Printing Estimating Cost Rates

A crucial component for accurately estimating, pricing, and costing printing are Cost Rates, also referred to as Budgeted hourly cost rates (BHRs).  Budgeted hourly cost rates are the hourly cost rate in which you must sell your equipment or services in order to break-even or recover your out-of-pocket costs. The primary goal of BHRs is to recover 100% of your expenses with the production hours you sell to customers. Printing and packaging companies have been using BHRs for over 100 years.

 

This is accomplished by distributing your expenses (wages, leases, depreciation, supplies, utilities, insurance, etc.) among each piece of equipment or cost center; and then recovering those expenses based on the equipment production hours you expect to sell.

 

Unless you are a not-for-profit organization, BHRs are not the price of a job. They are a tool to help you forecast your true costs so you can confidently and strategically price jobs. Therefore, it's important that you include only your out-of-pocket expenses when building your BHRs, and do not include profits margins.

 

Example Printing Cost Rates (BHRs):

• MAC Workstation $70.00 per hour
• Computer-To-Plate $180.00 per hour
• HP Indigo $116.50 per hour
• 5 Color 40” Heidelberg $330.00 per hour
• Cutter $85.00 per hour
• Folder $95.00 per hour
• Hand Packing $42.00 per hour

 

Materials costs such as plates, paper, and ink are typically estimated separately and are not included in BHRs. Buyout costs or outside services such as die cutting and perfect binding are also determined separately.

 

Once the total printing cost is established, a profit is added to the total to determine the selling price that is to be quoted to the customer. The formula used for determining the printing selling price is:

 

                production time

             x budgeted hourly cost rate

             ------------------------------------

             + material costs

             + buyout costs

             + desired or acceptable profit

             ==========================

              = selling price

 

Direct Manufacturing Costs

Direct Manufacturing Costs are expenses that are necessary to specifically produce or manufacture a product. These expenses can consist of, but not limited to: production employee operators and helpers wages and expenses, production department supervisors, supplies needed to operate equipment, equipment maintenance and repairs expenses, equipment asset depreciation, equipment leases, and a portion of building occupancy costs needed for the production area. Cost Rates Advisor gives you the flexibility to designate expenses, employees (partially or fully), and assets by allocating them to directly to a production cost center or production department.

 

Direct labor costs are the annual cost of each production operator or helper directly associated with manufacturing products. This would include their wages, company paid benefits (health insurance, retirement, bonuses) and company paid payroll taxes. The direct labor costs are allocated to production machines or cost centers by percentages. If an employee is not 100% dedicated to a machine or cost center, identify the all of cost centers they work on and percent of time they work each cost center. These percentages should add up to be 100%. Production supervisors can also be designated as lirect labor by allocating them to cost centers or departments. See Cost Allocation Methods for additional information

 

Administrative and Selling Overhead Costs

Administrative and Selling Overhead typically consist of expenses associated with the salespersons, customer service representatives, estimators, accounting personnel, managers, and other administrative personnel required to support the operation. These expenses include wages, benefits, furniture, office equipment, office supplies, other insurance, auto expenses, telephones, computers, and other expenses necessary for the support personnel.

 

Administrative and Sales employees such as accounting, estimating, customer service, salespeople, and other office support staff should be allocated to Company Sales And Administrative Overhead. See Cost Allocation Methods for additional information

 

All-Inclusive Budgeted Hourly Cost Rates

Printing companies use All-Inclusive Cost Rates for estimating, costing, and pricing. All-Inclusive Hourly Cost Rates are comprised of all Direct Manufacturing Costs and Administrative and Selling Overhead Costs.

 

All Inclusive rates represent true out-of-pocket costs before adding a markup for profit. By using All-Inclusive Budgeted Hourly Cost Rates for estimating and pricing, you are recovering your manufacturing and overhead costs.

 

By: Craig L Press, President, Profectus Inc