Paper Markups and Customer Supplied Paper
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.”
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.
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.