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Calculating Click Charges for Variable Print

One of the differences between static and variable printing is that there are no plates to produce,

By WhatTheyThink Staff
Published: June 8, 2009

One of the differences between static and variable printing is that there are no plates to produce, which simplifies the estimating process. The preflight/setup process is still required since the files must be reviewed to meet the requirements of production. If the project is static, estimating is fairly straightforward. Yet, if the project will utilize the variable capabilities of the equipment, prepress estimating has the potential to be complex.

A second important issue with variable print is the way costs are calculated. Since the manufacturing costs inherent to digital printing devices are very different than other capital equipment used in the printing industry, the philosophy of developing

costs prior to discussing estimating procedures needs to be explored and clarified. Although traditional estimating accounting says we should calculate a BHR to capture direct and indirect costs, it’s not practical with these variable print devices.

Nearly all variable print units have direct operating costs—maintenance and consumables—that are charged by the manufacturer. The cost of maintenance—and sometimes consumables—are charged by the number of copies produced on the machine. This is referred to as a “click charge.”

A click can be defined as a rotation of the printing cylinder. If we printed 50 copies on one side, the printer would pay a set maintenance/consumable fee based on 50 impressions or “clicks.” If these 50 copies were printed two sides as a “duplex” job, he would be charged for 100 copies. Consequently, the majority of pricing/estimating models are based on calculating a cost per impression or copy.

The companies that sell variable print equipment also maintain them, thus the direct cost of operation will vary by (1) manufacturer, (2) the amount of copies that the printer produces in a set period (normally a month), (3) the type of device/model and ancillary equipment such as in-line finishing, and (4) the length of the maintenance contract. As will be seen below, these costs are significant and can’t be adequately recovered using the traditional BHR system as discussed earlier.

With traditional equipment we use a percentage of productivity and standards to assign costs based on chargeable hours. For digital printing equipment, the budgeted cost is based on the number of copies budgeted to be produced in a period of time and not the actual chargeable hours required.

Assigning Costs

As with any cost allocation, we have to look to three elements: (1) the cost of labor, (2) the cost of the equipment (capital cost), and (3) the overhead (burden) assigned to the cost center. In the following example, we will determine the “click” costs for a process-color variable print device that runs on one shift and has a capital cost of $300,000.

The example problem below outlines the conceptual nature of creating a cost matrix for estimating based on the “click charge” approach. Various approaches are used to develop costs, and as with any costs development, they must be based on the individual company’s cost of operation as well as their equipment manning and amount of hours operated.

Note: The published text includes three pages from the PIA MidAmerica Bluebook of Hourly Rates, showing “click charges” for variable-data digital presses and production copiers. The variable-data digital presses are operated on a two-shift basis and paper costs are not included, while the production copiers also do not include paper costs but are operated on a one-shift basis. All equipment is amortized using a three-year life span.

This regional PIA/GATF affiliate published this book based on cost models for printers operating in Texas, Oklahoma, Kansas, and Missouri. “Bluebooks,” which are produced by various trade associations across the United States, create costs models based on industry economic data. These publications are used by printers to help create their own rates.

Example Problem

Calculating “Click Cost” and Building Simplex and Duplex Cost Matrices for a Variable Print Device Running One Shift and Costing $300,000

Step 1. Calculating direct labor cost. This cost will be the wages paid to the employee and the costs of employment taxes and benefits (health insurance, workers’ compensation, and additional benefits) associated with the employee. (Note: In most instances, these devices are not “manned” 100% of the time—the operator will monitor several devices at one time. For simplicity of this model, we will assume one operator, one device.)

  • Direct labor cost: Annual wages + Labor fringe benefits
  • Labor fringe benefits (FICA and FUTA taxes, health and workers’ compensation insurance, and miscellaneous benefits—as a percentage of labor rate): 25.53%*
  • Annual wages: $18.00* x 2,080 (hours worked in one year) = $37,440
  • Fringe benefits: $37,440 x 0.2553 = $9,559
  • Direct labor cost: $37,440 + 9,559 = $46,999 (rounded to $47,000)

*Digital press operator wages and fringe benefits based on the 2007 PIA MidAmerica Wage and Benefit Survey

Step 2. Amortizing the cost of equipment. The cost of the device is amortized over a three- to five-year period. We will assume $300,000 capital cost of equipment.

Capital cost of equipment using a five-year amortization:

$300,000 ÷ 5 years = $60,000 per year

Step 3. Burden allocation for overhead and indirect costs. An allocation of indirect and overhead costs must be applied to the device. There are various ways to assign these costs as was discussed when building hour rates. For this example, we will allocate indirect and overhead burden based on a percentage of the total amount of capital (equipment) and labor. The ratio we will use is 80%.

