Every business day, managers, estimators, customer service representatives, and salespeople in thousands of printing/graphic communications companies make thousands of decisions regarding the prices they will charge for the products and services their companies provide. In most cases, price setting begins with the preparation of a detailed estimate of the costs that the company will incur to produce or provide the specified job or service. The effort and attention devoted to estimating the costs of prospective jobs and services often stand in stark contrast to the amount of deliberative thought that is given to setting the actual price that will be quoted to the prospective buyer. Most printers set prices by applying a standard mark-up to estimated job costs. Theoretically, cost-plus pricing offers a simple and easy-to-use guide to profitability. In reality, cost-plus pricing is a sure recipe for mediocre financial performance.

Profitable pricing is also difficult to achieve because of the competitive environment in which today’s printing/graphic communications companies operate. After a price is set on a cost-plus basis, it must withstand the forces of the competitive marketplace. More and more, managers find themselves competing with firms that seem to pursue sales by focusing exclusively on low prices. Managers must also contend with customers who insist that they can obtain lower prices from other printers and that the only way to win their business is to meet or beat those lower prices. In the face of these pressures, many managers simply give in and cut their prices to get the work.

The result of these pricing practices is a pricing process that is best described as, “Set the price based on costs and then take whatever the buyer seems willing to pay.” It should come as no surprise that this pricing “process” leads to low or non-existent profits. Cost-plus pricing causes companies to underprice some prospective jobs and overprice others, and reducing prices in response to customer pressures rewards customers for negotiating price aggressively and encourages them to be even more aggressive in future price negotiations.