Pricing For Profit

Pricing for profit is not only one of the most fundamental responsibilities at any business enterprise. it is probably the most significant. Yet, for all its importance, pricing is a function that many companies do not do well. Very few printing companies have a pricing process designed to maximize profitability.

...... John L Daly

                "On the prices that we are seeing I'd say
                 they use the WAG¹ method."

The competitor would probably say the same thing about average printing company manager.

In the overall marketing mix, price is the most important item that affects a company's profitability. In fact PIA in their annual ratio study consistently report that 75%² of all printers have a net profit of less than 1% of a sales dollar . This means that a simple 1% over all price increase will DOUBLE most printer's profits.

Too often the focus of pricing is related to short-term competition and a company's internal cost structure. Most owners and managers of graphic communications companies set prices by applying a standard mark-up to estimated job costs. Upon objective examination it should come as no surprise that internal cost structures (estimated job costs) are often faulty and this pricing "process" leads to low or non-existent profits. Traditional cost-plus pricing based on Budgeted Hourly Rates (BHR) frequently causes companies to underprice some prospective opportunities and overprice others.

After prices are set on a cost-plus basis, they must then withstand the forces of the competitive marketplace.

How to set prices and measure their impact on a company's business model, however, is almost never clear. Traditional BHR Costing and fixed standard markup cannot and does not fully address product mix, market conditions or customer diversification.

¹ Wild Ass Guess.
² The larger significance of the annual PIA ratio report is that 25% of the printers in    North America make ALL of the money.