Wednesday, May 1, 2013

Why Every Printing Organization Needs To Update Their Budgeted Hourly Rates

An essential tool for being a competitive and profitable printing organization is budgeted hourly rates (BHRs). Budgeted hourly cost rates distribute 100 percent of an organization's expenses among each piece of production equipment so that all costs are fully absorbed and accounted for in estimates, price quotes, and job costs. Accurate BHRs which reflects true out-of-pocket costs help printing organizations intelligently and competitively price jobs.

BHRs are comprised of direct and indirect costs including wages and benefits, building costs, leases, equipment depreciation, repairs and maintenance, utilities, insurance, office supplies, production supplies, sales expenses, and other costs. These costs are then distributed among each piece of equipment using various formulas and accounting principles.

Companies can calculate their budgeted hourly rates using spreadsheets or hourly cost rates software such as the Cost Rates Advisor An organization should update their BHRs at least annually or anytime there are significant cost changes including equipment purchases, wage increases, personnel changes, increases or decreases in revenues, or other major cost fluctuations.
Maintaining current BHRs enables organizations to be more competitive on the desirable and profitable work, and avoids the less lucrative work as shown in the case study below:

Old BHRs vs New BHRs

This printing organization didn't update their budgeted hourly cost rates for over 3 years. When they finally updated their rates using the Cost Rates Advisor, their press rates increased and their prepress and finishing rates decreased.

With their old BHRs, smaller jobs were being underestimated by 4.2% and larger jobs were overestimated by 10.2%. This was causing the organization to drift towards smaller less profitable work, which also created excess capacity and lower levels of productivity in the shop. The old rates also caused them to lose a substantial number of larger quotes over the years.

The new BHRs made the organization more competitive on larger jobs with higher profit margins, increased the productivity of the shop, and eventually reduced their cost rates because of improved utilization.

If the organization had not updated their BHRs, they would have continued to lose profits and miss out on the more lucrative higher margin quotes.
Click on this link for more information about the Cost Rates Advisor budgeted hourly rates software