approaches that will allow us to grow very, very, rapidly. So part of the issue is is your business stable enough that might have taken you 10 years or 15 years to get to $3 million? Can you grow it $1 million a year for the next three years? Can you grow it $1 million a year and then $2 million a year in year two? And will your systems and your people be able to sustain that? Can they absorb that level of growth? Are they prepared for it? What's that gonna do to your cash flow? What's the requirement on your working capital? All of that stuff is part of what we go into and literally determine whether you're healthy enough. It's like saying, "I wanna run a marathon tomorrow. You know, I run a bunch of 10Ks and I'm pretty good at doing a 10K. And, you know, I ran one half marathon last year and it was hard but I got through it. I think I could do it again, but I want to run two marathons this year." And it's like, it's the same kind of thing. It's like, "Man, there is a big difference between running a half marathon and a marathon." Much less doing more than one in a year. And the older that you get, the worse it is. I can speak from experience on that one.
Bruce: Well, this is great. You know, this is probably a longer podcast that we've done but I just love listening to this and being able to probe you for things because I honestly feel that... And it seems like you hear the same ways that they're just...you know, there needs to be a bit of a wakeup call as things shift. And the last 10, 20 years will not be the same as the next 10, 20 years. So I definitely appreciate spending the time with us, Mark. If there is one takeaway that someone could pull from here or a tip that you can give them or something for them to look at or read, what would it be?
Mark: Wow, that's tough. I would say, the best thing for them to do, they can go to catalystplan.com. They can sign up for, you know, my email notification list. There's free webinars and things that I've done in the past that are available to them. That's the best thing. I post frequently online. I mean, most of the Facebook groups, I spend most of my time on Facebook because that's kind of where it seems like most people are. And I listen to what people are having to say. So, people can ping me. You can reach me on any platform, whether it's Twitter. I don't do a lot of Twitter but you can reach me on Twitter, Facebook, Skype or LinkedIn @markcoudray, M-A-R-K-C-O-U-D-R-A-Y.
Reach out if you've got a specific thing that you'd like to talk to. If you wanna find out more about Catalyst and how Catalyst works, you can go visit catalystplan.com and you can see what the offerings are that are out there. And if it makes sense for you, then, you know, there's never any pressure from me. I'm about the most low, non-aggressive salesperson ever. You know, I've been a consultant in the industry for years and I learned that you can't want success for your customers more than they want it for themselves. So, if it's right for you, you're gonna know it's right for you. You gotta look at me as being a trusted guide and a mentor. You know, and being in the business for 40 years and knowing so many people and being involved at every level of this, I have a proven record for growth and a proven record for knowledge and, you know, that works. This is not BS. This is all stuff that's working, working today. It's making money for people today. It's changing lives today and it can change any businesses out there. If they wanna do it for themselves, but they've got to wanna take the action.
Bruce: Awesome, Mark. Well, thank you again. We really appreciate the time joining us today and hope everyone had some really good takeaways from this. You guys can definitely find him. Just Google Mark Coudray and something will pop up. Or hop into the Facebook groups. Again, appreciate it and hope you have a great day.
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