Proven Pricing Strategies Used By Printing Industry Leaders

Devising an effective pricing strategy is one of the most critical elements for sustaining a successful printing business. After all, you cannot make a sale without first setting a price. 

Nevertheless, most companies give little thought to formulating an appropriate pricing strategy. Many companies utilize simple pricing approaches predominantly to beat the competition, cover costs, and sustain the business.

The industry market leaders tend to implement more innovative pricing strategies that are designed to maximize revenue, cultivate growth, earn higher profits, and generate the highest shareholder value. These price-savvy companies typically apply numerous pricing tactics intended to address distinct short-term and long-term objectives. 

The process of setting an adequate price is not an exact science. Here are a few of the many pricing strategies used in the printing industry.

Cost plus Markup Pricing

This is the most common pricing strategy used by our industry. A sell price is determined by forecasting the cost to produce the order using estimating software, spreadsheets, or worksheets, and then a desired or tolerable profit markup is added to the estimated cost. It is often left up to the estimating department to set the price based on the estimated costs. 

While cost is an important factor for determining price, this strategy has some serious flaws. Estimators are generally unfamiliar with the marketplace, product demand, perceived value, and the long-term value of winning the customer’s business. It often restricts sales, leaves money on the table, and decreases a company’s ability to compete and grow. In general, companies depending on a cost plus markup pricing strategy don’t become market leaders; they are perpetually the underdogs.

Skimming Pricing

A skimming pricing strategy is when a company charges the highest initial price that customers will pay for a new or innovative product that may not be easily assessable from the competition. As the demand of the first customers is satisfied, the company lowers the price to attract another, more price-sensitive segment. Eventually, the price drops as the product matures and competitors offer a similar product or service at lower prices. A good example of Skimming Pricing is when the early adopters of large format printing were able to charge higher prices before large format printing became more available and price competitive.

Gain Market Share Pricing

With the gain market share strategy, prices are set low to gain market share against competitors. Lower prices will eat into your profits, but there are good reasons for this approach. A company may lower prices on digital printing orders to get new customers, knowing that later they'll be able to sell these customers other, more profitable services such as long-run offset printing or mailing services, once they get comfortable with your company. You don't make as much early, but you plan to make money later with "back end" sales.

Versioning Pricing

The versioning strategy is a very effective tactic that can be easily implemented. The idea is to quote the customer slightly different versions or alternatives of the product, for less money. For example, you can quote alternative prices for a more economical size, paper, binding, packing, etc. This strategy can also be used for upselling; i.e. only $79 for an additional 2,000 copies.

Versioning is often frowned upon by the estimating department because it creates more for work for them, but it’s proven to win more quotes and customers. Taking the additional effort to present the customer with cost-savings alternatives demonstrates your will for their business and improves their trust in future pricing.

Customer Demand Pricing

A customer demand pricing strategy is typically driven by an event, a new trend, niche, or the availability of similar products. For example, a company that specializes in political signage can increase prices during the Senate and Presidential elections, when demand is up. After the elections, demand for political signage will decrease and so will prices.

Perceived Value Pricing

Perceived value pricing is the valuation of a company’s products or services according to how much the buyer is willing to pay for it. To price based on perceived value, the customer needs to be convinced of the tangible and intangible values they will receive by choosing your company (i.e. capabilities, on-time service, friendly staff, trust, quality, stress-free, ease of doing business, etc.) Some buyers will not take a company seriously if the prices are too low because they often associate low price with low quality or poor service.

Conclusion

These pricing strategies are just a few of the many schemes used by companies. Other strategies include; value added pricing, product line pricing, promotional pricing, psychological pricing, differential pricing, bundle pricing, and volume pricing. To become a market leader, you need to have a good understanding of your out-of-pocket costs and the strategies that best fit your company’s short-term and long-term objectives.

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About Craig Press and Cost Rates Advisor
Craig Press is the President of Profectus Inc. – a consultancy committed to helping printing and packaging organizations implement best business practices and maximize the value of their information technology investments. For over 20 years, Profectus has been calculating budgeted hourly cost rates for printing and packaging companies. After years of putting up with ineffective software products and spreadsheets, we decided to develop Cost Rates Advisor.
  
CostRatesAdvisor.com budgeted hourly cost rates software was designed by Profectus’ industry experts for the printing and packaging industry. It has been engineered based on proven industry best practices, cost accounting principles, and standards used by industry. The software has built-in "best of breed" formulas, intelligence, and functionality that makes it the industry's most superior product for developing budgeted hourly cost rates. Cost Rates Advisor is used by organizations spanning all industry segments including commercial, digital, mailing, packaging, labels, large format, screen, and in-plant operations. 

For more information click here: CostRatesAdvisor.com

In-Plant Print and Mailing Services Cost Rates

Managers that oversee in-plant print and mailing operations know that understanding their costs is essential to sustaining the operation; whether they’re on a chargeback system or justifying the need for in-plant services.

