Are you losing money on every job that you print?
Ramu Ramanathan investigates into how print companies estimate their costs - and tries to find out if these companies can see a rise in profits with a common sense module
18 Oct 2012 | 3866 Views | By Ramu Ramanathan
Pratap Kamat of Uma Offset in Mumbai says: "The pricing situation is dismal. You end up wondering why you took up the job. Very few people are making money in printing. Matching the client’s rate is the biggest problem.
"Once the client decides that he wants to get the lowest rates, you have to retreat. You have no option. It’s like riding a tiger. You cannot ride, you cannot get down."
Uma Offset has been in the business for more than three decades. But Kamat says "relationships developed over the past thirty years don’t count". The client procures three quotations from the market – and selects the lowest. If the printer is unable to match the lowest, he is out.
A book printer, Anand Limaye of India Printing Works, says: "Earlier we got a higher rate because of the comfort level, confidence factor, quality, or whatever. And we could convince the customers that we cannot go below a particular price."
Kamat who is the CEO of his company decides at what rate the company should take up a job, because that is the most important decision.
He says: "Many companies have an estimator who works out the quotation. If a client gives an enquiry, he will say thousand impressions for Rs 10,000. The client will say, ‘Your quotation is Rs 10. Can you do the job at Rs 8.50?’ That decision has to be handled by someone and I do that. I go through the costing. I know areas where we can cut down costs."
This is how most printers arrive at these costs. When probed, they say through "a gut feeling".
"People estimate inaccurately because they don’t have a true idea of the value added in the business," Rupesh Sawant of Superlekha says. "If you don’t know what your costs are, how can you price for a job? I believe people are going out of business because they’re offering prices that don’t reflect the true cost of doing the work."
We did a survey. We procured quotations from four printers across the country.
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Poster job (2000 units) Size: 20" x 30". Four colour (one side). 130 gsm Sinar Gloss art paper. Binding with strip gumming. The quotations we received were: Printer one (Bengaluru) Rs 9.75 Printer two (Navi Mumbai) Rs 10.70 Printer three (Mumbai) Rs 9.20 Printer four (Hyderabad) Rs 12.40 |
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Invitation and envelope job (1000 units) Invitation card size (Size – 4" x 6". Four-colour. Paper: 220 gsm Sinar Matt card) Envelope size (Size – 4" x 6". One colour. Paper – 100 gsm Sinar Matt Art). The quotations we received were: Printer one (Bengaluru) Rs 7.60 Printer two (Navi Mumbai) Rs 9.30 Printer three (Mumbai) Rs 7.50 Printer four (Hyderabad) Rs 11.50 |
In the above cases, VAT and packing and forwarding is extra.
What is a good quote
Before some printers pull out their calculators and work out their rates, let me point out that all four printers vary in their operations.
The Bengaluru and Hyderabad companies are multi-locational and have a fleet of kit and automation which is backed by a formidable sales and administration workforce.
The Mumbai firm has minimal staffing in pre-press, on the press and in post-press, and runs 24/7.
The one in Navi Mumbai has installed a brand new sheetfed with a coater, which is more productive than the machines it has replaced, uses 30% less energy and is capable of faster make-readies.
Is it fair to compare the costing of these four companies? This is the query we posed to a few printers.
"I can’t take any more cost out of production, there’s nowhere else to go. If you’re not looking at systems for the front-end that add services or take out costs, you’re going to lose money," Sawant says.
P Sahasrabudhe of Balodayan Press in Pune, says: "Today, estimates are wanted very quickly, typically within one to five hours. That gives printers the problem of cutting corners, which leads to inaccuracy."
Sawant agrees: "Printers should have the ability to calculate the actual cost as well as the price. Price is based on a mark-up and once an estimate is completed it’s easy to see what the result is of changing the price – say to match a better price the customer has got from elsewhere. One should know when to walk away."
Kamat of Uma Offset, explains: "Printers are offering the same rates that we offered 20 years ago. This is insane because all the prices have shot up. Labour cost has gone up five times, if not 10 times. Electricity has gone up and so have daily requirements. I didn’t have a mobile two decades ago. Today hundred people in the company have a cellphone. Life has changed. 21 years ago, offices weren’t air-conditioned. Today you won’t find a single office that does not have an AC. Who is paying for all these hidden costs?"
Myths about costing
We spoke to Timmy Kuthiala of Baba Barkha Natha (BBN) Printers in Delhi, who said the main problem is "there are quite a few costing myths which printers in India believe in."
The myths that Kuthiala has come across during the past few years at BBN are:
Myth 1. Costs of jobs can be worked out on per 1000s or per unit. This has been the prevalent practice and so, should be true. If folding costs Rs 40 per 1000 signatures, it should remain so – irrespective of variables like the space, productivity and labour costs.
Myth 2. There is no effect of factors like replacement and maintenance costs of machines and rentals on the cost of a job. A printer merely estimates the cost of consumables and multiplies it, to arrive at the final cost.
Myth 3. Labour is cheap in India, so whenever you can opt for a manual process, stick to that – do not automate.
Myth 4. If a competitor can do a job at Rs X, then I can do it at Rs 0.9 X, because my investments are fewer.
Myth 5. As a promoter and CEO of the unit, the owner need not calculate his cost or minimum returns that is expected.
There is no dearth of myths, when it comes to costing in this industry.
Kuthalia adds: "If you ask me to point out one single largest mistake that we are making, then it is: not calculating your costs by the hour. There is no industry, either in India or overseas, that does not base calculations on the basis of time. The final pricing may be presented in per unit basis, but all your costs are in seconds, minutes and hours. In the service industry, the benchmark for costing is man hours."
