A good start and a step in the right direction. Where you go from here will depend mainly on whether you plan to publish your prices (on the internet, in your company newsletter - wherever). If you are, those prices will need to be your high water mark, the highest prices you're going to charge anyone. That's because putting prices out there for everyone to see effectively eliminates most surcharges. "We're going to charge you 10% extra because you're such a pain in the ass to work with" is not going to sit well with customers. True, you can still charge more for rush jobs and extra handling, but that's pretty much it.
Not publishing your prices increases your options. You can now price on the curve, with your base prices somewhere in the middle. I'm not advocating one strategy over the other, which, in any event, is another topic. But keeping your prices out of the public eye will let you up-price as you see fit.
Your price table could have as its baseline average prices for average sales volume, as you have suggested. Then you would factor in that "something like that" you alluded to. For starters:
1. Customer Maintenance. How demanding is the customer? How much hand-holding do you have to do? Does he or she always need the job yesterday (and then waits two weeks to pick it up)?
2. Payment History and Credit Worthiness. Is the check constantly in the mail "forever?" What are the chances of the account going belly-up? Keep in mind that most write-offs are caused not by crooks and scammers, but by honest people with poor business savvy who always meant to pay you but in the end couldn't.
3. Reruns. Regardless of who screwed it up. Seriously.
By the time you're done, you would have "low sales volume, high maintenance and high credit risk" customers at the highest price point. And "high sales volume, low maintenance and low credit risk" customers at the lowest. With the rest somewhere in between.
Completely agree with Morning Flight. Quite a few years ago when I was working In NZ my company made a list of all out clients who were excessively high maintenance, they would grind you on price and then wait nearly 3 months to send you a cheque.
The company politely informed said clients that we would no longer be their print supplier.
Best thing that ever happened. Although in these tough times it's pretty hard to turn away any business no matter how detrimental to your business they may be.
The answer would be to have the floating curve for prices that was suggested, it would encourage your good clients and eventually filter out all of the painful cases as they'd probably wander off to accept a "cheaper" quote.
Thanks so much for your reply Hal. My intial idea was to keep it (the price list) between the individual client and ourselves.
At the moment this is how things work at our company (order process if you like):
enquiry>quote by estimator>pricing by rep>accepted quote converts to Job ticket>Production manager then changes the way the job will be run based on Resource availablity>......>Deliver and invoice
This baffles me a bit since one could argue that the process from enquiry to job ticket is just a waste of effort. By using a pricelist type sytem one could change the process to look something like this:
order>production manger puts together a Job Ticket based on how it will actually be printed>...>Deliver and invoice
... one could argue that the process from enquiry to job ticket is just a waste of effort.
If only it were that simple, Mr.G! What works for VistaPrint is unlikely to find traction in the typical print shop. Let's begin there, with the "typical" bit. While it would be foolish to try to make specific recommendations without knowing more about the type and size of your business, here is one, anyway: Don't let your sales rep go just yet.
Assuming your company does fall somewhere into the “typical” category, a price list will be useful for less than half of your daily quotes and orders. Much less, if my own experience is any indication. I used to be a big fan of price lists when I started my own printing company back in the early Seventies (Morning Flight Printing Estimating - Who we are). Then computers came along and our fancy price book, with the attendant paper and pencil and calculator that were still necessary to interpolate quantities and calculate any non-standard paper, was quickly retired.
Aside from the obvious drawbacks of using a price list versus a computer estimating program, your case is unique in that you would need to maintain not one list, but many. One for each customer group and price level. If you’re a specialty printer with, say, ten major accounts, that approach may be viable. Make that 200 accounts and you’re faced with a monumental effort that, in this day and age, is totally unnecessary. Simply use your estimating program to set individual price levels for each customer, then let the computer do all the work, automatically.
A footnote on allowing sales reps to adjust prices on the spot: Not really a good idea. Most reps, bless their black little hearts, are like politicians. Yes, they do care about the well-being of the company, but what they care about most is getting their commission (or, in the case of politicians, getting re-elected).
If you do give reps the authority to cut prices, establish a bottom ceiling below which they’ll need to get confirmation from management. Next, reduce the percentage of their commission by the size of the discount. More than one rep? Reward those who cut prices the least, and then only as a last resort, with a year-end bonus.
But that’s a whole other topic.
Hal Heindel
Last edited by Morning Flight; 01-21-2010 at 12:24 PM.
You bring up another good question. Markup or Markdown?
If you start out with your budgeted hourly rates (this being the break even point). Then add a small amount of markup to the cost (this being the lowest you will sell it for without management approval) Then also have a suggested price. This would allow the salesperson the flexibility for pricing without hurting the company.
Hi. My name is Keith and I'm an avid Morning Flight user. (Clap! Clap! Clap!) Thank you, thank you.
Seriously, I have been reading this thread with great interest. I like the thoughts concerning publishing prices. Since, opening my shop, I wanted to publish a big 'ole price list. Now, I'd rather not. Concerning the Cost Plus versus Value Based- I think it'd be a full time job doing all that market research for pricing! It's hard enough to run a shop. But that's why I don't see Morning Flight as an estimating program, but more like a flight recorder (). It's there to keep track of what jobs are in, who ordered it, when it's due, and what it is. If I don't enter into Morning Flight, it won't get done. Pricing is something I do, and the program does the calculating and recording. Every other job I price I will also calculate it by hand, check competitors prices and analyze my costs. I also keep a set of Franklin Estimating books on my shelf as a baseline reference or when I have no clue what to charge per/M for something odd like tipping cards inside a book.
My name is Keith and I'm an avid Morning Flight user . . . I don't see Morning Flight as an estimating program, but more like a flight recorder.