With constant pricing pressures from outsource vendors; cost estimates, chargebacks, or prices that are off just a few dollars can have a substantial impact on the perception of your parent institution and customers.

CostRatesAdvisor.com budgeted hourly rates software helps solve this problem by determining the minimum rate you must charge for production equipment and services in order to break-even.

CostRatesAdvisor will help you to determine your true costs, provide services below market cost, identify the savings to the organization, and maintain a positive perception from your parent institution.

Easy to Use

The user-friendly design makes it easy to figure the cost rates of your equipment and services.

1. Just enter your budget or expenses, or import them using our intelligent Data Import Wizard.
    
2. CostRatesAdvisor automatically calculates the out-of-pocket cost of your equipment or services using built-in industry best practices and formulas.
    
3. Use the rates to produce more accurate cost estimates and job cost analysis in your Avanti, Pace, Enterprise 32, Printsmith, Franklin, PrintLeader, Monarch, CRC, or whatever software you use.

Tested and Proven

CostRatesAdvisor is used by in-plant and commercial printing operations throughout the United States. Rates can be computed for creative services, offset presses, digital production printers, copiers, large format, cutters, folders, collators, binders, mailing, handwork, and more.

In the "Cloud" and Secure

CostRatesAdvisor runs in the cloud so there's no need to have IT install or download software. You can access it from anywhere, anytime using any PC, MAC, notebook, iPad, or tablet with a compatible browser and internet connection. Your data is protected and secure using strong encryption and password standards.

Easy to Keep Your Rates Up-To-Date

As production trends, expenses, budgets, equipment, and employees change throughout the year, you can easily update your rates so you’re not under-recovering or over-recovering costs.

Learn More>

The Estimator with Rose Colored Glasses

This article is about the typical printing or packaging company whose pricing strategy is heavily influenced, and in some cases controlled by the estimating department.

Estimating is a critical part of the sales process. When a customer requests a price quote, a cost estimate is created by an estimator to help determine the price. If your company is fortunate enough to have one of the few remaining experienced estimators, then you’re confidence they will create an accurate time, material, and cost estimate that can be used to competitively price the job. Or are you?

A seasoned estimator will have an understanding of production processes and how long it should take to produce a job. But an estimator is only as good as the tools and information they are given.

Most printing companies use some form of estimating software to create estimates. These estimating programs rely on databases of production equipment standards and budgeted hourly cost rates (BHRs) to generate time, material, and cost estimates. If your equipment standards and cost rates are outdated or inaccurate, so are your estimates.

A business’ costs and standards are constantly changing as production equipment is added or replaced, new processes and procedures are implemented, personnel change, and expenses increase or decrease. Nevertheless, many companies fail to keep their standards and cost rates up-to-date and indiscriminately churn out inaccurate estimates potentially resulting in losing over-priced work and winning below-margin orders.

True Cost Estimates
To ensure you’re producing accurate true cost estimates and competitively pricing jobs, your equipment standards and hourly cost rates should be regularly updated to reflect your plant productivity and actual costs.
Production standards can be monitored and updated with the help of shop floor data collection and job costing software. Meetings should be facilitated at least every 6 months with the estimators, production, and cost analyst to review and synchronize the estimating standards with actual production makeready, setup, and running speeds and waste.

Additional meetings should be facilitated at least semi-annually with accounting to align the estimating equipment budgeted hourly cost rates with actual company expenses including operating costs, wages, rent, utilities, depreciation, insurance, overhead, and other costs.

BHR software such as CostRatesAdvisor.com makes it easy to calculate your equipment cost rates so you’re always recovering costs. Cost Rates Advisor automatically calculates the break-even costs of your equipment based on your expenses, employee wages, assets, and costs. Financial information can be imported making it easy to keep your rates updated and saving hours of manual entry.

Conclusion
Take off those rose colored glasses and produce accurate and trustworthy estimates that clearly reflect your true costs. You’ll be able to confidently and strategically estimate and price jobs, improve your competitiveness, and increase sales and profits.

For more free articles or to get the details on
how CostRatesAdvisor.com can help your organization click here:

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About Cost Rates Advisor
CostRatesAdvisor.com is inexpensive “Cloud” software that helps printing companies determine the break-even cost of their equipment and services so they can estimate and price smarter, win more sales, and increase profit margins. It’s used by organizations throughout North America including commercial, digital, mailing, packaging, large format, screen, label, and in-plant operations.

About Profectus, Inc.
Profectus is a national consulting company that offers a unique spectrum of professional services with a focus on helping printing organizations improve their efficiency, cost effectiveness, customer service, and profitability by implementing best business practices and embracing technology. For over 20 years our consultants have been contributing to the success of small and large organizations throughout North America spanning all industry segments.

