Discussion

By John Zarwan on Nov 21, 2018

Every time I read something Jennifer and Jane write, I am consistently impressed by their insight and intelligence.

By Jennifer Matt on Nov 21, 2018

John,

Much appreciated. Our smarts come from working with printers who are willing to dig in and do the hard work of building data-driven print businesses. In the process of working together we learn a lot. Writing for WhatTheyThink allows us to share that learning more widely so more printers can make better decisions about software.

As we approach Thanksgiving, I'm thankful that Jane called me about 5 years ago and wanted to work with together ;-) I'm thankful for the print industry community, I'm thankful for WhatTheyThink's commitment to both cover the news of the industry but also allow us to simply share learnings so openly.

Thank you John for reading and thanks for the compliment. We appreciate it. Happy Thanksgiving.

Jen

By Joe Lindfeldt on Nov 21, 2018

Printers seems to be pretty in touch with their print costs, granted they need to be aligned in the system. But printers are more than printers now and this article seems to miss out on the opportunity to discuss the non print services that go into our 'new' type of clients. Design, systems development, data management, mail, etc.

By Jennifer Matt on Nov 21, 2018

Joe
I agree, the paper, press, finishing costs are more in the comfort zone of most printers. Where lots of profit is leaking out is all those services provided before the product hits the press (data services, personalization, automation software, etc). We have seen way too many printers giving those services away or embedding them in the print price.

I rarely see folks capturing the labor against these services and these people are typically well paid.

I HATE when differentiating technical services gets embedded or given away or bundled into the print price. Your customer doesn't appreciate the value you're adding. When your customer gets pitched by other printers who are only bidding the print - your prices look high.

The print sales team HAS to understand the value created with these services and be able to sell that value. One way to help them understand the value is to deduct the costs of these services from the jobs profitability (real cost calculations). If that reduction in profits impacted sales commissions sales would learn how to sell the value really quick.

Jen

By Robert Lindgren on Nov 21, 2018

MAYBE WE SHOULD RECHECK OUR HOUR RATES…

As budget hour rates (BHR) are central to your estimating system and your pricing is determined by it, it’s natural to think that you should check to be sure they’re right. It’s not that difficult of a spread sheeting exercise. But, before you start crunching numbers, you should give some serious thought as to what “right” means. If you define it as a process of finding the “cost” of doing a job in your plant, the answer is extremely dependent on how you choose to allocate overhead (factory, equipment and front office) and even more on how many hours you plan to operate. The cost of the press in a three-shift operation is less than half of its cost in a single shift one. It’s important to realize that “cost” defined in this way is not a hard number like the cost of a skid of paper, but the product of a set of assumptions about allocating overhead and most importantly, hours of operation, which may or may not match what actually will happen.

Finally, you should consider the use of the numbers that your system will produce. For most printers, the primary use is to determine pricing—the quote is a function of the estimate which is a function of the materials (usually with mark-ups) and BHRs times the number of hours projected to do the work. The anomaly of this approach is that it ignores the customer who will have to write the check. A customer has no interest in how much you believe your press costs you to run. They are very interested in the value that the project will confer on them and what they believe that they would pay for it from an acceptable alternate supplier. Of course, you tend not to think much about “value” but you do think a lot about alternate suppliers “competitors.”

If you quote $1,000 and the order goes to someone else, you grumble about competitors “who don’t know their costs” and move on. However, the competitor with a three-shift operation might be quite happy with their $900 price. The reality is that very likely the $1,000 job only really involved the expenditure of around $600 (paper, buy-outs, factory wages and commissions), leaving you with $400 to pay for the overhead and ultimately produce profits. Had you sold it at $900, you would have got $300, but you didn’t, so you got zero.

Having failed to get the order, you are now a little further from fully utilizing your plant, which in moving in the wrong direction—away from full utilization. Therefore, your pricing system can’t be locked into an unmoving utilization assumption but should help you move to full utilization. Does that mean that you must lower all of your prices? Of course not! Many of your customers are paying your existing prices and you don’t want to change that. Indeed, if you almost always get the order, that’s a signal that you’re leaving money on the table. Your path to full utilization is through the customers who are not giving your orders now, but who have work in reasonable quantities that fits your operation—those are the people that your pricing system must target.

You originally thought that your BHRs should better reflect “reality.” Before you start filling spreadsheets with numbers, you should reflect that if the numbers are going to be lower, they may cause you to leave even more money on the table with solid customers but not enough to get more doors opened. If the numbers get higher, you may pick up some dollars left on the table but walk away from more sales. The only solution is key your pricing to individual customers as some will pay more and others less. Your objective should be to get as much as there is to get, but get the order—that’s reality!

By Gina Danner on Nov 26, 2018

This is a great discussion and one that needs to be had over and over again in every organization.

First... Smaller printers, under $10MM in revenue still are struggling with understanding their true COSTS. Having done several acquisitions over the last few years, we have had deep costing discussions with many owners that really didn't understand the numbers in their estimating systems. Add to that the fact that they hadn't adjusted those costs in YEARS... Some printers (more than will admit) don't understand their costs.

Second... Costs are costs based on an algorithm in a given environment. Sale Price is driving by what the market will bare. Estimating's job is to determine COST based on specifications following an agreed upon algorithm with with determined hourly rates. The job of Selling is to determine what the MARKET will pay for that job. Too many people confuse those two items.

Value is the "extra" that is too often left on the table because sales fails to understand what problem is being solved by the item/service purchased.

Selling by a Cost Plus model is easy and puts limits on profitability. Printers deal with Ad Agencies. We have all seen agency bills and "agency glitz and glamour" and wonder... how can they sell that to businesses. Buyers pay that rate because the agency builds that perceived value. Printers need to do the same.

By Robert Godwin on Nov 27, 2018

Upon reading the article by Jennifer and the comments my personal algorithm kicked in.
What did it tell me?
Frequency = message
Cost is mentioned 42 times
Value is mentioned 10 times.
If the reverse were the case, I would say printers are on the right track. Until 'value' pervades any discussion involving print, printshops will be holding the sh*t end of the stick.

Agencies do add value, not the perception of value. What value do printers add? Oh, it's there, but just as it is noted by the comments on this article, few understand their costs, and are less able to explain their value. "I put ink right on the paper!" is not going to cut it in the value game.
I do not know if printers want to become agencies where value is added; but I can guarantee that no agency wants to be a printer. Now why is that?