When printers improve their productivity, lots of good things happen, but there’s one bad thing that often happens by accident. Prices come down even before customers have begun beating up the printer.
Here’s why: If you reduce your make-ready times or improve your running speeds, it’s logical to raise your production standards. But when you increase your production standard for estimating purposes, you can wind up giving the entire productivity increase away in the form of lower prices.
Let’s look at an example:
A printer selling a six-color press for $375 per hour cut his average make-ready time by fifteen minutes, cut his average wash-up time by ten minutes, and increased net running speed from 8,500 to 9,000 sheets per hour.
In a two-sided 7500 sheet work-and-turn form, this reduced average production time by almost exactly one half hour (twenty five minutes in set-up and wash-up, plus about five minutes in running time). When the shorter production time was used for estimating, the half-hour time saving was passed along to the customer – until the estimating hourly rate was increased to reflect the higher productivity.
At the old hourly rate of $375, the customers were accidentally saving $188 on the cost of presswork, because the time for producing the two-sided sheet was reduced from 3.5 hours to 3.0 hours. Only when the estimating hourly rate was raised to $440 did the price for the presswork stay the same – $1318.
We know that everyone is facing relentless pricing pressure, so if you have to lower your prices, go right ahead. And if your productivity has improved, you have plenty of room to lower prices. But be sure you’re doing it on purpose, not by accident!
After all, customers don’t need any additional help in forcing printers to lower prices, and printers need all the help they can get in building profitability.
If you’d like to have a tool for evaluating the effect of productivity changes on pricing, just e-mail us and we’ll send you a small easy-to-use EXCEL file that shows you how much you can (and should) charge for press time if you change your productivity standards. There’s no charge.