I am not entirely sure why full-cost models seem to be the dominant pricing models in our industry, but maybe it's because printing companies, for decades, have used the cost+ price as a basis for sales prices. Full-cost models are excellent models for costing - if the basic parameters are set correct - which they rarely are - but more about that later! The problem is, and yes, I have written about this before, that sales prices rarely have anything to do with cost.
A good sales price needs to be as high as possible and still ensure your product to be in demand. Typically, discounted prices push demand, and you know this yourself when exposed to Black Friday offers, special discounts, sales, etc. You are attracted to a good offer, but if the discounted price becomes 'normal,' you will not be tempted after some time.
Low prices do not always equal low margins, but if your margins are low, volume can justify low prices or at least temporarily attract customers to your products and services. Be aware that customers tempted by low prices may be less loyal and easily influenced when competitors offer discounts.
The same logic compares to B-to-B products and prices. Your prices must be as high as possible. So what will allow your prices to be higher? Again we can look at some of the brands we recognize. Of course, some products are sold at a higher price because consumers believe the quality, the design, the whatever, justifies a higher price. But we also know and recognize that some commodity products may be priced differently just because of a retail shop's positioning in the market. Despite the product being the same, i.e., a liter of milk can have different prices depending on whether you buy it in a supermarket, convenience store, gas station, bakery, etc. We accept the difference in prices since other parameters play a role.
With printed products, it's the same. Though online shops publish their prices, you still find significant differences between them. You know, maybe from your own company, that prices on the same products aren't the same to all customers - so you are already aligned with the pricing model I encourage you to use!
What justifies price differentiation? Well, clear communication about your offerings for one! Second, options! The more options you offer your customer justifies higher prices - and your customer most likely already knows this.
I worked in the printing company that printed the Bang & Olufsen product catalogs back ten-fifteen years. They always picked three companies they knew had a good reputation, high quality, etc., and based on that, they asked for a quote from each of them. They would never trust to get their catalogs printed by companies ONLY based on price, so yes, price plays a role, but everything around your company plays an even bigger role - MOSTLY at least!
To sell at a premium, you'll need to identify your value proposition, and you'll need to market these values. If your prospects and customers don't see any differentiation between you and your nearest competitor, the most visible difference will then be the price! One thing that differentiates you is the people you employ, but it's also about identifying the weak points of your competitors. Online printers are often seen as competitors, but they are less flexible in many cases and focus on the products they offer online. This is an advantage for you since most online printers offer re-seller prices on the commodity products they offer, and you can offer the diversity and service that the online printers can't.
Full-cost models are excellent to give a relatively accurate idea about the cost of producing a product. The full-cost model takes the cost directly involved like paper, ink, labor, and then a proportionally cost, typically based on time-based on the average price per hour a machine is used, rent, administration, etc.
All good, but if the utilization of your equipment isn't relatively accurate, you may get wrong calculations, and though on paper profitable, you aren't. So a high level of discipline is required to keep cost models up-to-date. I have never met a company that is, so when using MIS systems and other price engines, most prices are not even estimates but guesstimates - and that is as dangerous as what I suggest you think about now!
Years ago, I read an article in the US Edition of Wired Magazine about data mining. The article was about how data mining uses historical data to guess future development, i.e., RAM prices. They selected a few HP RAM-purchasers to compare the results to see which result was better or more accurate. The results were stunningly comparable, and the conclusion was that the creativity that goes into understanding pricing mechanisms the humans outperformed the machines. Interesting, right?
When I was a sales manager in a printing company, I asked everybody working on customer quotes to guesstimate the expected price before entering anything into the MIS. After just a few days, most estimators and internal salespeople guessed a price within a few percent on most jobs. An important lesson is to take advantage of the skills you have in your company and consider what is important for a customer.
Sometimes ballpark figures are good enough. From time to time, I have also used an open book principle where I have shown the customer the calculation and agreed on a reasonable markup. My point is that prices are about getting the jobs, and there are tons of ways to achieve sales.
So when you set prices, you must follow your instincts, and some products you can have higher margins on and others lower! The full-cost calculation of your production is MAINLY a tool to see how much profit you can expect. With full-cost models, you can simulate cost on different devices, simulate the impact of higher/lower prices on consumables, paper, etc. But to use your cost model to set sales prices, I will not recommend you do that.
If you continue using your full-cost model as a pricing tool, you may sell prices too cheap or too little because you are too expensive.
I hope you can use these inputs as inspiration!
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