Appreciate the ringing endorsement, Keith. Don't see Morning Flight as an estimating program?!? You had me going there for a minute. The answer came a few sentences down: “I do the pricing, and the program does the calculating.” Couldn’t have asked for a better definition of the role an estimating system should play in the print shop.
Pricing is, and always needs to be, a cornerstone of a company’s marketing strategy. Estimating should be looked at merely as the mechanical means of applying that strategy, using a predetermined set of pricing factors. In other words, find out how much you can afford to charge (the customer’s tipping point, based on your value proposition of quality, service, price), then synchronize your estimating program with it.
In the Morning Flight manual, I caution our users to not let the software dictate pricing:
“Some estimating systems claim to know your market's sweet spot, the exact point at which your prices are low enough to keep and attract customers, yet still high enough to earn you a profit. Their manufacturers suggest you use these miracle systems straight out of the box, abandon the prices your customers have gotten used to, and step boldly into a more lucrative unknown. What works in Brooklyn, they say, will work in every state and hamlet in the country. There's a bridge in Brooklyn you may want to keep an eye on, because what you'll be stepping into is not where, under the rosiest of circumstances, I would want to take bold steps.”
Ok, so I don’t suggest to our users that they keep a set of Franklin Estimating books on their shelf for reference as Keith does. But frankly, Keith, you could do worse. Franklin has been around literally forever, and they still produce what I consider the gold standard for “average U.S. rates.” NAQP publishes an annual Printing Industries Pricing Study that’s less comprehensive but can be put to good use when you need a second opinion (PrintImage International: News).
Wouldn't be right if I didn't confess that I, too, keep a little Franklin book on my shelf. Titled “Estimating Hints for Printing” and written by by R.T. Porte, it’s not a Franklin book per se, having preceded the Franklin Printing Catalog by some years.
For those of you who have ink running through your veins, Roy Trewin Porte was born in 1876. His love of press work came to him as a child when he prepared small printing jobs on a hand press in his mother's home. He became a printer and editor of various papers. In 1916, he moved his family to Salt Lake City, Utah, to assume the position of secretary of the Ben Franklin Club. He published the first edition of the Price List which became well-known as The Franklin Printing Catalog. In 1924, Porte established the Porte Publishing Company to continue publishing the catalog.
Interesting observation from Chapter 1:
“The cost system was at first hailed as the corrector of all such evils, but it was soon discovered that results from cost systems varied twenty-five percent on the same work when reproduced at intervals in the same office.”
So much for the validity of BHRs. Remember, this was written in 1919, before any of us ever laid eyes on a printing press. Porte travelled widely throughout the West to collect price data for his Franklin Printing Catalog. His message was simple: Don't charge what it costs you to print a job, but charge what other printers are charging for the same "class" of work, then try to produce the job at lower cost. That's pretty much the premise of any pricing guide to this day.
I thought I would add a little more to the historical perspective offered by Hal Heindel. Several years ago, I was able to acquire two books by Spencer A. Tucker. I had been told that Tucker was, in many ways, the "father" of budgeted hourly rates. The first book was Cost-Estimating and Pricing with Machine-Hour Rates written in 1962. This book described how to calculate "machine-hour rates." While not specifically about printing, Tucker's machine-hour rates look a lot like BHR's.
The second book by Tucker was Creative Pricing in the Printing and Allied Industries written in 1975. In this book, Tucker offered the following comments about cost-plus pricing.
"Commercial printers who use formula-based costs and formula-type pricing are engaging in exercises which do not strengthen either their knowledge or profit. In the first instance, "full" or total costs are computed using varions methods which are equally defensible but not objective or traceable to the specific jobs being manufactured and sold. Therefore, each method produces a different cost result. Then, regardless of the specific mark up applied, management gets the notion of a unit profit developing if he sells his product at the formula price. This notion is highly illusionary in view of the arbitrary allocation of common or joint costs associated with a multiproduct company. The mark up on a printer's costs denies the existence of competition and market forces. It fails to take into account the buyer's needs and willingness to pay and what prices competitors are offering. For a printing business to grow and prosper, management must not blindly follow competitors' prices, nor slavishly follow rigid cost methods or inflexible pricing formulas. There is no single cost figure for any one product upon which management can erect its selling price. Even in one were found, management could have no assurance that the mark up to the selling price figure would be acceptable."
Several years ago, I was able to acquire two books by Spencer A. Tucker. I had been told that Tucker was, in many ways, the "father" of budgeted hourly rates.
I have both of the books you mentioned, David, along with a third: "Pricing for Higher Profit," written by Tucker in 1966.
If Spencer's machine-hour rates look suspiciously like BHR's, and I'll agree with you that they do, R.T. Porte predates him by four decades. On page 43 of Estimating Hints for Printing, he states under Hour Selling Rates:
"The modern way, developed through a cost finding system, is to find out what it costs for each productive hour in each department of a printing plant, this cost per hour to bear every so-called 'overhead' burden and in addition a margin for profit."
Who knows, hourly rates may have originated in Marx's Labor Theory of Value . . . with a socialistically unacceptable profit tacked on! What's inexplicable is why printing is the only industry where BHRs still dominate. Googling on "Budgeted Hourly Rates" is a real eye-opener.
Hal Heindel
Last edited by Morning Flight; 01-23-2010 at 10:28 PM.
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Originally Posted by MR.G
). It's there to keep track of what jobs are in, who ordered it, when it's due, and what it is. If I don't enter into Morning Flight, it won't get done. Pricing is something I do, and the program does the calculating and recording. Every other job I price I will also calculate it by hand, check competitors prices and analyze my costs. I also keep a set of Franklin Estimating books on my shelf as a baseline reference or when I have no clue what to charge per/M for something odd like tipping cards inside a book.
