Case Study: Case of Hourly Rates

Then there’s the practical problem. The customer paid $180 last time (two hours of prepress) and this time it took an hour. Do you charge $90 or the $180 they paid last time? If you use the previous price then you are not using an hourly rate; rather, you have established a specific price (price list). What if next time your regular operator isn’t there and a replacement does the job in half an hour? Would you charge $45? What if they were slower and took four hours? Would you charge $360? An hourly rate can help you establish the initial value of a job, but you should convert it to a price list.

Why Establish a Price List?

Printers and customers need three things from a price: fairness, consistency, and quick answers. Only a price list provides these three things. (Using a computerized estimating system is the same as using a price list as far as getting a price goes.)

Fairness: as we’re often scared off by extremely low prices as well as extremely high ones, customers are also. We both are willing to pay a fair price for what we want. Otherwise, we’d never buy anything. Conversely, neither one of us is willing to pay an excessive price. And, when you think about it, both vendors and customers want each other to have a fair price. Why? Our customers need reliable vendors just as we need reliable vendors. And to be reliable, a vendor has to have a fair price in order to have the cash flow to stay in the business of providing the service.

So the question really is what’s fair? The biggest problem here from our side is that we can’t justify the price we ask the customer to pay. So, it’s just as much about negotiation skills as it is about the actual price itself.

Consistency: Imagine the reaction a customer would have to dealing with a printer who used an hourly rate exclusively in setting price. They might be charged $800 to reprint a job in month one, $1,200 in month two, and $600 in month three. When prices are not consistent, it raises issues of fairness to the customer and that’s when they turn to other vendors. Besides, if the job has a truly fair price of $1,200 in month two, why isn’t it being sold for that every month? After all, it’s not fair to the printer if it is not.

Quick Answers: I worked with a large company which found that when they returned a request for price to the customer the same day 75% of estimates turned into orders. When the price was returned the next day the close rate dropped to 25%. And the rate dropped to nothing as time went on (frequently estimates aren’t received for a week or more). So the printer is best served when prices are returned quickly. Additionally, most customers have a time issue when they decide to have work done. The vast majority don’t ask about something they don’t need for that is a waste of their time. And because they are under time pressure, they often choose between early estimates regardless of how low in price the later ones are.

A Matter of Trust

Using an hourly rate exclusively to establish price violates all three of these factors, plus one more: it violates the trust factor.

Customers are highly suspicious of hourly rates. Remember when the auto mechanic or plumber told you that your repair would be $90 an hour. How did you feel? Our customers feel about the same way. On the flip side, contract pricing (price list) adds to trust. So use a good hourly rate to help you develop an initial price, but don’t rely on it exclusively forever for it will work against you, not for you.

Tom Crouser publishes regular reports on pricing issues as well as recommends specific pricing for traditional and non-traditional printing functions. His Price Advisory Service is available at www.crouser.com for $290 per year, which includes both the Digital Printing Price Guide and the Crouser Guide to Small Press Printing. He’s located at Crouser & Associates, Inc., 4710 Chimney Drive, Charleston, WV 25302, 304-965-7100. You may email Tom at tom@crouser.com.