IF YOU DON'T KNOW YOUR COSTS HOW DO YOU KNOW YOUR PROFITS ?

By Mark Porter

In our last issue we discussed the concept that Selling and Estimating are two different functions. We outlined the idea that it is vital that all Print Finishers/Binderies/Diemakers  know their true costs so they can make more educated selling decisions. True costs have two components - the machine speeds and makeready times and the true costs of the production assets to produce the work. Most Post Press Companies have a very good idea of the speeds and Makeready times that their production assets can obtain. Where most post press companies are weak is in determing the true cost of those assests on an hourly basis.

Direct Material and Direct Labor costs are easy to identify but how much of your monthly rent and telephone bill should be applied to each job. Because the post press industry is a job oriented manufacturing business, meaning every job is different, we must have a predetermined Budgeted Hourly Rate(BHR) with the proper allocation of factory and administrative overheads that can be applied to all jobs.

You should have all the information readily available that is required to determine your BHRs. Employees wages and benefits, which equipment they operate, what you paid for equipment, the square footage the machine occupies on the factory floor your factory overheads and administrative overheads. Once you have this data your accountant or software can apply proper accounting principles and graphic arts ratios to calculate accurate hourly cost rates.

Having accurate and current BHR's is the first step to generating higher profits. These rates reflect the all-inclusive or fully absorbed costs of doing business, and should be adjusted as events unfold which may change the costs of operating the business. Buying or selling equipment, working different productivity levels, giving raises or changing shifts are afew examples of events that can affect the true cost per hour of your production assets.

Providing your clients with prices that are guaranteed to generate profits is only possible when all of your full operational costs are reflected in your pricing.