How do I do this?
Calculating Hourly Press Rates
Posted: 18 July 2013
Call me stupid, but what is the best way to figure the Budgeted Hourly Rate for a press? Are most printers figuring expenses for the press and dividing it by 2080 (number of single shift hours in a year)? Do you actually break down the expenses on each piece of equipment if you have multiple presses? It's a little late in the game to ask this, but I didn't see it on the forum when I searched.
. . . . . Craig
Craig, A few years ago I discussed BHR's on PrintPlanet. There's also a chapter on it in our online help system. My personal opinion is that Budgeted Hourly Rates should have been RIP'ed years ago. But to answer your question, yes, you do have to break down the expenses for each piece of equipment, from platemakers in prepress to cutters and folders in postpress. A little paper drill? You could probably wing that.
The biggest fly in the ointment of BHR's is the "Utilization of Equipment" that's at the heart of it (see the 80%, 70% and 60% utilization rates at the bottom of the illustration). Not accounting for utilization makes budgeted rates useless. And that's my main objection to this ancient pricing method. Raising hourly rates when presses sit idle, and lowering them when they're running at full capacity, what's the survival rate for that? I can see why it's loved by accountants, but it's a horrible marketing strategy.
The illustration is a page from Philip K Ruggles' book "Estimating Printing," fourth edition, published in 1989. You would need a newer edition for up-to-date pricing. The page will, however, show you the itemized cost structure, when to charge for what. Not much has changed there.
Good book to have on your shelf, by the way. The latest edition (5) will set you back $125.00, but a used edition four can be had from Amazon for 80 cents. No, really!
. . . . . Hal Heindel
OK, I do agree that BHR is next to worthless. That is why I can't seem to wrap my tiny head around the method. So, how do I come up with a magic number to plug into the hourly press rate in MF to make sure I am pricing correctly for ME? Is the number somewhat arbitrary, just a number that makes the pricing feel right?
How do I determine "value based?" Seems to me that looking at what others are pricing their stuff at and adjusting my price to "fit the market" is just as convoluted.
. . . . . Craig
"Magic" is the keyword here, Craig. If I had the answer, I would grab that number and plug it into Morning Flight and tell every user to just install the program and price away. I don't recommend doing that, and in fact say so in our on-line help system.
In any event, the hourly press rate shouldn't be arbitrary. Budgeted Hourly Rates are useful for one thing: They can serve as an indicator of what you should have charged last year.
How do you determine "value based?" The essence of value-based pricing isn't so much what the market will bear but the price at which your customers perceive value, each individual customer's tipping point. And by that I mean "your" customers, not Vistaprint's. If a company is perfectly content to wait two weeks to get their letterheads printed, they won't pay you ten dollars extra for turning the job around in two days. Show how your quality is better and the scales may tip in your favor.
Personally, I think Henry Ford had it right all along (and history bore him out): "We have never considered any costs as fixed. We first reduce the price to the point where we believe more sales will result. Then we go ahead and try to make the prices. We do not bother about the costs. The new price forces the costs down."
Of course you have to bother about costs. Even Ford had to figure out how to price that first Model T. But where did the $850 price tag come from back in 1908? I'll bet it wasn't from any kind of formula. My money is on a magic number straight out of old Henry's head. A number that, as you said, "just felt right."
. . . . . Hal Heindel
Craig, I thought I'd chime in so you can hear what other MF users are doing.
The number I use for my hourly press rate is basically a number that I plug in to generate prices that feel right, like you said. It may not be arbitrary or magical but it is at least a very educated guess. To me, MF is there to tell me who ordered what, for how much and when. When it comes to actual costs, that's when QuickBooks comes in as all my costs are right there and I can figure out margins and profitability.
Like Hal, I prefer value-based pricing. I don't have time for BHR. In fact, I've probably gotten a bit out of control with value-based pricing as doing quotes now takes so much time simply because I try too hard to guess how much they are willing to pay. It's going to be hard to train a new employee now.
. . . . . Keith