Profectus, Inc.
Printing Industry Business Management Consultants Since 1993
http://www.costratesadvisor.com/
http://www.profectus.com/

PIA Ratio Studies and Financial Ratios DashboardA Perfect Match

Profectus, Inc., a national consulting company that helps printing and packaging organizations improve their business, announced today the addition of a Financial Analysis and Ratios Dashboard in the popular CostRatesAdvisor.com budgeted hourly cost rates software.

The financial dashboard features numerous ratios reports and graphs so companies can benchmark their figures to other companies using the Printing Industries of America’s Ratio Studies*.

For over 90 years the PIA Ratios Studies has been the printing industry’s most valuable financial benchmarking tool for strategic management, investment, productivity, and profitability. The PIA Ratio Studies are a compilation of expenses, assets, salaries, and other financial information from hundreds of printing and related graphic arts firms.

Owners, managers, and analysts can use their CostRatesAdvisor financial information as a benchmark against the PIA Ratios’ industry norms and profit leaders. Some of the ratios presented in the Financial Analysis and Ratios Dashboard include:

• Sales & Administrative costs ratios
• Direct Manufacturing costs ratios
• Payroll costs ratios
• Cost per employee ratios
• Cost center and department costs ratios

According to Profectus President Craig Press, “CostRatesAdvisor.com has come to be more than a budgeted hourly cost rates program. It’s an excellent tool for determining the break-even cost of your production equipment and services, setting prices, tracking cost trends, and now benchmarking your financials to other companies.”

Example Report

Three tiered pricing starting at just $128 for the Basic Edition up to $368 for the fully featured Enterprise Edition makes Cost Rates Advisor very affordable for any size company. To find out more about Cost Rates Advisor, visit www.costratesadvisor.com or call 1-888-868-8662



About Cost Rates Advisor
CostRatesAdvisor.com was designed by industry experts to help companies determine the break-even cost of equipment and services. It provides an accurate picture of a company’s true costs so they can confidently and strategically estimate, price, and cost jobs. Cost Rates Advisor is used by organizations throughout North America spanning all industry segments including commercial, digital, mailing, packaging, labels, large format, screen, and in-plant operations. costratesadvisor.com

About Profectus, Inc.
Profectus is a national consulting company that offers a unique spectrum of professional services with a focus on helping printing organizations improve their efficiency, cost effectiveness, customer service, and profitability by implementing best business practices and embracing technology. For over 20 years our consultants have been contributing to the success of small and large organizations throughout North America spanning all industry segments. www.profectus.com



*PIA Financial Ratio Studies are not included with CostRatesAdvisor but are available through the Printing Industries of America.

Update your 2014 BHRs today and start estimating better, pricing smarter, and maximizing your profits.

One of the most common questions printing companies ask about their estimating is:
“How often should I update my budgeted hourly cost rates?"

The industry best practice is to update your estimating cost rates at least every 6-12 months or anytime there are notable changes in your expenses, equipment, staffing, or productivity. After a company closes their financial year or creates their annual expense budget is always a good time to update cost rates. Your rates may increase or decrease, depending on what changes have taken place since the last time you updated them.

Considering the industry’s competitive environment, rates that are off just a few dollars can have a substantial impact on whether or not you win orders or make a profit. As a matter of policy, an organization should continually update their rates to maintain a competitive edge and sustain profits.

The major challenges faced by companies that don’t keep their cost rates updated includes:

• Inability to make accurate pricing, sales, and investment decisions
• Overpricing and losing valuable and profitable work, and potentially customers
• Selling orders below costs, resulting in lost profits and deteriorated productivity
• Being misled by inaccurate estimating and costing figures

Read: How inaccurate Budgeted Hourly Cost Rates almost put Quality Printing out of business.


The Cost Rates Advisor budgeted hourly rates software makes it easy for organizations to keep their rates updated.  It gives shops a more accurate picture of their out-of-pocket manufacturing and overhead costs so they can strategically estimate and price jobs. You can import data from spreadsheets, accounting software, and print management MIS software - making setup and updates fast and simple.

Cost Rates Advisor is used and proven by offset, digital, large format, flexographic, screen, and in-plant printing organizations throughout North America. Three tiered pricing starting at just $228 makes it affordable for companies of all sizes.

With Cost Rates Advisor, calculating and updating your estimating cost rates no longer needs to be a time consuming and demanding task. So update your 2014 BHRs today and start estimating better, pricing smarter, increasing revenue, and maximizing your profits.

Try it for FREE now by clicking here www.costratesadvisor.com

About CostRatesAdvisor
CostRatesAdvisor.com was designed by Profectus Inc., industry experts in the printing and packaging industry. It has been engineered based on proven industry best practices used by experts such as the Printing Industries of America (PIA)©, National Association for Printing Leadership (NAPL)©, Specialty Imaging Graphics Association (SGIA)©, and the Financial Accounting Standards Board (FASB)©. The software has built-in "best of breed" formulas, intelligence, and functionality that make it the industry's most superior product for developing budgeted hourly cost rates.
 
