Pricing in Today's Market

One of the worst effects from the recession is the pricing pressures. They either come from your clients, who are shopping prices more than ever, or from your competitors who are, in some cases, reducing prices to get jobs below your costs.

It does appear that the current recession is slowly coming to a close, but I am not sure that pricing will rise when we get out of the recession. How do we handle the current situation with sales flat at best and market pricing declining?

Here are my suggestions to help you avoid or react to these price pressures:

Get closer to your top customers. If you have a personal relationship with a client, they will not leave you for a lower price without talking to you. Many times the lower price is not based on comparing “apples to apples.” A competitor may have found a less expensive way to produce the job, such as changing the paper stock, reducing the quantity printed, printing more at a lesser unit price, or changing the printing method (e.g.: going from digital to offset or vice versa).

If they indeed did find someone to produce the exact work for less, then make a business decision to either meet or beat that price. Sometimes this decision is easy, as you know your pricing is on the high side, but other times you need to do your homework. Knowing your break-even point is critical in these pricing decisions—more later on that subject.

Figure out a way to save your customers money before they find a way to do it with someone else. Make an appointment with top clients to discuss how to save on their printing and mailing costs. Most customers will set that appointment, and you may be surprised at the ways you can come up with to save them money on your existing work. You also may find that your client will show you other jobs that they have been giving to other printers. They usually will share those costs as well. I’ll bet you can find ways to save 10% or more on their costs and, in most cases, not by reducing your prices, but changing how they order (i.e. combining jobs, increasing quantities, alternate products, postage savings by presorting or bar coding, etc.).

Lower your costs so you can lower the selling prices. Put pressure on your vendors to get better prices on your paper and supplies. Bid out these items periodically. Update your equipment. Many times the new equipment has lower click charges or service costs, produces work quicker, handles larger volumes, uses less labor, uses fewer consumables, etc.

Price certain jobs very competitively in order to gain new customers. Loss leaders are used in almost every industry. I am not advocating losing money on certain types of jobs, but sometimes you can lose a battle or two but win the war. Certain customers are very sensitive to pricing on certain items (like color copies or volume black-and-white copies) or products (business cards). Some very large Internet printers like VistaPrint have figured out that they can practically give away their business cards (free except for shipping) so they can sell their other products at full price.

Know your break-even point and job costs. I like business owners to know their overall break-even point. In other words, at what monthly sales level do you begin to make a profit? I will not get into the methods to calculate your break-even point in this article, but a simple way is to look at your past 12 months profit & loss statements and look for months where profit (or loss) was close to break-even and use that sales figure as your break-even target.

Just as importantly, you need to know your internal production costs. For projects you are bidding on or for which you have to meet an established price, calculate exactly what your materials cost (paper, ink, plates, toner, click charges, etc.) and the production labor attributable to that job. (Do not use burden rates or equipment costs in this calculation.) By adding the cost of materials and direct factory or production labor, you know your out of pocket cost for that job. If this bid job will occur during a month when you are confident your overall sales will be above break-even, then you can price it much lower than your normal book or computer price.