Paper Price Increases - Problem or Opportunity?
Paper vendors have been announcing price increases in recent weeks. This is often met with angst by printers. We are always nervous about informing our customers that our services will cost more. However, I have always looked on paper price increases as more of an opportunity than a problem. I have always found it easier to maintain or increase gross margin when customers are expecting inflation, and rising paper prices give us license to raise prices.
Now don’t get me wrong: I am not saying that increasing costs of our raw materials is a good thing. It’s not. Quite the contrary, it can cause more customers to look for alternatives to print. However, we can’t change the dynamic going on with paper mills. Lower volume means they have to increase prices to survive in what is already a low-margin industry.
So where is the opportunity?
Sooner or later, all printers will need to pass on these increases. Of course, some may delay increases to gain competitive advantage. These tend to be the price sellers and bottom feeders that will do anything to buy jobs. We can’t change that. However, the paper increases give us both a reason and an excuse to raise prices and add in a little extra to increase gross margin. If it becomes necessary, we can then explain to our customers that we must pass on these increases. Good, rational customers understand that we must pass on increases from our suppliers if we are to stay in business.
Even if you only change paper prices in your estimating software, it should result in some extra margin dollars for you. If you use standard markup tables, you will be marking up a larger number which will result in more margin dollars. Not a bad thing if you like to make money. It’s just the way the math works.
Announce price increases or not?
This is often debated. I oppose announcing price increases. Why call attention to a negative? If your customers notice that an exact repeat job is now costing more, you can explain it’s because of the increase in raw materials. If you have contract pricing with certain customers, hopefully you have allowed for passing along increases in raw materials. In this case, you may be required to inform the customer. If passing on paper increases is not in your agreement, it should be next time.
I recognize that my comments in this post may be controversial. I don’t apologize for it since I feel that in general, most printers and marketing services providers tend to be too timid about price increases. Good business sense dictates that we must maintain our gross margins, and covering paper price increases when they happen is critical to that end. And while we are at it, try to build in a little extra to increase gross margin. To me that is just sensible.