Burden Cost = (Annual cost of equipment + Annual cost of labor) x Burden factor

= ($60,000 + $47,000) x 0.80

= $107,000 x 0.80

= $85,600

Step 4. Total annual cost of operation.

Labor cost:                                                  $47,000
Equipment cost:                                           $60,000
Burden for overhead and indirect cost:            $85,600
Total cost:                                                   $192,600

Step 5. Calculate machine cost. Assume that average production will be 270,000 “clicks” a month based on one shift of production at 65% chargeable time. This calculates to 3.24 million impressions per year; thus the cost per impression/copy for labor and overhead is calculated as follows:

$192,600 ÷ 3,240,000 = $0.0595 per copy (a.k.a. machine costs)

Step 6. Assign maintenance and consumable costs. All manufacturers of variable print equipment charge a maintenance cost per “click.” This covers the labor to repair the device as well as any parts. Some manufacturers will include the cost of ALL consumables, including ink/toner in their maintenance costs, while other firms do not include the cost of ink/toner. This varies by manufacturer and by type of contract.

On a black-and-white variable print device, maintenance costs (also known as “click”

costs) run less than $0.01 per copy. However, the click cost for a multicolor print device could vary from $0.06 to $0.10 depending on a variety of variables including the manufacturer, the inclusion of toner/ink in the click cost, the length of contract, the amount of copies produced in a month, and the print device itself.

Our example will use a consumable/maintenance cost of $0.08 per click, which will also include the cost of ink.

Step 7. Calculate the “click charge.” To determine the cost per copy—the “click charge”— the “machine” cost plus the maintenance cost are added together.

$0.0595 + $0.08 = $0.1395 per copy “click charge”

Thus, at the production level we have used as our base, the cost for 100 clicks is $13.95 and the cost for 1,000 would be $139.50. This calculation does not include the cost of paper.

Step 8. “Click charge plus materials.” Many printers will incorporate the cost of paper and ink/toner into the cost matrix. Because the example we are using incorporates the cost of ink (remember this can vary from manufacturer to manufacturer), we just add the cost of paper to the click cost.

To complete this pricing matrix, the cost of basis 80 paper will be added using a base cost of $3.46 per 100 sheets. Note: The first printed copy from a digital print device is useable, thus there is no allocation for setup paper waste.

“Click charge” (Step 7 above):                          $0.1395 per copy
Material cost, paper: $3.46 ÷ 100 shts. = $0.0346 per copy
Total “click + paper”: $0.1395 + $0.0346 =          $0.1741
Cost per 100 clicks: 100 x $0.1741 =                $17.41

Step 9. Adding the file preparation charge. The last cost to add is the file preparation charge of $19.00, a standing cost for our company. For the sake of simplifying our matrix, we will include this file prep charge in the initial cost.

Step 10. Developing the variable print “click charge” matrix. Using a “click charge” of $17.41 per 100 copies from Step 8—which includes paper and ink—and adding the $19.00 file preparation charge from Step 9, the 100-unit base cost in the cost matrix is $17.41 + $19.00 = $36.41. Each 100-unit increment adds $17.41 to build the matrix.

“Click charge” matrix to print a four-color job on one side (simplex) on a variable-data press:

100 = $36.41
200 = $53.82
300 = $71.23
400 = $88.64
500 = $106.05
600= $123.46
Add’l 100s = $17.41

Note: Schedule basis is “click charge” for simplexed jobs. To estimate using the chart, determine the number of clicks required for the job.

Step 11. “Click charge” matrix to print four-color job on two sides (duplex) on a variable press. The material (paper) cost and file preparation cost don’t apply as they have already been covered.

Cost of 100 clicks (second side), $0.1395 x 100:         $13.95
Material cost, included in base price:                           $ 0.00
File preparation, included in base price:                       $ 0.00
Total cost of 100 clicks for second side:                     $13.95

Calculate the click charge to duplex 100 copies on a variable press:

Simplex cost (first side) @ $36.41 + second side @ $13.95 = $50.36

Calculate the click charge to duplex “additional 100” copies on a variable press:

Simplex cost (first side) @ $17.41 + Second side @ $13.95 = $31.36

“Click charge” matrix to print a four-color job on two sides (duplex) on a variable-data press:

100 = $50.36
200 = $81.72
300 = $113.08
400 = $144.44
500 = $175.80
600 = $207.16
Add’l 100s = $31.36

Note: Schedule basis is “click charge” for duplexed jobs. To estimate using the chart, determine the number of clicks required for the job.

 

 

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