A case study: The issue of hidden costs
Consider the costing of books in a typical bindery in New Delhi (NCR).
The firm owns the following machines:
- Folding: One automatic (pre-owned), Two semi-automatic
- Gathering: Manual with five gatherers and three helpers to bring in forms and remove gathered books.
- Sewing: Two sewing machines (pre-owned), 1 semi-automatic sewing machine
- Perfect Binding: One six clamp (new), one single clamp with separate side glue tank (new)
- Trimming: one guillotine shear (pre-owned), one three knife trimmer (pre-owned)
- Plus there are nipping machines, bundling machines, shrink wrapping machines, strapping machines etc.
We can disregard the machines in item six as they are not central to production of a bound book. In any case not all books require these machines.
Machines and processes listed from 1 to 5 are required for perfect bound books. (Note: Sewing may be an exception).
Refer to the datasheet (below table) that calculates the cost of one of equipment on an hour basis. Let’s consider the pricing for pre-owned folding machine:
| Investment cost (Rs) | Power requirments (KW) | Working space (sqft) | Average woking days per month | Shifts per day | Hours per shift | Operational efficiency (%) | Capacity utilisation (%) | Number of production hours per annum |
| 9,50,000 | 5.25 | 350 | 25 | 2 | 8 | 90% | 95% | 4104 |
Based on real time information available, there are 4,000 hours of this machine available for production in one year.
The next step is to calculate the total costs associated with this machine and arrive at a per hour cost. We can assume (for the sake of convenience), that there are no outstanding loans and hence no interest cost.
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Investment cost (Rs) |
Average life of the machine (years) | Resale price of the machine (%) | Cost of interest | Depreciation per annum (Rs) | Total investment cost per annum (Rs) |
| 5 | 40% | 0 | 1,14,000 | 1,14,000 | |
| Labour cost | Number of skilled operators | Number of unskilled operators | Wages for skilled operators (Rs/shift) | Wages for unskilled operators (Rs/shift) | Additional salary, benefits, bonus (%) |
| 1 | 1 | 300 | 125 | 15% | |
| Other costs | Cost for rent + electricity of working space (Rs/sqft/month) | Unit cost for electricity (Rs/kW/hr) | Share for nistration + sales in % p.a. on production cost | Cost of maintenance as a percentage of capital investment | Cost of miscellaneous, consumables (Rs/day) |
| 15 | 7 | 25% | 10% | 50 |
Please note: we have considered average costs so as to have a Pan-India representation. All of us know that it may not be possible to get space at costs as low as Rs 15 per sqft, any more. Now let us estimate cost of operating this folding machine, component wise, per hour.
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The above findings demolish a few myths, straightaway. The cost of labour, is by far, the largest component of costing. And yet, we believe labour is cheap.
Now let us imagine we are running a job where the throughput is 5,000 sheets in an hour.
So the cost per 1,000 will be Rs 44.50. How can we estimate the same cost, if we can get the throughput of only 4,000 sheets in an hour? No, it will be Rs 55.60.
So, won’t it be dangerous if we calcuated our costs based on ‘historic reasons’?
Based on a similar calculation, we arrive at costs per hour of all machines. These are:
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The above costs are site specific. Some of the machines are not run across the month; some run only for 10 hours a day and so on. Some of the new machines have an interest component and the rest do not have.
As mentioned earlier, the costs have serious impacts in relation to time.
Now it’s time to estimate the cost of any of the jobs that the bindery in New Delhi, ABC plans to undertake.
Job A: The first job is a school textbook of 160 pages, print run 5,000, size 7.25" x 9.5". 60 gsm papers with a bulk of 1.25.
Job B: The second is a computer book that has all the same specifications as the school book only that the page count is 800.
If there is more than one machine for any given process, the workload is divided equally so as to eliminate any bias in costing.
Job A Job B
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The above estimates do not include services like shrink wrapping, packaging, hologram pasting, CD insertion/pasting, strapping, delivery etc. The cost of signatures stored in the shopfloor, either wait for approvals, or wait for the remaining quantity before gathering can start.
This is another major cost that is not included above.
Therefore the 800 page book is going to cost even more.
Despite these exclusions, the estimator throws up figures that in some cases be more than the unit price realisation.
When we presented this study to printers, they were surprised at the production methods and prices it has produced.
Sawant of Superlekha, says: "Separating cost and price is invaluable in enabling a firm to make commercial decisions about jobs. It can sharpen the focus on chasing work that is most appropriate for its business. Also, it can enable a print firm not only take on work that it rejected before, but also to reject work now that the true cost of the job can be judged."
Avoid the ‘best guess’ estimate
The advise from PrintWeek India is:
- Without accurate costing and estimating of "hidden costs", a print company is lost.
- Traditional-based systems offer the worst of all worlds, being slow and inaccurate and requiring super skills to calculate.
- Remember the difference between cost and price and use it for strategic advantage when chasing work.
- Automation may have neared its limits in production, but offers the potential to cut costs and reduce complexity in administration, while providing valuable management information.
- Using a service rather than buying a MIS system or developing it in-house could offer an affordable and predictable payment model.
- An accurate automated estimating system can disprove long-held price prejudices and help focus a firm on more profitable work.
Timmy Kuthiala of BBN Printers used an estimation utility, developed by Welbound, to arrive at these conclusions. It is an easy-to-use, Excel-based tool that considers every component of cost to arrive at results.
According to Dinesh Ingawale of Welbound, who led the development: "The estimation software can be customised." This means the software is based on the infrastructure and work patterns of a print firm. Welbound intends to distribute this software, free of cost, so as to create awareness about estimation in the Indian print industry.