About Profectus Inc.
Profectus is a national consultancy that helps printing and packaging organizations improve their business by implementing best business practices and maximizing the value of their information technology investments. The company was founded in 1993 and has contributed to the success of hundreds of printing and packaging organizations throughout the United States and Canada spanning all industry segments.

10 Ways to Financially Improve Your Printing Organization

Financial performance is a major concern of all organizations, whether you’re a commercial, packaging, digital, large format, or in-plant printing operation. Here are 10 ways you can improve the financial performance of your organization.

1. Improve Administrative Processes
Implement lean principles in your administrative areas to eliminate unnecessary and redundant non-value-added activities, steps, and handoffs in your sales, estimating, order entry, purchasing, invoicing, and accounting workflow.  Put a team together to define the steps required to get jobs through your administrative processes and design a more efficient "Lean" workflow.

2. Implement Industry Best Practices
Best practices are proven methods in which printing organizations have achieved top performance and serve as goals for other companies that are striving for excellence. Why reinvent the wheel? Improve your financial performance by adapting these accepted best practices to your specific needs.

3. Speed Up Throughput And Delivery
Write up orders accurately and effectively, and then use the quickest means available to produce and deliver products to customers. Unnecessary delays can add days or weeks to customer payments. You must pay out considerable costs in paper, wages, and other expenses to produce orders, so you want to get reimbursed as soon as possible.

4. Leverage Technology
The proper use of technology will improve the synergy of your organization and help it run more efficiently and effectively. An integrated management information system (MIS) like Avanti, EFI Monarch, EPMS, ePace, Radius, or Printers Software is a critical tool for managing and operating a financially sound printing organization. A typical MIS incudes estimating, order entry, inventory management, shop floor data collection, scheduling, job costing, and accounting. Implementing an ecommerce solution can eliminate time and costs associated with processing orders, speed your order to cash cycle, minimize inventory, and enhance relationships among customers and suppliers.

5. Keep A Tight Control On Inventory
Paper accounts for approximately 1/3 of your costs, so less cash tied up in inventory generally means better cash flow. While some suppliers offer deeper discounts on volume purchases, if inventory sits on the floor too long, it ties up money that could be put to better use elsewhere. Implement Just-in-time (JIT) inventory practices to reduce in-process inventory. You should not have items sitting in your inventory if it can be replenished before a job goes to press.

6. Review and Reduce Expenses
Take a hard look at all of your expenses. Consider ways to decrease operating costs, but be careful not to cut costs that could impede performance or profits. Reduce production expenses by scheduling better, reconfiguring work shifts, improving job planning, and eliminating spoilage. If you haven't already done so, implement Lean Office and Lean Manufacturing principles.

7. Know Your True Costs
Having a clear understanding of your costs is essential for producing accurate estimates, pricing orders, measuring job costs and profitability, and generating accurate accounting reports. Good job costing and shop floor data collection software can help to make sure that all of your labor and material costs are fully accounted for and absorbed in your estimating cost rates and pricing.

8. Invoice Customers Promptly
A customer cannot pay an invoice until they received it, so the faster you get the invoice to the customer, the faster you’ll get paid. When possible, send an invoice within 1 to 2 days after the order has shipped. A best practice is to establish the invoice amount when the order arrives and as the customer requests changes. The only exception is billable overs and shipping charges. Many companies are expediting the invoicing process by sending PDF invoices to customers using email.

9. Measure Your Performance
If you don’t measure it, you can’t improve it. If you don’t measure it, you can’t manage it. Time after time studies have found a strong correlation between a company's financial performance and effective goal setting. There are various tools for measuring performance including Performance Benchmarks, Key Performance Indicators (KPI’s), Balance Score Cards (BSC), and dashboards. Metrics can assess the health of your organization’s financial, production, cost, quality, and customer service performance.

10. Utilize Your Employees  Better
The need to effectively leverage the skills of employees is critical to improving your financial performance. You may have some people that have evolved into the wrong position over time. Or employees that are overloaded with work while others do not have enough to keep them busy. Take a close look at the skill set and workloads of your staff. Make sure employees are in the position that is best leveraging their capabilities.

If you're interested in learning how Profectus Printing Industry Business Consultants can improve your organization, contact Profectus for a FREE phone consultation at 1-888-868-8662. Or visit our website: www.profectus.com



Cost Rates Advisor Budgeted Hourly Rates Software

How Budgeted Hourly Cost Rates almost put a printing company out of business.

Case Study - "We learned our lesson the hard way."

