Additional Methods used to Estimate Printing
The following eight procedures are used to estimate printing in addition to or in place of the described cost-estimating procedure. The most significant difference between these techniques and cost estimating is that each is based on the selling price of the job. We define selling price as the total dollar amount the customer will pay when the job is completed. It is represented by the sum of all manufacturing, material, and overhead costs, plus profit.
Price lists. Estimaing from price lists is very common when the product line of the printing company is standardized. For example, many fast print businesses, offering standard sizes of prices for the array of products they offer. Because the work is standardized, it is much faster to utilize price lists than to cost estimate each job individually. Customers also may use the price list to determine the price of the work they are contemplating prior to contact with the business.
Large printing companies that offer standardized products, such as labels or business forms, normally develop a price list book that covers literally all products they produce. This book is carried by each sales representative, who has been trained in its use. When a customer desires a price for a certain quantity and type of label, for example, the sales representative is able to determine a firm price within a short time. Quick price estimating is a tremendous aid in selling standardized products. Of <span id="google-navclient-highlight" style="background-color: course, such estimating-completed in the customer's office under less than ideal conditions-can be embarrassing if an error is made or a price is misquoted by the sales representative.
Price lists are an extremely valuable estimating aid when they are accurately developed and updated and used only for the product lines for they were designed. In this age of increased specialization and standardization the printing industry, more and more estimating from price lists is being done.
Pricing on the Basis of Past Work. A common technique for estimating in the printing industy, especially for a mix of products produced in the same plant, is pricing on the basis of past work. Essentially, the estimator and sales representative establish and maintain a file of past jobs that have been profitably produced and for which production is geared. The salesperson uses this sample portfolio during the sales contact with the customer. Frequently, the client will seect a produc from the sample, with a request for a color change or perhaps a slightly different page size. Back at the plant, the estimator will pull the original estimate for this job, review it, and make necessary changes to reflect the modifications desired by the customer. The sales representative will then retrun to the customer with a proposal stating exact prices for various quantity levels. If changes are limited, the procedure is fast and reasonably accurate. The technique leads toward product specialization that may be most prof table for the company in the long term. In some cases, the procedure is modified somewhat: The estimator maintains a card file system of past job quotations. The sales representative then sells work without a sample portfolio and brings the work in to be estimated. At this point, the estimator refers to the card file for a similar job done perhaps three months ago and quotes that former price or one close to it. The filling system used must be indexed and cross-referenced to be a timesaver for the estimator.
Pricing by Standard Catalog. The most popular standard pricing catalog in the printing industry is the Franklin Catalog (Porte Publishing Company, Salt Lake City, UT). Using Franklin, almost any ellars.
There are three volumes of the catalog segregated by printing process: a letterpress edition (approximate size 6*9 inches), an offset catalog (approximate size 8 1/2 * 11 inches), and a lettershop and bindery catalog (approximate size 6 * 8 inches). Any of these may be rented from Porte Publishing Company for an annual fee about $55, which includes updated sections offered approximately four times yearly. The sections, which are categorized by type of work or type of paper used, are held in three-ring binder notebooks. There are also sections containing instructions for using Franklin, hour rates and various operational times.
Pricing by Competition. Using the prices charged by competing printers as a basis for estimating is fairly common in the printing industry. Such information is available from many sources-from published price lists, from customers who are checking around for the best price on their job, from supply salespeople, from former emplyees of that business, or perhaps from table talk at a local association meeting. Once the information is obatined, it may be used to adjust or establish a price for a job under consideration.
Two major problems exist when pricing by competition. First, it is exceptionally difficult to verify if the obtained prices are accurate for the described product and quantity. How can the accuracy be checked? Second, there may be little, if any, resemblance between the companies comparing prices. Each company may have entirely different types of equipment, different production techniques, and different types of personnel with verying levels of experiece. There may also the tremendously different accounting, costing, and estimating procedures. if the competitors have very little in common, then costs and prices will tend to fluctuate signficantly.
