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Knowing the Cost of Running Your Business

25 Jul 2018

As the pressure increases in the world of print, the challenge is to be light on your feet. Printers who understand their cost and can respond to the market will be equipped to reinvent their companies to respond to market demands.

In days of yore, printers were able to dictate their selling price based on what profit they wanted to make above their costs. The formula for selling price was simple:
Costs + Profit = Selling Price.
Then the market tightened, as it did with many industries. Now the selling price is dictated by the market and the formula looks more like this:
Selling Price – Cost = Profit.

Today it is imperative to know your costs so that you can respond strategically to market shifts. You need to be able to decide which products and processes are profitable and should be promoted, and which are not profitable, and should either be re-engineered or discontinued.

Some printing companies simply sell to the market rate and hope to make money at the end of the month. This may work for a while, but you will constantly be chasing the market, and you cannot strategically plan future equipment purchases with confidence. Without knowing your true costs, you will not know which products and services you provide are profitable, and which are pulling your profit margins down.  All you know is that at the end of the month you either made a profit or did not, and you don’t necessarily know why. Volume of sales is always seen as the answer, but some of the high-volume sales might be bleeding the profit out of your company without you knowing where the bleeding is taking place. You cannot stop the bleeding because you don’t know the cause, but you dare not stop the sales because you also do not know which are contributing to your profit.

Other companies use a pure Cost-Plus system because this is all the MIS system they use allows. Theoretically, according to the textbook, this is the correct way to run a business. However, is not flexible enough to allow you to respond to rapidly changing market pressures. Sometimes you need to fix pricing according to what the market will bear, and work on your internal efficiencies to produce a profit.

With the printIQ MWS (Management Workflow System) you can accurately track your costs, whilst retaining the flexibility to target market pricing. This is especially helpful in the digital and wide format space that many printers are entering but are unsure of the costing structure. They know the price that the competition is selling for, but not how to work out the cost of production. With printIQ you can apply multiple methods of pricing to different segments of your business, giving you the flexibility to grow into new areas with market-driven pricing, while building up your costing model over time.

IQ handles various methods of costing such as: Traditional Cost-Plus Markup. This uses the raw costs of manufacturing and materials are calculated and then a profit margin is added to the top of this producing the selling price. An overhead markup may be added in as well to cover plant overheads, if these are not worked into the cost pricing. This can be done to individual components, or across the board. There are also several versions of Market Driven Pricing. These allow you to use the surrounding competitive market rates and apply them to a catalogue of the products you carry. This can also be used to generate static prices for customers. It can come into play when you want to charge a specific click rate for your digital printing, or a square foot rate for your wide format posters. You will still be able to track your costs to ensure that you are making a profit. You also have the flexibility to charge flat sheet rates and then add finishing components on the top. You may have some customers you need to do this for based on contracts, plus offer different pricing structures to others. With printIQ this flexibility is standard functionality.

The print professionals at IQ will help you plot the right course for your business. If you are not sure of your costs, we can assist you determining them and feeding them into the system.

Whatever your method, IQ gives you the tools to analyse your business at the end of the month to determine which segments are profitable and should be pushed to the forefront of your offerings, and which segments might need re-engineering or dropping all together.

IQ is the tool you need to run your business strategically. It gives you the data to make the right decisions on where to invest your hard-earned capital and deploy your resources.

The world of print is rapidly changing. If you want your business to thrive, and not just survive you need to have their finger on the pulse. With IQ you have quantified information at your fingertips that allows you to make intelligent and strategic decisions. Print intelligence that is quantified… or, in other words printIQ.

– Jonathan Bowen