An essential tool for being a successful printing or packaging organization is budgeted hourly rates (BHRs). Inaccurate BHRs can put an organization at risk by making them less competitive, less profitable, and less productive as Quality Printing found out in the following case study:

Quality Printing* is a digital and offset printing company with 45 employees located in the Midwest United States. Quality Printing purchased a new Management Information System 3 years ago. Budgeted hourly cost rates were indiscriminately created in order to implement the estimating and job costing software.

For 3 years, Quality Printing continued to produce estimates and job cost reports using the original BHRs with minor changes. When they finally updated their rates using Cost Rates Advisor, they found that their old rates had significantly impaired revenue, profit margins, and growth. Quality Printing had unintentionally been deceived by the estimating figures used for pricing, and the job cost figures used to measure job profitability. Below is a summary of their findings:










Using their old BHRs, smaller jobs were being under-estimated by 4.2%. Unknowingly, Quality Printing was selling smaller, short-run work below their cost. This was causing the organization to drift towards smaller, less profitable work, which required more administrative costs and machine setups to produce orders, and ultimately lowered the organization's profits and efficiencies.

Quality Printing also found that larger, more expensive jobs were being over-estimated by 10.2%. The old rates caused Quality Printing to overprice and lose a substantial number of higher priced, more profitable quotes over the years. This also caused excess capacity and lower levels of productivity in the shop.

"The BHRs we calculated by Cost Rates Advisor has provided insight to our real costs. We have more faith in our estimates, which has helped us shrewdly price jobs, be more competitive on profitable work, and shy away from less desirable work. We're now processing less orders, but at much higher profit margins. We learned our lesson the hard way. Now we update our BHRs at least annually!" -  John, President

If Quality Printing had not updated their BHRs with Cost Rates Advisor, they would have continued to lose profits and would have eventually gone out of business.

Why Profitable Printing Companies Cost Jobs

Studies show that highly profitable printing companies implement job costing practices. Job costing is the processes of tracking the actual cost incurred to produce an order or job and benchmarking it against revenue. Job costs include labor, equipment, overhead, materials, outside services, and other manufacturing costs.

The benefits of job costing are significant. Using job costing will allow you to identify the most and least profitable areas of your business, so that you can focus on the profitable elements, and try to make the less profitable aspects of your business more efficient. It enables you to hone in on the cost performance of individual jobs, products, customers, production equipment, departments, employees, and your overall business.
   
Job Costing with Budgeted Hourly Cost Rates (BHR)
Budgeted hourly cost rates are an important component of establishing a job’s cost. Budgeted hourly cost rates are a best practice used by the printing and packaging industry for over 100 years. A budgeted hourly cost rate is your out-of-pocket cost associated with each piece of production equipment in your shop. Budgeted hourly cost rates are comprised of operator and helper wages, benefits, rent, leases, equipment depreciation, supplies, utilities, insurance, administrative costs, overhead, and other expenses.

The objective of BHRs is to recover 100 percent of your costs with the production equipment and labor hours you bill out (i.e. prepress, platemakers, presses, digital copiers, wide-format printers, cutters, folders, handwork, etc.).
  
Budgeted hourly cost rates software such as CostRatesAdvisor.com helps printing companies calculate their hourly cost rates using industry formulas and best practices.

Record Keeping
There are several approaches for tracking job costs. The simplest and least expensive method for tracking costs is to have employees write their time on the back of a job ticket or a production time card form. Upon completion of each job, multiply the hours worked by the production equipment hourly cost rate and run a total to get the job’s total cost.

A more efficient and accurate method for tracking job costs is putting computers on the shop floor for the employees to record their activities. There are over 50 shop data collection software products on the market to choose from, varying in capabilities, and ranging in price between $199 and $50,000.

Reporting
There are several key detail and summary reports a company should have for analyzing job costs.

An "Estimate verses Actual Report" is the most important job costing report. It compares a job’s estimated costs to actual costs, identifying any cost variances for each phase of a job, the profit earned on the job, and inefficiencies in estimating or production costs. The results will help you to create more accurate and profitable quotes for future jobs; or improve your production processes. An Estimate verses Actual Report will also help ensure that the customer is properly being invoiced for all the work you did.

https://www.printersadvisor.com/

 

A job costing summary report that shows cost variances for a range of jobs by product type is essential for determining your most profitable products (your niche), where you need to improve, and support future pricing decisions on similar products.

A job costing summary report that shows a range of jobs by customer will identify your least and most profitable customers and can be a catalyst for future pricing and markup strategies for individual customers.

Other Benefits
Profitable companies have experience many other benefits of implementing job costing including:

• Forecasting costs and resources necessary to provide particular services or products
• Defining sales and marketing strategies for products
• Measuring and improving the performance the operation
• Support for future equipment investments
• Identifying spoilage and defects to take corrective actions

Job costing provides knowledge that can make your business more profitable and easier to manage. When done well, it separates the profitable companies from those that struggle to make a profit.

