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Keeping Your Pricing In Line With Your Costs

(November 2008) posted on Mon Nov 17, 2008

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.

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By Mike Ukena

While most computer accounting programs will give you a nice month-end report to see what your company did over the past 30 days, that is too slow for the way some cost changes can sneak up on you. A larger company can easily monitor cost increases on a daily basis by just having the purchasing department chart the changes and report the jumps to management and/or the people who price orders.

For the small printer, with limited staffing, everyone has multiple responsibilities. For these companies that make up a major percentage of our industry a little more effort is required to make sure that they are current on costs. My recommendation is to utilize a spreadsheet that lists a number of key items. This spreadsheet does not need to make sense in total as we are not building an income statement. The numbers are just that, numbers. They are meant to work as an indicator of where things are today.

The spreadsheet function can be exercised every time you receive goods. By plugging the current costs as of that day, you will have a much better comfort level that you will not get a bad surprise when you run your monthly reports. The spread sheet shown in Table 2is what I recommend. This example is for a textile shop, but it can certainly be modified for any screen-printing or digital printing operation.

I set up this spreadsheet to include representative cost from last year plus each of the tests that I had run this year. That way, I not only see the cost today, but I see how it has changed and where it may be going. The numbers on the spreadsheet are not for specific orders but rather they are representative of the most commonly purchased items on the direct side and the most important cost factors on the indirect side. The snapshot they create does not relate to any order but to all orders. If I look at prices in October and my direct cost snapshot shows that my direct costs are up by 13% over December, but are the same as September costs, then I know that if my pricing in September worked out, then I do not need to increase it this month.


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