- Commercial printers often do not possess accurate or detailed cost estimates per print job.
- A 2019 InfoTrends study showed that almost 40% of North American commercial printers do not have a management information system (MIS) in place. The same was true for only 13% of European printer companies.
- In the case of digital, print service providers (PSPs) need to learn an effective communication theory which includes 1:1 marketing and practice as much as they can in order to better help their customers.
By German Sacristan
Knowing the detailed cost of each print job might not be a concern if the pricing model is based on value differentiation (meaning margins are larger). That said, this strategy is risky if the model is market-based and modeled to reflect competitor pricing.
Wanted: Accurate Cost Estimates
It is unfortunately common to see a percentage of commercial printers not possess accurate or detailed cost estimates per print job. Without managing costs in detail, it is impossible to differentiate when a job makes money from when it drains resources. In addition, it can be challenging to decide when to produce a job on an offset press vs. on a digital press.
In a 2019 Keypoint Intelligence – InfoTrends (InfoTrends) study (North America Software Investment Outlook), almost 40% of respondents said that they do not own a management information system (MIS) for their business. Without this solution, companies cannot easily track their costs efficiently. Interestingly enough, a similar study focused on European printers showed only 13% did not have a MIS print system, a 27% improvement over their North American counterparts.
There are different approaches to try to calculate the total cost of a print job, regardless if it is produced on an offset or digital press. Here are several outlined methodologies.
When companies possess offset and digital printing capabilities, they first need to define what percentage of the general business’ fixed costs go to offset and which go to digital. Typical general business’ fixed costs are:
- Administration (includes insurance, taxes, management, real estate, office, etc.)
- Sales and Marketing
- Operations & Production (only prepress and logistics in the production site for general fixed costs)
There are several options when it comes to dividing and applying the general business’ fixed costs to offset and digital. Some PSPs might do the split by comparing sales revenues or profitability between offset and digital. Others may even do it based on production metrics such as hours of operation or number of impressions.
Once general business’ fixed costs have been allocated to offset and digital respectively, companies can then calculate the fixed production costs by technology (offset and digital) and add it to the general business fixed costs. Production fixed costs by technology include:
- Production labor
- Print equipment costs and depreciation
- Maintenance/service fixed charges
- Cleaning materials and other miscellaneous production costs
- Utilities in the production site (water and electricity)
After having estimated all the fixed costs (general business and production by each technology) organizations need to define how they will measure the cost of a job. This can be done by hours of production (BHR) or number of impressions.
BHR models have been commonly used by printers for decades (sometimes only applying production costs). Now, for the sake of argument, the click model, which in some cases measures the cost of service and supplies per impression, was introduced when digital printing devices first entered the market in 1990s.
Whether they consider a BHR or “per impression” metric to measure the total cost of a printed job, commercial printers will have to divide all the fixed costs by the number of estimated annual hours of production or number of impressions produced. Another option could be to use BHR for fixed costs and number of impressions for variable costs discussed below in point 4. Keep in mind that if we don’t hit our estimated number of hours of production or impressions then our cost will go up or down.
When a print job is received, companies know what the fixed cost is (general business and production by each technology) either in BHR or number of impressions.They can then add the variable costs to that print job, which may be based on:
- Offset: Ink, plates, and paper
- Digital: service & supplies (in the case of a click model), only supplies (in the case of service being a 100% fixed cost), ink if not part of a click model, print heads in the case of inkjet and not part of a click model and paper.
Once the printing cost has been calculated (fixed and variable), the job may still require finishing. This means companies will have to add the finishing costs. The finishing cost could be calculated by BHR and based on:
- Finishing Equipment
- Once the total print product cost has been calculated, organizations can add the profit. Last but not least, companies should add cost to deliver the printed products to the customer.
Some printers might decide to just cover costs for a particular print job, or even go below cost to keep a customer. It is also usual to have a contract with a commitment number of impressions per month in the case of digital printing. At times, it might happen that the printer has not used all their pre-paid clicks and therefore becomes more price aggressive in order to win the business. In either situation, the issue with not adding profit or selling below the cost is that the company is devaluating the value of print and therefore risks losing profitability in an act of desperation, furthermore is setting up an expectation that can’t be maintained in the future with negative implications for the market itself
Equally important to managing costs is the ability to provide value and differentiation to the customer. In the case of digital, print service providers (PSPs) need to learn an effective communication theory which includes 1:1 marketing and practice as much as they can in order to better help their customers.
The Bottom Line
Profitability is at the core of any company but especially vital in the printing industry, as this space is under severe pressure not only from their own printing market competitors but also from outside communication technologies/channels.
Managing costs and feeling the stress of tight profitability can motivate PSPs to be more focused, not only on reducing costs but on creating unique products and services that their customers will be willing to invest in.
German Sacristan is the Director of the Production Print & Media group. In this role, he will support Keypoint Intelligence customers with strategic go-to-market advice related to production printing in graphic arts and similar industry segments. German’s responsibilities include conducting market research, industry and technology forecasts, custom consulting and development of analyses, editorial content on technology, as well as support to clients in the areas of production digital printing.