Capital Expenditures and Growth

The axiom says that you must spend money to make money. Turns out the statistics prove it true, too.

The manufacturing sector lead the nation in capital expenditures in 2015 with almost $240 billion spent for facilities and equipment, so says the U.S. Census Bureau’s 2015 Annual Capital Expenditures Survey, the most recently available report released in February.

All U.S. industries combined spent a whopping $1.6 trillion on new or used buildings, structures, machinery and equipment in 2015, which was up about 2.5 percent from the 2014 totals.

The census experts say this is the fourth straight year that the total capital spending has increased.

In this issue, Products Finishing presents its Top Shops Benchmarking Survey, a culmination of statistics and data for hundreds of electroplating shops in North America, highlighting those pushing the finishing industry forward.

We took the raw data from those shops and ran them through analytics software overseen by Jan Schafer, the market research manager for Gardner Business Intelligence, a division of Products Finishing parent company Gardner Business Media.

Not only does Schafer tabulate the results of the 40 or so questions in the benchmarking survey, but she also looks for correlations, such as what one set of numbers tell us about a certain question when matched up against a different question.

Schafer knows what she speaks; she is a veteran of Procter and Gamble and its analytics department, and she has an MBA from the Kelley School of Business at Indiana University. She loves numbers to the point where her geekiness in math might scare off the casual observer, but as anyone running a business knows, the devil is in the details and the numbers.

As you will read in our Top Shops section in this issue, Schafer finds some interesting correlations from the 2017 set of results:

Top Shops spent about 10 percent of their gross sales on capital equipment purchases, up from 8 percent a year ago and 6 percent in 2015.

Those not in the Top Shops category spent far less of their overall gross sales on capital equipment, roughly 2.2 percent. Although that is an increase over 1.5 percent from 2016, it is still far off what the Top Shops are spending.

The average capital expenditure spending against gross sales of all shops was about 7.5 percent, up from 6.2 percent in 2016, and 5.5 percent in 2015.

According to Schafer, Top Shops spent the most on updating their equipment, getting in new supplies and improving things such as tanks, pumps, fans and just about everything else that eventually runs out in a plating shop.

What do they get in return? Plenty, as Schafer explains in our Top Shops story in this issue:

Net income as a percent of gross sales—your basic profit margin—was 25 percent for Top Shops, an increase from their almost 20-percent margin in 2016, and a large increase over the roughly 15-percent margin in 2015.

The same margin rose slightly for non-Top Shops, at just over 6 percent in 2017, an increase from 5.2 percent in 2016 and 5 percent in 2015.

What would you prefer, a 25-percent margin or a 5-percent slice of the pie? It seems an easy answer to me: Spend money on new equipment and expand with new lines and equipment where it makes the most sense.

Of course, all of that is easier said than done; there are no contracts or guarantees that a supplier will keep sending a shop widgets to plate or anodize, and the risk may be too much for some shops to handle. Decisions like that are best not made by the faint of heart.

Which is one reason we compile the Products Finishing Top Shops Benchmarking Survey each year. The statistics and data we gather from shops like yours is handled by people like Schafer and her team, determining the best practices shops should follow to achieve maximum success.

Being a Products Finishing Top Shop is a prestigious thing; we pick out and name only the top 50 of the group. But not being in the Top Shops category doesn’t mean you aren't trying to be the best you can be; it takes years of dedication and commitment to earn the status, and if anything, it is a goal for everyone to shoot for.

If you took part in the survey, you’ll receive a comprehensive set of benchmarking reports and data to look over and examine where your shop is in the scheme of things. If you didn’t take part in the survey, make sure to do it next year and then set goals for improvements. It may take 20 minutes to complete, but in this case “time is money” and the goal is to earn more of it.

Originally published in the April 2017 issue.