 

By: Craig L. Press
President, Profectus, Inc.

 

To try CostRatesAdvisor.com BHR software for FREE or for more information visit our website http://www.costratesadvisor.com/

 

Survey Results"How often do you update yourequipment budgeted hourly cost rates?"

 

 

Up-to-date cost rates will allow companies produce sharper estimates that reflect their true costs. It will help eliminate pricing errors that can lead to lost work and improve the accuracy of estimates to make your shop more competitive and profitable. You'll have a more accurate picture of out-of-pocket manufacturing and overhead costs so you can intelligently and strategically price jobs.



 

Visit http://www.costratesadvisor.com/ to update your rates now.

An Easier Way To Establish Equipment Budgeted Hourly Cost Rates

Many of our subscribers have been asking for an easier way to calculate and update their equipment budgeted hourly cost rates. After all, the industry best practice is to update BHRs at least annually.
 
For years our consultancy has used software or spreadsheets to calculate BHRs for our clients. We often have to create “workarounds” in these limited software products to get true results. Spreadsheets are a better option but required a lot of work every time we want to update rates or add another piece of equipment, even with our creative Microsoft Excel formulas and links.
 
Which is why we decided to develop the Cost Rates Advisor budgeted hourly rates software. Cost Rates Advisor was designed based on proven cost accounting principles, best practices, and standards used by the industry experts including the Printing Industries of America (PIA), National Association for Printing Leadership (NAPL), Specialty Imaging Graphics Association (SGIA), and Financial Accounting Standards Board (FASB). The software has built-in "best of breed" formulas, intelligence, and functionality that makes it a superior product for developing hourly cost rates.
 
The innovated design of the Cost Rates Advisor simplifies the entry of data with an intuitive, straight-forward user interface. All of the entry screens, reports, and help screens provide hyperlinks and drill downs directly to the source data.
 
A Data Import Wizard saves users hours of manual data entry by importing income statements, budgets, expenses, payroll information, fixed assets, cost centers, and other data directly into the Cost Rates Advisor database. Import templates and field mapping functionality enables the export of data from accounting or MIS software into Cost Rates Advisor.
 
Interested in learning more? You can try the Cost Rates Advisor for just $59 or $39/month for the yearly plan. There is no obligation and you can cancel any time. http://www.costratesadvisor.com/

Example Cost Rates Advisor Detail BHR Report

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 www.costratesadvisor.com. 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:

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 http://www.costratesadvisor.com

Including Spoilage Costs in your BHRs

Every company experiences spoilage. Spoilage is any material, labor, and manufacturing costs as a result of product either rejected by your own company or by the customer. When spoilage occurs, replacement product must be produced or rerun. The labor and manufacturing costs is already accounted for in your hourly cost rates, but the paper and other material costs is not recovered in your rates. Therefore, it is a good practice to add the material spoilage cost into your Budgeted Hourly Cost Rates (BHRs) in attempt to recover the costs.


www.CostRatesAdvisor.com

New Budgeted Hourly Cost Rates “Cloud” Software For The Printing and Packaging Industry

New Budgeted Hourly Cost Rates “Cloud” software simplifies the task of calculating budgeted hourly cost rates for your equipment.

The Cost Rates Advisor is easy to use, software designed for the printing and packaging industry to take the mystery out of calculating budgeted hourly cost rates for your equipment. Determining your hourly cost rates no longer needs to be a difficult and time consuming task. The innovated design of the Cost Rates Advisor makes the entry of data simple with an easy to follow, straight-forward user interface.

You don't have to know accounting to calculate your budgeted hourly cost rates. Just enter your company data and calculate your hourly cost rates in minutes rather than days, no matter how big or small your company. It’s easy for anyone to use.

The Cost Rates Advisor was designed based on proven cost accounting principles, best practices, and standards used by industry leaders and experts.

The Cost Rates Advisor systematically compiles and distributes 100 percent of your expenses among each piece of production equipment so that all of your costs are accurately recovered in your estimates, pricing, and job costs.

It provides insight into exactly what makes up the cost of each department, cost center, and overhead. So you can stay informed of your true costs, keep track of your rates, stay competitive, and make greater profits.

Comprehensive Reports
The Cost Rates Advisor offers a variety of comprehensive, easy to read and understand reports that help ensure all your costs are accounted for in your cost rates. The budgeted hourly cost rates reports list the annual costs to operate each cost center including your direct manufacturing costs, direct labor costs, overhead costs, building and occupancy costs, all inclusive costs, and hourly cost rates based on various levels of productivity. You can display or print detail and summary reports that help you manage your costs rates including:

         • Deatail Budgeted Hourly Cost Rate Reports
         • Sales and Administration Costs Reports
         • Building Occupancy Cost Reports
         • Cost Center Cost Reports
         • Department Cost Reports
         • Employee Labor Cost Allocation Reports
         • Expense Allocation Reports
         • Asset Depreciation Cost Reports

Click Here To Learn More About Budgeted Hourly Cost Rates Software

Proven Pricing Strategies
Used By Printing Industry Leaders

By Craig L. Press

President, Profectus Inc

Printing Industry Business Consultants

Devising an effective pricing strategy is one of the most critical elements for sustaining a successful printing business. After all, you cannot make a sale without first setting a price.

