Saturday, June 05, 2010

Print pricing 101

It never ceases to amaze me how many people make it through life with apparent financial success and yet cannot do basic arithmetic. I wonder, sometimes, how they have managed to stay out of jail and out of bankruptcy. And yet there they are. And a lot of the people who so amaze me are salespeople. In particular, they are printing salespeople, because I buy printing services on behalf of my publishing clients.

The basics
For the sake of simplicity, I am discussing only book manufacturing in this post. Book manufacturing consist of printing either digitally or by offset and binding the book with a soft or hard cover. There are further divisions within those categories, but we don’t need to concern ourselves with them for this exercise.

In digital printing, a company may have some administrative costs for setting up a new customer and for uploading and checking files, but these costs are modest and may or may not be itemized on a customer bill. Once the files for a book are loaded onto a server, every copy costs the same amount to produce, from the first to the millionth. The printer may offer some volume discounts as incentives, but the price per copy does not drop rapidly. If you’re going to save money, it will be in ordering quantities that are efficient to ship. The printing and binding costs don’t change much, if at all.

In offset printing, on the other hand, the cost to set up the job is significant, whereas the cost to produce each additional copy of the book is quite low. As more and more of the prepress tasks are automated, the setup costs keep coming down, but they are still important in pricing.

That’s where your trusty calculator comes in
When you get printing quotes, typically you will ask for pricing on two or three different quantities. A given printer may suggest that the lowest quantity might work out better printed digitally and the higher quantities should be printed offset, but you can get all quantities quoted both ways if you want to and if the job could go either way. Some books can only be printed offset, for a variety of reasons.

But now you’re looking at the quotes. You can see that the digital prices don’t change much, if at all, with quantity. That’s as it should be. But then you look at the offset prices and you see this:
  500    $9.20/copy
1,000 $5.05/copy
1,500 $4.27/copy
What can you learn from that?

The first step is to multiply out the totals:
  500 @ $9.20/copy = $4,600
1,000 @ $5.05/copy = $5,050
1,500 @ $4.27/copy = $6,405
The next step is to subtract to find the differences between totals:
  500 @ $9.20/copy = $4,600
1,000 @ $5.05/copy = $5,050 = $4,600 + $450
1,500 @ $4.27/copy = $6,405 = $5,050 + $1,355
What do those numbers tell us?

The difference in cost between 500 copies and 1,000 copies is $450. If we divide $450 by 500, we see that the second 500 copies cost $0.90 each.

The difference in cost between 1,000 copies and 1,500 copies is $1,355. If we divide $1,355 by 500, we see that the third 500 copies cost us $2.71 each.

Now this makes no sense, because once the job is running, every new copy should cost the same. Certainly we don’t expect the cost per copy to jump up! What’s going on here?

What’s going on is that the person who did the pricing is either working from bad source documents (charts, tables, or incorrect software) or else just made a mistake.

But suppose it really does cost $1,355 to produce 500 books. Then the cost for the first 500 should be no more than $3,695 ($5,050 - $1,355), not $4,600.

Or suppose that it really costs $450 to produce 500 books. Then the cost for 1,500 should be no higher than $5,500 ($5,050 + $450), not $6,405.

The numbers I started with are from a real quote from a real printer. I didn’t make them up as a fake example that would never really happen. In this case, the printer will fix the numbers or I’ll use someone else.

The point is that you always have to check the numbers a salesperson gives you. Not checking them can be expensive.

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