So, You Want to Be a Contract Printer?

You're a great printer, you run a tight business, and you have a steady flow of custom orders. So what's keeping you from being a huge screen printer with several automatics, a slew of employees, and huge orders? Contract work.

With few exceptions, the industry's largest, most successful screen printers are either preprinters or contract decorators. By definition, the term "contract printer" means that customers provide the garments - and often the artwork - unlike custom printing, where the decorator usually provides them.

However, contract printing is a far more complex world than that simple definition suggests. It's a demanding arena where competition is fierce, profit margins are razor thin, deadlines are tight, and your fate may depend on the success of a handful of key customers. But for those with the stomach to handle the challenges, contract printing may be the fastest path to higher profits.

Why Contract?

For many decorators, a key advantage in doing contract printing is having a stable, knowledgeable customer base that essentially brings large orders - and garments - right to you. Contract customers typically provide their own artwork, too.

No sales staff, no artists, no inventory, and big orders. Starting to get the picture? "You have few customers to deal with, and you have larger runs, so there's less setup and breakdown," says John Hodges, president, Hodge Podge Screenprinting, Grenada, Miss. "It fills voids where you normally wouldn't be printing, so it adds to your income."

"We probably have 10 good customers who deal with 1,000 [other customers]," says Steve Monroe, president, Monroe Screen Printing, Lansing, Mich. "So those 10 customers are the majority of our business."

Charlie Taublieb, owner, Taublieb Consulting, Englewood, Colo., adds, "You're not investing in goods or dealing with short runs. You can have business 12 months a year. You'll still have peaks and valleys, but they won't be horrible."

On the other hand, contract printers make considerably less per order than custom decorators. "The trade-off is margin," says Greg Kitson, president, Mind's Eye Graphics, Decatur, Ind. "Instead of making $5 on a sweat shirt, you may make only $1. So if you generate positive cash flow of $500 an hour on an automatic with custom work, you may generate only $200 an hour with contract work."

Still, unlike custom decorators, contract printers typically don't ride a roller coaster of order flow - if they have a broad enough customer base that when one market subsides, another market keeps the presses busy. That said, maintaining a diverse customer base is critical. "If one of your customer's brands isn't selling well, or if you lose one big customer, that really hurts," says Rick Boyd, senior sales rep, Graphic Solutions Group, Dallas.

Kitson echoes the need for diversification. "Don't let any one customer own you," he cautions. "Don't buy equipment for one customer, and don't build your shop for one industry. Know when to say no." Kitson suggests seeking out clients in a variety of sports, businesses, etc., each with its own peak season.

Minimizing Mistakes

To be sure, contract printing isn't all big orders and big paydays. For starters, the difference between a profitable contract job and a costly one is often just a matter of pennies per shirt, so it's critical to keep machines busy and minimize mistakes. Some contract clients allow for 1% to 2% in mistakes. That percentage may be lower when you're handling more expensive garments, and it may be slightly higher when handling cut parts, where mistakes are less costly. Either way, Taublieb says, "If you're producing lots of seconds, you're in the wrong business. If you're hitting much more than .25% to .50%, contract printing is not for you."

As you might guess, mistakes are more frequent on first-time jobs. "We did a job for a restaurant chain that was eight colors, front and back, 4,000 pieces," Hodges recalls. "We ate about 20 shirts. The brand-new jobs are always our disaster orders. But that same terrible job, by the 15th time, it's smooth as glass."

Some contract printers pay workers bonuses for finding mistakes, which prompts employees to keep a close eye on their work.

Contract Considerations

What else must you keep in mind before jumping into the contract printing fray?

Plenty. For starters, consider the following:

Equipment. Contract orders are usually in the thousands, so decorators should have at least a couple of automatics, depending on their customer base. "Trying to do contract printing with a manual press is absurd," Taublieb says. "Anyone who gets into it with less than two automatics is out of his mind."

Rick Roth, president, Mirror Image, Pawtucket, R.I., says he knows of a contract printer who handled a large job with one automatic and one manual. "It seems like a horrible thing to do to human beings, when you can buy an automatic press for $15,000," he says.

Capital. Contract decorators need relatively deep pockets. Without enough working capital, they may not be able to buy equipment for lucrative, large jobs or tough it out when large clients are slow to pay.

Deadlines. Deadlines are critical with contract printing, where one order may involve several parties, including a broker and a cut-and-sew shop. "Your promptness is definitely part of the package," Taublieb says.

"It's all about the money, and you are a commodity," says Richard Greaves, supply division manager, Lawson Screen Products, St. Louis, Mo. "You are a cog in the wheel."

Checking goods. Contract printers must handle the constant headache of receiving and managing their clients' goods. "You have to find out if you have the right goods before you set up the press," Kitson says. "You need an efficient tracking system to bring in those goods, and it requires account maintenance, customer service, babysitting, and beyond."

Finishing. Finishing services (bagging, tagging, folding, etc.) are essentially a must, considering that so many contract orders land in retail locations. "You have to offer it, because [customers] aren't going to cross-ship goods somewhere else for another company to do it," Kitson says.