Nevertheless, most companies give little thought to formulating an appropriate pricing strategy. Many companies utilize simple pricing approaches predominantly to beat the competition, cover costs, and sustain the business.

The industry market leaders tend to implement more innovative pricing strategies that are designed to maximize revenue, cultivate growth, earn higher profits, and generate the highest shareholder value. These price-savvy companies typically apply numerous pricing tactics intended to address distinct short-term and long-term objectives.

The process of setting an adequate price is not an exact science. Here are a few of the many pricing strategies used in the printing industry.

Cost plus Markup Pricing Strategy This is the most common pricing strategy used by our industry. A sell price is determined by forecasting the cost to produce the order using estimating software, spreadsheets, or worksheets, and then a desired or tolerable profit markup is added to the estimated cost. It is often left up to the estimating department to set the price based on the estimated costs.

While cost is an important factor for determining price, this strategy has some serious flaws. Estimators are generally unfamiliar with the marketplace, product demand, perceived value, and the long-term value of winning the customer's business. It often restricts sales, leaves money on the table, and decreases a company's ability to compete and grow. In general, companies depending on a cost plus markup pricing strategy don't become market leaders; they are perpetually the underdogs.

Skimming Pricing A skimming pricing strategy is when a company charges the highest initial price that customers will pay for a new or innovative product that may not be easily assessable from the competition. As the demand of the first customers is satisfied, the company lowers the price to attract another, more price-sensitive segment. Eventually, the price drops as the product matures and competitors offer a similar product or service at lower prices. A good example of Skimming Pricing is when the early adopters of large format printing were able to charge higher prices before large format printing became more available and price competitive.

Gain Market Share Pricing With the gain market share strategy, prices are set low to gain market share against competitors. Lower prices will eat into your profits, but there are good reasons for this approach. A company may lower prices on digital printing orders to get new customers, knowing that later they'll be able to sell these customers other, more profitable services such as long-run offset printing or mailing services, once they get comfortable with your company. You don't make as much early, but you plan to make money later with "back end" sales.

Versioning Pricing
The versioning strategy is a very effective tactic that can be easily implemented. The idea is to quote the customer slightly different versions or alternatives of the product, for less money. For example, you can quote alternative prices for a more economical size, paper, binding, packing, etc. This strategy can also be used for up selling; i.e. only $79 for an additional 2,000 copies.

Versioning is often frowned upon by the estimating department because it creates more for work for them, but it's proven to win more quotes and customers. Taking the additional effort to present the customer with cost-savings alternatives demonstrates your will for their business and improves their trust in future pricing.

Customer Demand Pricing A customer demand pricing strategy is typically driven by an event, a new trend, niche, or the availability of similar products. For example, a company that specializes in political signage can increase prices during the Senate and Presidential elections, when demand is up. After the elections, demand for political signage will decrease and so will prices.

Perceived Value Pricing
Perceived value pricing is the valuation of a company's products or services according to how much the buyer is willing to pay for it. To price based on perceived value, the customer needs to be convinced of the tangible and intangible values they will receive by choosing your company (i.e. capabilities, on-time service, friendly staff, trust, quality, stress-free, ease of doing business, etc.) Some buyers will not take a company seriously if the prices are too low because they often associate low price with low quality or poor service. To price base on perceived value, consider the following questions:

Conclusion These pricing strategies are just a few of the many schemes used by companies. Other strategies include; value added pricing, product line pricing, promotional pricing, psychological pricing, differential pricing, bundle pricing, and volume pricing. To become a market leader, you need to have a good understanding of a number of different strategies and adopt the strategies that best fit your company's short-term and long-term objectives.

To learn more about developing and implementing an effective pricing strategy for your business, attend Craig Press' "Pricing Strategies for the New Economy" seminar:
- March 2, 2012, Graphics of the Americas Expo and Conference, Miami Beach Convention Center Graphics of the Americas Seminars Page

- April 17, 2012, Printing Industry Midwest, Ricoh Print Learning Center, Roseville, MN PIMPricing Strategies for the New Economy Workshop Registration Page

Printing Industry Performance Metrics

A major contributor for improving a printing business is performance metrics. There are various methodologies and tools for measuring performance including Performance Benchmarks, Key Performance Indicators (KPI's), and Balance Score Cards (BSC).

