Contract pricing for large production

[methogod]

I have been keeping my print shop running for the last 2 years with my volume starting out at 50K, now up to 4 million per month.

I currently have 7 machines, 2 KM 920s, 2 KM 7272, 2 7255, and 1 KM 600.

My main client does about 90% of my black and white volume, above 4 million is just ONE CLIENT. I print duplex mail merge self mailers, where flatness is needed so when we fold and glue them, they don't give the folder issues.

So we are moving to get all KM 920s.... I have 2 more on order in storage, just waiting to put into service.

I have worked the cost every which way, currently i am at just over .0054 a click at 3.95 million last month, the issue that i am having is every way i figure it out, my dealer is making about 50% of my monthly bill.

If any one who is a INDEPENDENT want to advise me if he is making TOO much money, please let me know. I want him to make at least 4K-5K, but bills last month were around 22,000. Where even if 10K were parts, and 3K was his tech, which only works my account around 20 hours a week.

Can someone tell me what to think, I like the company, and the owner, but again, its all about dollars and sense - and my client is hitting harder times, since the economy. Only reason he just didnt leave me is I am under contract with my client for another 6 months, then they may walk, but i dont think there is a happy median where we all make money.

[kingpd@businessprints.net]

There's actually not a simple answer to your question. So I'll respond on various scenarios. I'll be perfectly honest and blunt and these responses will reflect my opinion as to what I believe to be accurate and true most of the time...

1. First, all of the machines you mention are in the 60 ppm to 92 ppm speed range and you're doing 4 million pages per month over 7 of them which consists of 4 different models. This is an inefficient set-up. You should have faster, higher volume machines, and less than 7. It would provide for longer life on toner and parts and maybe give you a lower rate and more profit for your copier tech. I'm assuming you started this set-up b/c of the lower initial volume. In the future, I'd consolidate to two to three machines of the same model/series.

2. We usually price cost per copy of 80ppm+ machines at .005+/-.001 depending on volume commitment. I'm going to assume your click rate is for a letter size copy. If it's for ledger or high ink coverage, then your tech should be b*thing since high ink coverage or 2 up printing could actually lose him money.

3. Just a bit of friendly advice, be careful since so much of your volume is from just one client. I remember starting out as a start up and finally having enough business to pay myself a salary and a few key clients folded or switched to someone else...it hurt. Definitely don't go and invest in new equipment for just one client.

4. Unfortunately and amazingly you can buy a six or seven figure machine and the manufacturer will give maybe a 90 day warranty. It's gross and unjust. The dealer however takes a big risk in hoping that the machine he just sold isn't a lemon and will operate predictably over the next 3-5 years. Based on your figures you're doing an average of 570,000 per month on each machine which is starting to push the limit a little bit on those slower models.

5. So the tech works your account about 20 hours per week. Honestly, in the industry, that is A LOT of time! That means out of a 40 hour work week, that one employee is devoting half of their time to you. This is a red flag! Even the largest typical clients don't need that much time devoted. A real life example is a hospital/medical institution locally that has on their premises over 300 machines. That client has a full time technician on site dedicated to just that client. So 150 machines might get a part time technician dedicated. The problem is probably the volume demand in such a short period over the machines you're using. Figure then that your fees should be covering 50% of that employees time/hours, medical benefits, vision, dental, retirement plan, travel, training, sick/vacation/personal time, employment related taxes, etc. It's pure economics really. 50% of all costs to that employee are spread out over one client (you), whereas a typical technician might service the costs over hundreds or more of clients.

6. So can you get a lower rate? Most likely yes. 4,000,000 pages per month is a lot of bargaining power...but to get the lower rate, you'll have to commit to that usage. If your client leaves, you're still obligated for the volume that got you the lower rate. And you'll probably have to upgrade your equipment, at least the slower models. I'd almost guarantee that a company that sells direct like Xerox will quote you a lower rate, but will probably play games with you on the machine cost. So you'll save on the cost per copy but they'll make up for it in the price of the equipment. You're not going to be able to have a tech at your site for 20 hours a week nor should you need one.

7. With the volume, you may consider an offset press to lower costs...again, I wouldn't go out and buy one just for one client. Another tip, even if your volume is maxed out, still continue to try and get more and more clients and build up your base.

8. If you like the company and owner and that all works out good and their service is great, that has its own weight in gold. More times than not, cheaper is worse and is cheaper because of lack of talent, lower quality, and probably good things got cut or reduced.

9. A very fair thing for both your tech your client and yourself is to see about coverage based charges. If your client is using a lot of ink, they should pay more than other clients, as should you to your tech. There's other ways to save too, for instance, you could buy larger sheets of paper by the pallet and cut them down to letter size yourself. I think your biggest way to save is to have an environment that doesn't require 20 hours of tech time per week.

Those are my thoughts on your situation and question. Hopefully this helps you and others.

3.