How to price digital printing
Pricing is determined by your clients, learning to cost a job is up to you
Digital printing, often the domain of smaller printing operations, is usually overlooked from an estimating and MIS standpoint. A number of software vendors serve this market but smaller firms typically have fewer resources to draw on. Few can allocate $25,000, let alone $500,000, to buy and implement a dedicated MIS system.
Competition is always tough, but among small print shops it’s fierce. Now we have office supply companies competing with small shops, which to some may seem like a David and Goliath scenario. We all see signs offering copies from 4¢. Often this is the price that customers remember and we end up spending half of our time educating them about true pricing and the value of print. Let’s figure out how to estimate digital printing.
Cost vs. price
First, costing and pricing are completely different. This process will help you determine your cost for producing print. The pricing is actually determined by what your customers are willing to pay, based on their experience and what your competition is charging. The variables for determining the cost of printing are common, whether you’re a one-person quick print shop or a Quebecor.
All successful businesses need to recover more money than they spend. The following costs need to be calculated for the entire operation, but allocated for the specific department, retail space or cost centre. For example, if your rent is $20,000 a year and the design department needs 10% of the space, you would allocate $2,000 a year plus other related facilities costs and a portion of common expenses.
+ Variable costs
= DIRECT COSTS
+ General expenses
= TOTAL COSTS
+ Administrative overhead
= TOTAL ANNUAL COSTS
COSTS PER CHARGABLE HOUR =
Total annual costs divided by estimated number of chargeable hours per year.
Divide this figure by the number of productive hours in a year. For example, a one-shift operation may have 2,000 hours available for sale. However equipment maintenance, lack of work, or other factors mean you may only sell 1,500 hours. This is equal to 75% efficiency. (1,500/2,000 X 100) = 75%
BUDGETED HOURLY COST =
Cost per chargeable hour divided by productivity percentage.
If you need help calculating your budgeted hourly costs, consider a software program called Sextant by PSK and Ass-ociates (www.psk-associates.com).
With the calculated cost per hour, you can determine your minimum chargeable rate for design or file manipulation, operations that are traditionally estimated by multiplying the time required by your hourly rate, plus any materials required.
Retail operations require similar calculations. However, other factors need to be considered, like racking, inventory turnover and sales. Instead of recovering by cost-per-hour, you need to calculate the cost for the retail operation and the projected sales. This indicates what your minimum product markup should be.
Recover ‘click’ charges
Converting cost per chargeable hour to cost per impression is the next step. Under ideal conditions, a DocuTech is rated at 180 impressions per minute, or 10,800 impressions per hour. That means long-run work, no file or imaging preparation time on the DT and no paper jams. In reality, you should average the productivity at something like 75% of rated speed.
Using hypothetical estimates, the BHR can be used to calculate the cost per impression of a one-sided black-and-white copy.
BHR DT 6180 $200 per hour
Rated speed 180 impressions per min.
Estimated speed 135 impressions per min/ 8,100 impressions per hour
BHR cost recovery
Total cost per impression 0.0324
If you charge under 3.24¢ per impression for a long run, you are actually losing money. Similar calculations should be applied for other operations, including design, file manipulation and training. Most operations can’t charge for time spent with new customers, or for reviewing file formats, media, and digital troubleshooting. Therefore you need to include in your general expenses, development and training time that is not recovered on each job, but recovered over all the jobs.
On a final note, these calculations may be the basis for a price-list approach, however I would not recommend it. You should review each order and understand the value that you can bring to the relationship. Price lists can help your staff with a quick estimate, but if customers get them they may make wrong assumptions or decide to take the job elsewhere.
Bob Dale is the president of Pilot Graphic Management Services Inc., a company providing management consulting and custom training for organizations. He is also on the executive of the Toronto Club of Printing House Craftsmen. Bob can be reached at (416) 410-4096, or via e-mail at firstname.lastname@example.org.