Killer costing III: the external cost killers

Who is driving down the price of print? Our industry continues to cripple itself, with competitors driving themselves and you out of business at the same time. I’ve said it before and I’ll say it again: we continue to lose money as an industry, due in part to external cost killers.

Last month some internal cost killers were discussed. If each shop is engaging in these self–deprecating practices it’s easy to understand how the rest of the industry is affected. Jobs go to the shops who are willing to lose the most money. Another way to put that is “make the least money,” but perhaps the previous statement is more powerful and more accurate. But aside from the competition, there are also other external factors hurting your bottom line.

You are all well aware the price of raw materials will increase as time progresses. It’s relatively simple to understand the concept of price increases over time…unless you’re a client. The client’s desire for the lowest price possible, coupled with a lack of understanding of pricing pressures on the industry means that they’re constantly searching for savings. Furthermore, stressed out printers are too competitive to let even one customer go, so we just bow to the client’s pricing wishes and price ourselves into a job and out of a profit.

We are also at the mercy of the paper merchants because there are only so many places from which we can buy paper. Cheaper brands of paper do offer savings initially, but poor running and finishing issues can wipe out those minor gains rather quickly.

Technology offers many ways of making more money with efficiencies, but it can also destroy businesses with the high cost of keeping up to date. Many printers talk about wanting to be on the “leading edge” of technology, as opposed to the “bleeding edge”. Technologies often take time to establish themselves and work out all the bugs, and investing in technologies too soon usually means more costs than benefits. Investing too late may mean you have already lost customers to competitors. It’s almost impossible to invest in the right technology at the right time, but in order to stay competitive in this highly volatile market, companies must continue to invest in new technologies.

Client crossover is an external cost killer that I find particularly interesting. When new clients come into companies there is usually a difference

in the pricing between what the client used to get and what they will get now. If the new pricing is lower, the client is of course happy, but lower prices don’t always materialize, particularly when a new salesperson has joined a company and the client is doing a repeat job with an old price. Such a situation is not entirely an external factor, but it is certainly something beyond your realm of control.

Naturally, all these factors affect your suppliers as well. This means that their prices get driven up and beaten down just as much as yours do. Suppliers may decide to raise prices, as there is often no substitute for their more specialized products or services. Ultimately what benefits the printer benefits the supplier. Suppliers rising prices means either higher prices to the end clients or less money for the printing middleman. Keeping an active list of competitive suppliers is a way to keep your options open, but ultimately this leads to less money being spent with any given company and a loss in bargaining power when angling for a deal.

External factors can be the most frustrating and worrisome cost problems as they are completely beyond your control. There are some things you can do to better protect to your company from external threats, but there will always be some risk because no one can plan for everything.

Determine the major external factors that you worry about and decide which to give up worrying about and which ones to act on fixing. You can’t control everything, but you can be wise in protecting your business from external cost killers.

Next month: The client killeth. If you have any comments, solutions, or general input on this or any other topic please feel free to contact me at johnathonanderson@graphicartsmag.com.
    
Johnathon Anderson
johnathonanderson@graphicartsmag.com

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