Roth adds, "It used to be something we avoided like the plague, and now everybody wants it. You have to go with the flow: bar-coded boxes, tagging, folding, unusual tagging. The more one-stop shopping clients get, the happier they are."

Minimums. Order minimums vary widely, from a dozen to 1,000 pieces or more. Taublieb says that when he owned a screen printing shop, he quoted only for orders of 100 dozen or more, while Hodges says he wants at least 500. "At that amount, we can usually give the same price [as for larger orders] and still make a little money," Hodges says.

Kitson says his relationship with a customer, not a predetermined policy, dictates what he's willing to accept in the way of order size. "Minimums go out the window (with contract printing)," he says. "If a contract customer wants a dozen shirts with four colors, and he's willing to pay for it on our price matrix, we have to accept it the same way we would 1,000 shirts. The customer's orders aren't all going to be optimum."

Rush orders. For many contract decorators, rush orders are a necessary evil, especially when the customer requesting the quick turnaround is one of your biggest. "I absolutely detested rush orders," Boyd says. "It would mess my whole schedule up. So if somebody wanted a rush order, they had to pay a super premium."

Although some decorators see charging for rush services as a deterrent, others offer it as a freebie - albeit one they rarely provide. "If we can accommodate a request, we will, and there's no punitive charge," Kitson says. "But in our industry, almost all orders are ‘rush' orders."

Hodges adds, "If it's not going to put us in a terrible crunch, we don't charge extra because it helps them - and all that can do is help us."

Communication. Communication problems often come into play because your client may not be the end client, as is often the case with custom work. "If the end user talks to your customer and your customer talks to you, some information may not come through," Roth says. "They might be ignorant of printing and take a job that is unprintable."

Kitson recalls one job where his client, a broker, was refusing the printed garments without even showing them to the end client. "There were so many middlemen that we didn't even know who was rejecting the artwork," Kitson recalls.

Clients also may demand proofs before the job runs, or they may provide subpar artwork. "We may have to spend a day redoing artwork but not charge for it because it's for a 2,000-piece order from a customer who orders every other month," Hodges says.

Money Matters

All other contract printing considerations aside, perhaps the most important one to understand is that contract decorating is truly a game of pennies. If you're only making 50 cents per print, an order of 500 garments yields $250, a figure that must cover labor and overhead. "With custom, you make a lot of money on the shirt, not the printing," Greaves says. "But [with contract work], the only thing customers want from you is your sweat."

Boyd adds, "Keep the machines going as much as possible. Eliminate downtime so you can make more - because that's all you're doing is selling your labor and skill."

That said, sharpen your pencil and figure out how much your shop must earn hourly to maintain a profit. Factors such as your machines' capacity and employees' workload determine both profitability and production scheduling. "You must understand your costs, your speeds, how much you can produce," Taublieb says. "With contract printing, your costs certainly have to be within reason, compared to your competition. But you must understand your costs and the job's complexity and price accordingly."

Kitson offers this real-world scenario: "You may receive a fax that says they need 30,000 shirts, eight-color simulated process on navy blue, and they'll pay 43 cents each," Kitson says. "Do you want it? Do you have the staff to support it?"

Despite the competitive nature of contract printing, decorators must be careful not to under price their services. "It's a problem, not charging for screens, art, or samples," Taublieb says. "Everyone will tell you that's the way it is, but in reality, those companies [for whom] that's the way it was aren't around anymore. Who's coming up with this figure, 35 cents a side? The client, not the printer."

Hodges points out the less you charge, the more you must work. "Another contract printer in Los Angeles does more than $2 million a year at 10 to 15 cents a garment. He does four times our volume in sales, but he makes no more money than we do. You can make some money, or a lot of money. But how much do you want to work?"

Growing Pains

Once you've made the jump into contract printing, it's important that you not rush forward too fast - otherwise, orders may quickly overwhelm and undermine your once-healthy shop. Growing a contract business is a delicate balancing act. "You want bigger orders, but you don't want to grow too fast, get a lull in orders, and have overhead eat you up," cautions Rick Boyd, senior sales rep, Graphic Solutions Group, Dallas. Boyd says he worked for a contract printer that landed a contract for a major athletic company, prompting the shop to buy a third automatic. However, the customer bailed, leaving the printer with a hungry machine. "Within six months, the machine was eating up the shop. It eventually put them out of business."

Greg Kitson, president, Mind's Eye Graphics, Decatur, Ind., added contract printing about six years ago to help pay for an automatic press, and all of its associated expenses. But when the volume of orders started straining the shop's capabilities, Kitson scaled back contract work. "We got too far into contract printing, like a lot of people in our industry do, and we're trying to get back into balance."

Rick Roth, president, Mirror Image, Pawtucket, R.I., agrees that printers can let contract orders overwhelm their shops. "Over time, you stop focusing on sales and marketing, and you get locked into a contract roll."