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The Five Steps to Managing Pricing—Part 1

If you are struggling with setting prices or trying to decide when it’s time to change prices, Pat McGrew offers some starting points with this two-part series on five steps for managing pricing. This first part involves understanding your costs and your current pricing.

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About Pat McGrew

Pat is a well-known evangelist for inkjet productivity. At McGrew Group, she uses her decades technical and marketing experience to lead the industry toward optimized business processes and production workflows. She has helped companies to define their five-year plans, audited workflow processes, and developed sales team interventions and education programs. Pat is the Co-Author of 8 industry books, editor of A Guide to the Electronic Document Body of Knowledge, and a regular contributor to Inkjet Insight and WhatTheyThink.com.

Discussion

By Robert Lindgren on Jul 13, 2021

Pat...
I'm puzzled by the inclusion of fixed costs like licenses and building in your cost discussion since they are irrelevant to the production and therefore the pricing of a particular project. Most printers would find that that the costs that are volume sensitive amount to about 60% of the revenue from the average job. The remaining 40% is contribution to overhead. When contribution for a particular period exceeds the total cost of the overhead, profitability is achieved. Profit is maximized by a pricing policy that focuses on "getting as much as you can get for the job but also getting the order." Fundamentally, pricing must center on the customer relationship and the value of the project to the customer.

 

By Wayne Lynn on Jul 13, 2021

Robert, as usual especially on this topic, I agree with you. In 40+ years in this business I have found no significant exceptions to the core microeconomic fundamentals of our business. These exist at the intersection of contribution margin, volume, and overhead costs. This is essentially what you said above.
If anyone wants to get at the underlying fundamentals of pricing, develop an understanding of customer acquisition costs for marketers and advertisers. Those will point the way to more intelligent pricing approaches. Ultimately it is the customer's economics that should determine where our price point is going to be. It's our job to figure out how to make money given the customer's reality.

 

By Chris Lynn on Jul 13, 2021

Let me add another amen to Robert's point. I have a feeling we've had this discussion before, but anyone hasn't seen it, Throughput Accounting is a good lens through which to view the pricing issue. I give an example in the article linked below:
"...you may find that, given a short-run job opportunity but with a digital printer that is already fully-loaded, making plates and setting up an offset press might make sense — even though the estimating software that uses your ‘standard cost’ model is telling you the job is unprofitable on that machine."

https://www.piworld.com/article/how-to-think-about-digital-printer-investments/

 

By Robert Godwin on Jul 16, 2021

Gentlemen and Lady,
“customer relationship and the value of the project to the customer”- Robert Lindgren
Yes, and if everybody keeps the price charged/paid a secret no one gets upset. When the print buyer from Customer B gets a job at Customer A, or if Customer B hires your CSR, you can expect questions.

“the customer's economics .… should determine where our price point is going to be.” Wayne Lynn
If the customer's economics require quotes with multiple options such as substrate, finishing types, timeline; then yes! Charging for the time spent to give them the details they need raises the value of your services and should be charged accordingly.

“with a digital printer that is already fully-loaded, making plates and setting up an offset press might make sense”- Chris Lynn
Ahh, the utilization argument. Well played. PSPs that know their numbers (i.e. use the MIS to full advantage) can make that type of decision swiftly and confidently.

 

By Robert Lindgren on Jul 16, 2021

Robert...
I wonder if the job changes suggested in your comment aren't a rather rare hypothetical.. However. even if they occur job to job comparisons are difficult simply because every job is different with difference content and purpose--only estimating software thinks they're the same.

If the customer wants multiple versions, the software should be able to handle it without significant incremental personnel cost.

If the digital is loaded, offset would be OK, but it would be unlikely that the digital was actually running 24 hours--overtime is the correct solution.

 

By Robert Godwin on Jul 16, 2021

Robert,
This is from practical experience. In a transactional sales model the staff changes often. Sales people are recruited for their book of business. And so the migrations as described do take place. Also, Print Buyers talk to each other (more than just gossip). So the anecdotal information breach occurs as well. Little more than something to be prepared to discuss/defend.

As for every job beng unigue, that is a stretch. Sure, content my be very different, but form factors are most often determined by display furniture, posting hardware, etc. If 50% of your work is of a totally unique nature (compared to each other) fine. But the other 'standard' work is usually commodity priced, less able to be priced to "the customer relationship and value to the project" without the caveats I mentioned.

 

Discussion

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