Don't get caught off guard by unexpected cost hikes. Learn how to carefully track your direct and indirect costs and then adjust your pricing so that your business remains profitable and healthy.
By Mike Ukena
An example for a graphics printer might be as follows: You agree to produce an order of 200 real estate signs on corrugated board. You feel you have a pretty good handle on the pricing as you adjusted for the recent 10% increase in the cost of the substrate and allowed for a 12% increase in the ink. However, what comes around to nail your profit is the increase in the price of the cleaning solvents, and the 40% increase in fuel, which subtracted from your profit because you offer free delivery to your local customers.
I spoke recently with a garment printer who offers free delivery to his customers. He said that his fuel costs had gone up more than $250 per month. That extra cost is weighed against a 15% reduction in sales due to the local economic slowdown. Taken individually, the fuel issue does not seem that terrible. But adding it to the other costs, such as utilities and insurance, and all of a sudden his gross profit had slipped to almost zero while his gross margin had been held constant.
Developing a quick-check monitoring system
Keeping up with all these changes can be daunting. A gas station has it easy. They have three to four products that they have to watch closely and they adjust prices every time the tanker makes a delivery. A full-service screen-printing operation has to look at a lot greater number of products. A textile shop may have 50 different garments that they print regularly, plus 100 inks, emulsion, chemicals, freight in, and indirect cost factors.
A graphics printer may have even a greater number of inks and substrates to consider. In addition, you might have a far greater need for outside services such as converting and application. These outside services are under great cost pressure too, and they are having to adapt rapidly. A list of several common cost items for screen printers and the increases they’ve experienced during the past year are shown in Table 1.
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