- Calculating the margins on a job requires an accurate understanding of the real costs of substrates, consumables, and all other elements—including what it costs to run the device and labor rates.
- Paper and consumables figure into the overall ROI, but so does the often-overlooked factor of increased capacity.
- Conducting an assessment will give you a much better view into the current costs of your work. It will also help you understand your current capacity, and it should help determine how you are using your finishing resources.
By Mark DiMattei
Return on investment (ROI) calculations are often done ahead of any major acquisition to justify the purchase of new equipment. Very careful attention is paid to the expenses surrounding power consumption, labor, and consumables as well as the price of the equipment and any associated running costs. Although these elements are essential to making decisions about new acquisitions, it is also important to evaluate the changes in cost models for available products as well as the opportunity to develop new products so you can create additional value. Taking these often-overlooked costs into consideration is the best way to obtain a complete picture of the “real” ROI.
Transactional, marketing, and commercial environments may behave differently when it comes to calculating their costs of goods sold. In a transactional print environment, the relationship between the customer and the printer is often contractual, with touchpoints and delivery timeframes set in stone. Meanwhile, marketing printers might have long-term relationships, but they are not necessarily bound to contracts. Finally, commercial printers are often one of many providers to their customers.
In all three environments, the margins on the job depend on an accurate understanding of the real costs of substrates, consumables, and all other elements—including what it costs to run the device and labor rates. During the workflow assessments that Keypoint Intelligence has conducted, however, we rarely find a printing company that can clearly articulate their real costs for these items. Without an accurate understanding of these costs, the true ROI may be missed.
It is important to consider more than just the basics in ROI calculations. Once you get beyond the hardware and consumable cost calculations, take the time to evaluate the opportunities for products you currently sell, as well as the ones that you could sell.
Margins Aren’t Always Marginal
Assessing the current state of the parts that go into each print job is a best practice when it comes to figuring out not only the true margin for every job sold, but the true ROI in your shop. Start with the basics—ask yourself: How do we determine the price we charge for the print work we sell?
Paper and consumables figure into the overall ROI, but so does the often-overlooked factor of increased capacity. A marketing or commercial shop that uses estimating and quoting programs should be frequently updating those programs to adjust for each new paper shipment and prices that may be fluctuating. Without carefully considered updates to the processes that determine the prices you charge, it may be difficult to correctly calculate the cost of goods sold. Ink estimators can also help determine your true margins. If you can’t come up with an accurate assessment of the cost of goods sold, you may not have a true understanding of your current and potential ROI.
Conducting an assessment will give you a much better view into the costs of your work. It will also help you understand your current capacity, and it should help determine how you are using your finishing resources. The next step in the process is to create a complete list of the products you sell. Transactional printers would be especially well-advised to complete this exercise because it may uncover some surprises. You might find discrepancies between the usage rates of your monochrome and full-color devices, or between the jobs you produce with multiple finishing steps and those that are simple insertion jobs. It’s also possible that you haven’t identified a separate ROI for each product and are just relying on a generic cost for the most common one. Marketing and commercial printers may also uncover opportunities to tighten up their true ROI. This begins with an understanding of true costs, but it grows as new product opportunities begin to emerge. Is there a one-off job that a customer has asked for that might become one of your products in the future?
The Bottom Line
Determining the true ROI from your devices and the applications produced on them is grounded in understanding the actual production costs and then selling based on value. Although understanding true ROI is not a new concept, it is often overlooked as PSPs strive to price their offerings competitively. By ensuring that you are truly aware of your margins and any hidden opportunities lurking in the corners, you can accurately calculate the ROI of your products and find ways to push ahead of your competition in these uncertain times.
Mark DiMattei is the Manager of Keypoint Intelligence – InfoTrends’ Publishing, Editing, and News department. In this capacity, he oversees the editing, formatting, and publication cycles for many different types of deliverables. He also assists in the production of blogs, analyses, research reports, and multi-client studies.