This is not a new concept. Just do a Google search on the following quotes:

"What gets measured, gets managed" ... 2,780,000 Google results
"You can't manage what you don't measure" ... 170,000,000 Google results
"If you don't measure it, you can't improve it" ... 180,000,000 Google results

The performance of production can be measured by tracking spoilage, efficiency, productivity, and other measurements. Performance metrics are not limited to production. They can also be established for other areas such as order entry, invoicing, and inventory. Baselines and improvement goals should be established for each metric. Metrics can be at the company, department, cost center, or employee level.

The best implementation of performance metrics is one that is tied to incentive programs. Each employee and department should have incentive performance goals relevant to their area. The production incentive program could include efficiency, productivity, spoilage, quality, and profitability. The administrative areas could include average time to get orders into production, cost to process orders, quotes per estimator, and average time or days to invoice customers.

How you measure, collect, and present the information should be easy for employees to grasp. It's best to establish realistic short term goals as well as long term goals. The short terms goals make the long term goals seem more achievable and makes employees more optimistic. The following example Order to Production Throughput Metric is an excellent example of how to implement and present the information.

Example Order to Production Throughput Metric

 

Here are some performance metrics you may want to consider implementing in your business.

- Estimate/quote process time
- Number of customer complaints
- Orders per pre-production employee
- Sales per employee
- Sales, costs, and profits by product category
- Administrative cost per order
- Invoicing process time
- Administrative cost per invoice
- Spoilage hours and costs by reason
- Spoilage as a percentage of sales
- Direct and indirect expenses per employee
- Total and average value of invoices
- Receivables Days Outstanding

If you're interested in learning how Profectus' Printing Industry Business Consultants can improve your organization, contact Profectus for a FREE phone consultation at 1-888-868-8662. http://www.profectus.com/services/bp.htm


About Profectus
Profectus printing industry business consultants are committed to helping printing and packaging organizations implement best business practices and maximize the value of their information technology investments. Profectus has been contributing to the success of small and large printing and packaging organizations throughout the United States and Canada since 1993. Our consultants provide expertise in management information systems, estimating, customer service, order entry, job planning, purchasing, inventory, production management, scheduling, cost accounting, invoicing, and other administrative practices.

Printing Industry Best Practices Tracking & Reducing Spoilage Costs

One of the easiest ways a company can improve their businesses is by reducing spoilage. Spoilage is defined as wasted materials and labor consumed as a result of avoidable errors. Rework is another form of spoilage. Rework is the costs associated with reproducing a job rejected by the customer or because it did not meet your own expectations.
     
The most common method of measuring spoilage is to calculate spoilage costs as a percentage of revenue. Using this method, a company with annual spoilage costs of $30,000 and sales of $10,000,000 would have a 3% spoilage rate. The industry leaders aim for a spoilage rate between 1/2 percent and 2 percent of revenue.

There’s another gauge of spoilage that many companies fail to recognize. If a company's profit margin is at 10%, then the profit on a $10,000 job is $1,000. If the company spoils $1,000, then that company losses $10,000 in sales. The lower a company’s profit margin, the greater spoilage impacts the bottom-line. The following chart can help employees realize how much that $100 mistake really cost the company.  

% Profit	Spoilage Costs
	$10	$100	$1,000
3%	$330	$3,333	$33,333
5%	$200	$2,000	$20,000
10%	$100	$1,000	$10,000
	Sales required to recover spoilage costs

So who pays for spoilage? Since all printing organizations are in the business to make a profit or at least breakeven, the customers ultimately pay for spoilage. The higher an organization's spoilage, the higher the product sell price must be to recover spoilage costs. Obviously higher prices will make an organization less competitive and more likely to loose business.

To reduce spoilage a company must first identify what’s causing the errors. Errors can be tracked by recording the error cause, the solution, and the recovery costs. (download an example spoilage tracking form). Most business management systems also have the capability to track and report errors. Spoilage should be reported and monitored by reason on a weekly, monthly, quarterly, and yearly basis.

Reducing spoilage will also eliminate the non-value added activities needed to recover from errors. Non-value-added activities are those activities that aren’t required but still occur. Anything that adds unnecessary time, effort, or cost is considered non value-added. To put it another way, non-value-added activities are any activity for which the customer is not willing to pay.

Most errors can be avoided by implementing better processes and through training. Organizations that implement a spoilage reduction initiative will reduce production costs, add more capacity to perform value-added activities, improve product quality, improve competitiveness, and increase profits.

Click here to learn more about reducing spoilage and improving your business processes. 

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Profectus, Inc, is a national consultancy that helps printing organizations implement best business practices and maximize the value of their information technology investments.

Profectus, Inc.
Printing Industry Business Consultants
advisors@profectus.com
http://www.profectus.com/
Phone: 888-868-8662
Phone: 941-379-8700