Printing Impressions

You will be automatically redirected to piworld in 20 seconds.
Skip this advertisement.

Advertisement
Open Enrollment | Subscribe to Printing Impressions HERE
Connect
Follow us on
Advertisement
 
Paper Guru

Paper Guru

By Jack Miller

About Jack

Jack Miller is founder and Principal Consultant at Market-Intell LLC, offering Need to Know™ market intelligence in paper, print and packaging. Previously, he was senior consultant, North America, with Pira International.

Known as the Paper Guru, Jack is the former director of Market Intelligence with Domtar, where he also held positions as regional sales manager, territory sales manager and product manager. He has presented at On Demand, RISI’s Global Outlook, PRIMIR, SustainCom World and at various IntertechPira conferences. Jack has written for Printing Impressions, Canadian Printer, Paper 360, PaperTree Letter and Package Printing, along with publishing a monthly e-newsletter, MarketIntellibits.

He holds a Bachelor of Arts degree in Economics from The College of the Holy Cross and has done graduate studies in Statistics and Finance.

 

Paper Markups and Customer Supplied Paper

3
 

Earlier this year, Margie Dana asked me to comment on Directed Buys. You can read what I said by clicking here.

This led me into a discussion of customer supplied paper, a close cousin to directed buys. It has always seemed to me that printers should buy the paper, with exceptions for major publishers or other large print customers who buy more paper than the printer does and have the infrastructure to handle it.  But some print customers want to buy the paper because printers mark up the paper, and they want to avoid the markup.

I have never quite understood the rationale for these markups, and said, “I think it’s unfortunate that the print industry has gotten into a business model where they ‘mark up’ the paper.”  This got some strong push back: printers, like every other business, has to cover their overhead—the cost of handling paper, etc.

No question. But are paper markups the best way to go? Where else do you get into talking about a supplier’s costs and how much they mark it up? The more I explore this, the more I think that paper markups are not the way to go. I’m a paper guy, not a printer (and that frees me up to ask the dumb questions about printers) but I have to think that a printer would like to make the same profit on a job regardless of who buys the paper, and maybe even add a bit extra to allow for unexpected problems with paper or a paper supplier that may not be familiar.

So, I started to ask questions, and I launched a small survey. So far, only a few responses, but the results are fascinating.

Printers don’t know how much to mark up paper: 21 percent mark up paper less than 10 percent; 25 percent mark up paper more than 25 percent. The rest fall in between.

Printers are confused about what to charge when customers supply paper: 71 percent agreed with the statement, “paper markups are critical to our profitability” but, 50 percent agreed that “when customers supply paper, we don't lose much because we still include a cost for handling the paper, and we charge more for printing: we have to cover our overhead one way or another.” One printer said “We don't mark up the paper cost just to avoid this problem. The paper handling and delivery is included in our general overhead cost.”

Exactly.

Regardless of who buys the paper, you have your investment in plant and equipment, your people, your other overhead. Regardless of who buys the paper, you need to cover these costs. If you have the infrastructure to handle paper buying and handling, that cost is there regardless of who buys the paper. If you buy the paper, you know what you’re getting. If you don’t buy the paper, you may have all kinds of unpleasant surprises. Obviously, you need to pass along the cost of the paper. But beyond that, maybe you should charge more, not less, when customers supply paper. One respondent agreed with this.

If you’re a printer, and you’d like to know more, you can take the survey by clicking here.

Printers who take the survey will be able to get the results for free.

Industry Centers:

