Strategy: Should You Purchase Your Own Paper?

Purchasing your paper direct through a paper merchant might be a way to save money, but it’s not for all mailers. This month, I’ll help you determine if you’re a candidate to purchase your own paper and what it can mean in terms of savings, as well as the risks and common misconceptions associated with it.

While printers traditionally have been more qualified to purchase and manage paper than most small- and medium-sized catalogers, the management and economics of purchasing paper have changed in the past few years, often making it wiser to buy your own paper. Paper merchants have made it easier to purchase paper direct. They often can put price caps in place, although I don’t always recommend this, for reasons explained later. Additionally, they negotiate payment discounts and manage the inventory for you.

When to Buy Your Own

Your tonnage requirement, i.e., volume, is a key determining factor. Small catalogers probably shouldn’t purchase their own paper if they print in low quantities once or twice a year. Paper mills don’t ship the exact amount of paper, since they round to the nearest roll beyond what’s needed. That can be problematic to smaller catalogers.

If you purchase less than 80,000 pounds of paper at a time (about two truck loads), it’s probably best to continue buying paper through your printer. As a guide, this is the equivalent of approximately 300,000 64-page catalogs with a trim size of 8 inches by 10-1/2 inches on 40 lb paper. If your needs exceed these minimum standards, consider supplying paper to your printer.

In brief, consider buying your own paper if you:
• print at least three or four times per year;
• purchase a minimum of 80,000 pounds to 100,000 pounds of paper at once; or
• are certain you won’t be changing grades or the basis weight of the paper you’re using.

Potential Savings

Paper and freight are large profit centers for printers, and catalogers understand these charges the least. Reasonable savings from purchasing your own paper range from 4 percent to 6 percent. Informing your printer that you may buy paper from a merchant often will result in a cost savings without changing a thing. This can spark lower paper consumption requirements and a lower cost per hundred weight.

Most savings result from paper consumption percentages. Typically, catalogers under consume by 2 percent to 3 percent, which goes back to your inventory if you purchase your own paper. If the printer purchases the paper, however, any overage will be put back into the printer’s inventory to be sold again to another cataloger.

A paper merchant might offer you a price cap, but I don’t recommend taking advantage of it. Often, the merchant will set the cap high to be certain it’s price protected. This can be an expensive insurance policy. It sounds good on the surface, but it’s not really practical—or necessary.

Some Misconceptions

Also, be aware of several misconceptions about purchasing paper. Consider some of the more common objections raised by printers and paper consultants:

Objection No. 1—Printers have more buying leverage than you. If you’re working with respected paper merchants, you’ll most likely enjoy the same leverage afforded to your printer. When you purchase paper direct, you’ll have more control over the exact paper you’re buying and the mill you’re buying from.

A word of caution: Often, printers gang order paper for multiple catalog clients in order to obtain the best price, which is more difficult for a merchant to do.

Objection No. 2—You’re stuck if the paper is bad. Although it’s highly unlikely the paper you supply your printer with will be bad on press, it does happen on occasion. The mill guarantees the paper, and the merchant will stand behind you. What’s more, your printer won’t abandon you simply because you supply your own paper. The printer wants to resolve any paper problems as quickly as possible. So it’s likely to call your merchant first in order to resolve any issues. The mill often will replace the paper for you, but usually not in time to make your press date. Some printers may bill you for the press time.

Objection No. 3—Supplying paper creates more work for you. A few years ago, this was a greater concern. Managing paper inventory and consumption is part of the service that better merchants provide. Merchants will work closely with printers to manage all of the details. There always are butt rolls to manage, which is especially important if you decide to change printers. Make sure your merchant sees that any remaining paper is transferred to your new printer.

Objection No. 4—Your cash flow will change when buying your own paper. Standard terms include a 2 percent discount if the invoice is paid within 20 days and net 30 days from the mill ship date. Paper generally ships one week prior to the press date of a given catalog run. Some printers require a three-week lead time from the press date, because the delivery dates from the mills can’t always be relied upon.

You’ll have to pay for the paper two to four weeks before you’d have to pay your printer for it. Printers often extend payment terms, such as half due in 30 days from mail date, with the balance due in 60 days. The chart below details the cash flow impact of buying paper direct compared to buying from the printer.

Be sure your cash flow supports buying your own paper. You’ll write a large postage check on or about Feb. 5 in my example on the chart. You’ll pay for the paper approximately two weeks before the postage check is due and up to four weeks before you start to receive orders from your mailing.

Paper represents approximately 60 percent of total catalog printing and paper costs, a significant part of total direct selling expenses. If you can save at least 4 percent to 6 percent, it’s probably worth considering. But your print quantities dictate whether or not you should purchase your own paper.

I’m not trying to drive a wedge between you and your printer. Your printer performs an important function for you and has your best interest at heart. It’s simply a matter of economics.

The more paper you use, the more you can save. For a net savings of 3 percent or less, it’s probably not worth it. But, the greater the percentage savings to your company, the more sense buying your own paper can make for your business.

Stephen R. Lett is president of Lett Direct Inc., a catalog consulting firm specializing in circulation planning, forecasting and analysis. Contact: (302) 537-0375 or www.lettdirect.com.