The Price Is Right? --Dickeson
September 2005
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Pricing decisions are the most mysterious and least understood in the business of commercial printing. We want our prices to be fair. We want them to cover our costs. We want them to provide a profit. Our salespeople moan that everything depends on the price of the job. Our accountants wail that we mustn't drop our prices below a given level or we'll go broke.
What the Sam Hill is the right price for a job: the fair price, the competitive price, the price that covers the costs, that yields some profit? Where and how shall we decide?
Looking for Answers
We want the Lone Ranger's silver bullet—some magic price to ask for a job that covers all these things. So, maybe, we look to our black box, our computer MIS (management information system), for the answer. (See the 30 or so listings in the July 2005 Master Specifier of Printing Impressions magazine.) How many of those systems tout their "estimating" programs to provide the right price? How many of them are still using Spencer Tucker's model of machine-hour rates published back in 1962?
Know what the most feared competitor of all these machine-hour "estimating" systems is? It's Microsoft and its Excel desktop computer program. Excel doesn't rely, necessarily, on Tucker's ancient and outmoded model. But does Excel provide the silver bullet for pricing? No. It does free us from that hoary old model, with whiskers down to here, of budgeted hour rates.
The "right" price is the customer's perception of value constrained by the competition. It has nothing to do with our "costs," does it? Therefore, it's remarkably silly to spend time noodling with budgeted hourly cost rates in establishing the price of a job, isn't it? Yet that's what a lot of us still do. Why do we do it when it has nothing at all to do with the price that the customer will accept? Beats me. Just habit, maybe our—very own paradigm—way of doing things.
But, maybe, it's a way of finding out what the competition might ask. At least that's what one printer told me. We're all making the same goofy mistake together since we all behave like lemmings running to the sea. Kinda ridiculous, don't you think?
Do you recall "Par" and "Sim-par?" I was asked, not too long ago, whether I thought it would be helpful for our industry to have an updated version of them. I hadn't thought about 'em for years. As I recall, these were "standards" of speed on various machines used in estimating. Great guns, what means we resorted to in order to avoid thinking and being the entrepreneurs that we must be!
What the Sam Hill is the right price for a job: the fair price, the competitive price, the price that covers the costs, that yields some profit? Where and how shall we decide?
Looking for Answers
We want the Lone Ranger's silver bullet—some magic price to ask for a job that covers all these things. So, maybe, we look to our black box, our computer MIS (management information system), for the answer. (See the 30 or so listings in the July 2005 Master Specifier of Printing Impressions magazine.) How many of those systems tout their "estimating" programs to provide the right price? How many of them are still using Spencer Tucker's model of machine-hour rates published back in 1962?
Know what the most feared competitor of all these machine-hour "estimating" systems is? It's Microsoft and its Excel desktop computer program. Excel doesn't rely, necessarily, on Tucker's ancient and outmoded model. But does Excel provide the silver bullet for pricing? No. It does free us from that hoary old model, with whiskers down to here, of budgeted hour rates.
The "right" price is the customer's perception of value constrained by the competition. It has nothing to do with our "costs," does it? Therefore, it's remarkably silly to spend time noodling with budgeted hourly cost rates in establishing the price of a job, isn't it? Yet that's what a lot of us still do. Why do we do it when it has nothing at all to do with the price that the customer will accept? Beats me. Just habit, maybe our—very own paradigm—way of doing things.
But, maybe, it's a way of finding out what the competition might ask. At least that's what one printer told me. We're all making the same goofy mistake together since we all behave like lemmings running to the sea. Kinda ridiculous, don't you think?
Do you recall "Par" and "Sim-par?" I was asked, not too long ago, whether I thought it would be helpful for our industry to have an updated version of them. I hadn't thought about 'em for years. As I recall, these were "standards" of speed on various machines used in estimating. Great guns, what means we resorted to in order to avoid thinking and being the entrepreneurs that we must be!
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