In March, I wrote about the statistics and results obtained from the 2012/13 NAQP Digital and Wide Format Pricing Study. The survey was conducted in the late summer and released at the Print Owner’s Conference in Chicago this past October. In this article, I want to talk about how to use the study as a tool and create a pricing strategy that works profitably.
Here’s how I recommend that you use the pricing contained in the study:
Compare Your Prices to the Average & Median Prices
If any of your pricing is higher or lower than the high or low range, you will almost definitely need to change those prices. While prices fluctuated greatly from the participants, I can’t imagine any reason why you would want to be so far off from the 60 percent of participants whose pricing falls within the high/low range.
If your pricing is sometimes higher and sometimes lower than the average and median pricing, then you need to revisit the methods you are using for estimating. Something is amiss with the way you are pricing, as you should see some consistency.
Most shops have a pricing philosophy—the print shop owner wants to be generally lower than their competition, higher than their competition, or right around the average. Figure out where you want your pricing to be. In my opinion, unless you have costs below your competition, you shouldn’t price below the average. The only other reason to have lower pricing is to gain volume and market share. This may work, but it can be risky if you don’t gain volume quickly.
If you have primarily commercial clients and have excellent service, great quality (usually because of using newer equipment), and good marketing backed by a great sales effort, then you should be able to price above the average.
If either of the two statements above is not true, then the safest path is to keep your pricing near the average pricing. I would also recommend keeping your prices near the average if you have recently entered into digital or wide-format printing. In this way, over time, you will see how the pricing is working and then you can adjust as sales/volumes increase.
Create a Pricing Strategy
It is very important to note that lowering your pricing can dramatically increase your volume and actually generate much higher profits. Why? Essentially, each printing unit has a fixed cost when you purchase or lease it. On digital black-and-white and color units, the variable costs are the clicks and the supplies, which are sometimes bundled. As long as you are covering your variable costs and have a volume that covers your fixed costs, then you will continue to make very predictable profits as the volume goes above that break-even volume. This is even more evident in your wide-format units since there are generally no click or set service charges, but only supply costs (inks and substrates).
I am not advocating, lower your pricing, but rather instituting a pricing strategy. You may find that you can raise prices, especially when using special stocks or substrates, or by selling variable data digital documents. Quality paper or personalized documents have a much higher perceived value to your clients, but really don’t cost much more per print.
Using a simple Excel spreadsheet, you can figure out what your gross profit will be at various pricing and volume levels. Pricing digital printing and wide-format should be much easier than pricing offset printing as the equipment has almost no set-up costs, almost no waste, and they run at fixed speeds.
After establishing your pricing, how do you know when it’s right for your shop? The only way that I know is to look at your profit and loss statement. If you are happy with your total sales and are making average or above average profits, then pricing is not your issue. In fact, you may consider raising prices.
If you are not happy with your total sales and profits, then pricing may be the reason. In these cases, I recommend a combination of lowering prices in some areas and raising them in other areas. Generally speaking, lower prices should win more jobs and increase volume for jobs that are more commodity-oriented work. Luckily though, a lot of the jobs we produce are complex or require very fast turnaround. In these cases you can get premium prices.
Five Golden Rules for Pricing
Have a good handle on the market pricing, both nationally and locally. Use the industry studies and even conduct a local market study yourself. Regardless of your costs, you ultimately will need to price near your market pricing.
Not every client or prospect is worthy of obtaining the same price on the same job. You need to discriminate based on the value of the client or prospect to your business. Their payment history should be considered as well as the potential they have to give you more business or refer you to their friends.
Create “special” pricing for certain clients. The pricing can be higher or lower than your normal pricing, or just your normal pricing. Just calling it “special” shows customers you care about them. Web portals work well for allowing special pricing.
Customers are concerned about consistent pricing. Make sure your estimating system is setup to consistently give the same price every time. Customers know that the more they order the cheaper it should be. Use that to your advantage to gain volume.
Except in bid situations, never give your absolute best price initially on larger projects. If you have a good relationship with the client, they will tell you if they think the price is high. In this way, you have room to reduce the price. If you start at rock bottom, you have no place to go.
In summary, the pricing study is a great tool to establish pricing, especially in areas that are new to your business. The study will help you compare your pricing to the industry. With that said, you still need to have a strategy to make your pricing work your marketplace. Establish a pricing philosophy, and constantly monitor your pricing for jobs you get or lose. Finally, no one ever went out of business by charging too much, so do not leave money on the table.
The 2012/2013 NAQP Digital & Wide Format Pricing Study can be purchased at http://members.napl.org/Members/Store.
Mitch Evans is president of Mitch Evans Consulting (www.MyPRINTResource.com/10209474). His areas of expertise are in strategic planning, valuation, mergers and acquisition, financial planning, new technology, and “1-2-1” coaching. Contact him at 561-351-6950 or firstname.lastname@example.org.