Readers Weighing In — Dickeson

Deepening Discounts

For a refreshing view, this printer wrote, “…We stopped using budgeted hourly rates to set pricing five years ago. Well, sort of. Our custom-developed estimating system is built around BHR, like I’m sure every estimating system is. We just stopped updating the BHRs. May 2000 is the last time our accounting department invested into updating them. That was the beginning of the downturn in our industry…and we concluded that it made no sense to spend the time to update the system, just to have the estimators deepen the discount needed to meet the market. Over the years, the estimators have continued to use the system because that is all they know. They have had to learn to calibrate the selling against the competition.

“We are now beginning to address the customer’s perception of value with our estimating and selling system,” the printer continued. “The old estimating system is getting long in the tooth technologically, so it is time to replace it with something else. And it won’t be, as you say, based on our fictitious internal costs…We have focused on precisely the things that you are recommending like receivables and velocity of throughput. It has paid off so far, with last year being one of our most profitable years ever. That said, there is still much to be done.”

If anything, what we learn from these comments is that “budgeted” hourly rates are the way prices are set for commercial printing. They are NOT set like one would expect from Economics 101 where demand and supply curves rule. No, not at all. Prices are set in the commercial printing industry based on a construct of “budgeted” internal costs of printing companies.

Well, sort of. These constructed prices are adjusted or calibrated by judgment calls of estimators and sales personnel of what the competitive pricing will be using “budgeted” hourly rates—perhaps—well, sort of.

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