3

COMMENTS

Click here to leave a comment...
Comment *
Most Recent Comments:
john polvino - Posted on October 12, 2010
Value added... we all talk about it--yet discussions like this make me wonder. Since I add no value until I actually convert the white sheet to something salable to my customer--what's the mark up for?? I operate on a value added basis- therefore my manufacturing mark up is the key to my profitability--and not paper.
Robert Johannes - Posted on October 05, 2010
Jack, This is something that has been an issue since I started in this business over 25 years ago. The "consultants" always pushed marking up paper as a relative revenue generator; that is, it reflects a revenue flow for the indirect and related costs for paper. You always have gnashing of teeth over it, especially from the sales department. A lot has to do with your theory of house costing. If you are trying to be more ABC oriented, you go through the exercise of trying to think about all the things that paper costs. Here's just a few: 1. Paper insured as physical inventory is bulk insured. Paper supplied must be treated as property of others, under a separate policy category. 2. Stock paper has holding costs; that is, it eats working capital and your credit line. 3. You must handle both off the truck, so there is no real difference, only that it may come in on a pallet or skid you can't handle. 4. Paper you buy runs in your house to the best operating standards. There is no guarantee that what your customer buys will. 5. If paper is bad, it's your responsibility if you buy it. If it's provided and bad, it's going to be a real problem, because customers don't seem to understand lost production time charges. 6. House stock can be run to very tight production counts. Provided paper cannot. 7. If there is only 19,100 sheets of paper for a 20,000 run, something has to give. These are just some of the issues you run into, of which most run up your cost of doing business. Which is why you have to M/U paper if you are thinking about things from a cost of activity basis. If you can work out some of these with the client in a good working relationship, your can forgo some or all of your mark up. But costs are costs. And if you base your system on it, you shouldn't leave it all on the table.
Greg Cool - Posted on October 05, 2010
Mr. Miller, After working in this industry for 20+ years, I feel compelled to respond. You ask why printers should mark up paper? The simple answer is to service the debt from time of purchase of that paper until time of final payment to the printer from the customer, which could be anywhere from 30 days to 6 months. In my experience, when a printer needed to raise prices the easiest method was to change the markup on labor, materials or both. I'm not saying that it is right or wrong, just that I have seen it happen. After a few years of this, it is no wonder printers may appear "confused" about what to markup paper. I contend however that more printers are investing the time and effort to capture true costs and move forward with a plan for growth in the future. This includes a realistic markup for all labor and materials. I must say though that it shouldn't really matter what the printers markup is. What matters is the final price (value) to the customer. The customer will make their purchase decision regardless of "markup".
Click here to view archived comments...
Archived Comments:
john polvino - Posted on October 12, 2010
Value added... we all talk about it--yet discussions like this make me wonder. Since I add no value until I actually convert the white sheet to something salable to my customer--what's the mark up for?? I operate on a value added basis- therefore my manufacturing mark up is the key to my profitability--and not paper.
Robert Johannes - Posted on October 05, 2010
Jack, This is something that has been an issue since I started in this business over 25 years ago. The "consultants" always pushed marking up paper as a relative revenue generator; that is, it reflects a revenue flow for the indirect and related costs for paper. You always have gnashing of teeth over it, especially from the sales department. A lot has to do with your theory of house costing. If you are trying to be more ABC oriented, you go through the exercise of trying to think about all the things that paper costs. Here's just a few: 1. Paper insured as physical inventory is bulk insured. Paper supplied must be treated as property of others, under a separate policy category. 2. Stock paper has holding costs; that is, it eats working capital and your credit line. 3. You must handle both off the truck, so there is no real difference, only that it may come in on a pallet or skid you can't handle. 4. Paper you buy runs in your house to the best operating standards. There is no guarantee that what your customer buys will. 5. If paper is bad, it's your responsibility if you buy it. If it's provided and bad, it's going to be a real problem, because customers don't seem to understand lost production time charges. 6. House stock can be run to very tight production counts. Provided paper cannot. 7. If there is only 19,100 sheets of paper for a 20,000 run, something has to give. These are just some of the issues you run into, of which most run up your cost of doing business. Which is why you have to M/U paper if you are thinking about things from a cost of activity basis. If you can work out some of these with the client in a good working relationship, your can forgo some or all of your mark up. But costs are costs. And if you base your system on it, you shouldn't leave it all on the table.
Greg Cool - Posted on October 05, 2010
Mr. Miller, After working in this industry for 20+ years, I feel compelled to respond. You ask why printers should mark up paper? The simple answer is to service the debt from time of purchase of that paper until time of final payment to the printer from the customer, which could be anywhere from 30 days to 6 months. In my experience, when a printer needed to raise prices the easiest method was to change the markup on labor, materials or both. I'm not saying that it is right or wrong, just that I have seen it happen. After a few years of this, it is no wonder printers may appear "confused" about what to markup paper. I contend however that more printers are investing the time and effort to capture true costs and move forward with a plan for growth in the future. This includes a realistic markup for all labor and materials. I must say though that it shouldn't really matter what the printers markup is. What matters is the final price (value) to the customer. The customer will make their purchase decision regardless of "markup".