The advantage of pricing by competition is that it is a simple procedure once the information conceming the competitor's prices has been obtained. It is possible to undercut the competition's price and subsequently increase the volume of work by winning those jobs that normally would go elsewhere. Of course, while production may be up, costs to cover such production may not be recovered because they were cut to beat the competition. The net effect, should this happen, is bare bones survival or future dissolution of the company through bankruptcy. Consider this situaton: If each printing plant in the community priced work by comparison with the competition, a price-cutting cycle could easily begin. Those plants that refused to cut prices would lose business to the firms that were offering the best deal. Those plants that cut prices would be doing a tremendous volume of work, perhaps much of it at cost or below. The net effect of price cutting is a vicious cycle that can hurt the entire printing community.
It is safe to state that most estimators and sales representatives, at least once in a while, attempt ot meet or beat the competition's price on a job they consider important. In fact, it is reasonable to assume that some printing plants price their work as much as possible on competitors' bids and may even make money if the competitors know their costs and pricing structure well. Consistently making a profit when pricing by competition, however, is more a product of luck than of skill.
Pricing by the Chargeback System. Some commercial printing plants, and many in-plant operations, use the chargeback system to price the value of their printing. The chargeback procedure uses actual production and material cost data accumulated as the job is completed, as opposed to estimating what is expected to occur before the job ever begins production. Actual time and material costs are tracked during production and summed at the completion of the job. In the commercial printing segment, a reasonable profit is added to the actual costs to arrive at a final selling price for the customer. In-plant shops, doing captive printing for a parent company, may or may not add extra dollars for profit.
An advantage of chargeback is that the customer pays only for the actual time worked and materials consumed for a job, eliminating any differences between the estimate cost and actual cost of the job. Essentially, chargeback procedures eliminate or reduce the estimator's involvement in such jobs since prices are based on actual and not estimated. The estimator's time can be spent on other jobs, which is another advantage.
one disadvantage of chargeback is that since no estimate is prepared, no proposal or quotation is offered. Thus, customers may be surprised at the final price of a job and consider it to be excessive. Without a proposal or quotation stating specific dollar amounts, the question of whether a contractual agreement exists between the printer and the customer is possible.
Pricing by the Ratio of Paper Cost to Selling Price. This estimating technique is simple and uncomplicated. The procedure essentially involves a ratio of paper cost, which is the major material used in most printed products, to the selling price of the job. Initially, the cost of paper for an order is determined. The estimator then multiplies this cost by a specific ratio figure-for example, four-thus calculating the selling price for the printed job as a function of paper cost.
This technique does not reflect the actual costs incurred during manufacture of the product, but is accepted because it is extremely easy to execute and, in the view of some plant owners, it is as accurate as any other estimating system. The key, of course, is defining the exact ratio figure that best provides for full job-cost recovery and profit. Opinion varies as to what the paper cost ratio should be numerically and how it is effectively determined.
Priceing by the Customer's Ability and Willingness to Pay. This pricing procedure is extremely subjective. Customers are evaluated by the sales representative or company management with respect to willingness and ability to pay for a job. When possible, some type of index, such as a credit rating or other evidence of financial dependability, is used as a base for arbitrary establishment of selling price. Once this price is communicated to the customers, they may accept, reject, or attempt ot negotiate the figure downward. Because the customer, not the costs incurred in producing the product, is the focal point of the pricing system, it is not unusual for the quoted price to be higher than if normal estimating procedures were used.
Plants that price in this manner may not want to take the time to estimate the job, or they may have no defined procedure by which estimates can be accuately completed. In some instances, the negotiation of price provides an element of bizarre excitement to management, but it is generally considered a poor business technique.
Pricing by Guesswork. Some printing managers believe that definitive that cost estimating is a waste of time. They base this reasoning on the fact estimating requires standard times and budgeted costs, both of which are actually averages; that many mistakes occur during the estimating process; and that too many changes occur during production that simply cannot be determined druing estimating. So instead of estimating at all, these managers use intuition to determine a reasonable price for each job. In some cases, they may review the production requirements that are needed to do the job and include that in their guess. In other cases, they may quote a price based on quantity or type of product with no other input at all.
It is inconceivable to think that guessing at a price for a printed product is a reasonable pricing procedure. Nonetheless, it is a technique practiced today by those who believe that intuition is better than averaging when pricing printing or by those faced whith an excessively large number of estimates to complete in a limited amount of time.
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