Establishing Hourly Rates or Per Stroke Rates

Getting Started With Rates

The first step in establishing rates is to gather the necessary data about the shop's equipment and operations. Logic Print Software will help organize the data, automate calculations and optimize the efficiency of annual calibrations.

Here's a checklist of the basic data required for establishing Costs.

• Equipment specifications

• Floor space required

• Electricity consumed (while running and while on standby)

• Actual production speeds measured in operation at your shop

• Monthly lease or payment

• Service and consumables costs

• Direct/overhead costs

• Floor space cost rates

• Insurance rates

• Labor costs

• Electricity rates

• Overhead costs

In addition to these basic cost and metrics, print providers need to calculate their equipment utilization. For offset presses and other non-digital equipment, the key metric is the number of hours the equipment is available per year. Calculate that figure with this formula:

(Hours/week the shop is in operation x 52 weeks) – (number of annual vacation hours) – (number of annual holiday hours) = number of hours/year.

Calculating Costs

Use the collected data to calculate costs.

Equipment costs—The monthly loan or lease payment is usually sufficient for printing equipment. In the case of digital presses, do not include service and consumables with the monthly loan or lease payment. Alternatively, some managers prefer using the straight-line depreciation of the equipment as the equipment cost. However, if the depreciation amount is less than the monthly payment, it doesn't give an accurate cash-flow reading.

Floor space—Determine the annual cost per square foot or square meters of the shop's floor space. (Annual rent / square footage-meters = annual cost per square foot/meters) Multiply that by the square footage-meters used by each piece of equipment. Include all service and materials storage areas.

Insurance costs—Sometimes insurance is part of the equipment lease. When it's not, we recommend using the actual cost. Short of that, the standard is 0.4 percent of the equipment's book value.

Direct labor costs—Begin with the yearly cost per operator, including all benefits. Then calculate the percentage of time the operator is allocated to a particular machine. Apply that percentage of salary to that machine. If one operator runs two digital presses, 50 percent of the direct labor cost should go to each machine.

Indirect labor costs—Indirect labor costs are those that don't link to the creation of a specific product, but are necessary nonetheless, such as machine maintenance and janitorial services. The standard allocation is 20 percent of direct labor costs. Smaller businesses comprehend indirect labor costs in overhead; larger shops typically allocate them to specific production cost centers.

Electricity costs—From electricity suppliers, get the cost rate per kilowatt hour (kWh) for electrical supply and delivery. From equipment manufacturers get the number of kilowatts the equipment uses in full-power and standby modes. Determine the amount of power consumed when the machine is on by multiplying the kilowatt rating of the machine by the number of hours the machine is on and again by the rate per kilowatt-hour. If the equipment is in standby mode when not in normal production, another calculation determines power consumed in standby. Subtract the number of hours the machine is in "on" mode from 8,760 (hours in a year), then multiply that figure by the machine's standby kilowatt usage and again by the rate per kilowatt hour.

Supplies/repairs/maintenance—The costs of supplies, repairs and maintenance are calculated differently for offset and digital equipment.

• For offset, include all supplies and parts costs based on maintenance schedules and historical usage, plus yearly service contract costs.

• For digital, "click" costs for service and consumables are considered a materials cost when estimating a job and are excluded from the Cost calculation.

Overhead costs—The costs that cannot be assigned to a specific job or program—such as lighting and heating expenses and salaries of administrative staff—are considered overhead. An average overhead allocation cost is 40 percent of total manufacturing costs. To determine a shop's actual overhead percentage to be applied to each cost center, identify all costs that are overhead and the total manufacturing costs for all cost centers, then use formulae:

Total annual overhead cost for the entire operation / Total annual manufacturing cost for all cost centers = Overhead allocation percentage.

Cost center's total annual manufacturing cost x Overhead percentage = Cost center's overhead costs.

If the in-plant does not incur the cost for a Cost line items—for example, if it's covered by another cost center and not charged back—simply enter "zero" and move on.

Calculate Production Costs

Costs for each piece of equipment in the shop provide a solid foundation for determining the production costs that inform the estimate. To calculate production costs, first determine which equipment is being used and estimate how long. Then multiply the time estimate by the Cost, and add up the totals from each machine. Finally, add the cost of materials. The result is the total production cost.

The same process is used to estimate with Costs for offset and digital, but the line items are slightly different. For example, the cost of both offset and digital presses can be calculated with Costs, but digital costs can also be figured using cost per impression, which some find to be a simpler, more efficient calculation. Also, offset incurs time and materials costs for plate making, a process that isn't required in digital.

To be sure your Costs are accurate, manually calculate that the shop budget is completely covered if all the equipment is operated at the expected utilization levels and the given hourly rate. And keep your Costs up to date by verifying them at least once a year.

Establishing accurate Costs helps print operations maintain a healthy cash flow, eliminate pricing errors that can lead to lost work, and improve estimates to make the shop more competitive. It's a fundamental process that should be part of every print service provider's routine.