Musings on Material Multipliers -- Dickeson
Do you recall an ancient rule of thumb that said, "Your price should be three times your materials?" I do. Many old-timers (BC—Before Computers) will recollect the rule. Well, if we can do a fair job of estimating materials, why not use some variation of that ancient wisdom? Estimate your materials costs, multiply by three and see what pops up. Remember that the result is not the price. It's just a bogey, a support number, a starting point for evaluating past history, competition, market conditions, which way the wind is blowing and all those elements of a SWAG (Scientific Wild-Ass Guess).
Hitting Pricing Bogeys
Maybe we'll want to use a different materials multiplier number for setting pricing bogeys. Or even a series of multiplier numbers depending on work variations could be used. What you want is just something that provides a little decision support—some cold comfort. Odds are 10-to-one it'll be better than what you're doing with a computer system for estimating job costs to mark up for a price quote. Again, check it out. Divide sales dollars by materials dollars in that set of samples you just did and see what materials multipliers you've actually been using.
Here the critical assumption is that printing is a process that converts paper and ink to products! How much should you be charging to convert $500 of paper and ink into 1,500 units of product? $1,500? Isn't that what we should be thinking about and the way we should be thinking?
Now here's another Dristan to clear your mental sinuses. We can't forecast sales or job mix worth a hoot, but we really can predict operating expenses reliably. So, let's find the total of our operating expenses for the past 12 months. That includes labor, sales and administrative costs, interest, depreciation—everything but materials. Divide that 12-month total by 52. That was our weekly breakeven point for the preceding year.