ESTIMATING AND PRICING — RECOGNIZING THE DIFFERENCE

ESTIMATING AND pricing are the two most indispensable areas of the printing sales process, according to Gary Cone, vice president of Seattle-based commercial printer Litho Craft Inc., and author of the NAPL book “Price Doesn’t Count.” He notes, however, that although printers sometimes use the terms interchangeably, they are definitely not the same thing—and it’s critical for managers and salespeople to understand the difference.

“Estimating is a science—a mathematical calculation based on the job specifications and the variables and parameters of the production process,” he says. “It’s a repeatable process, yielding the same—or close to the same—results each time.

“Pricing, on the other hand, is an art,” Cone continues. “Pricing is determined after the estimate is calculated and requires the use of judgment and balance.”

Estimating Variables

Depending on a host of variables, including the printer’s competitive positioning, market conditions, its relationship and history with the particular customer, the kind of job, the customer’s schedule requirements and quality expectations, etc., the determined price may be higher or lower than the estimate.

Because of the huge impact pricing has on a company’s profit performance—for good or for bad, depending on the expertise of the individual determining it—pricing must be a management decision, Cone points out.

“For most commercial printers, pricing is not determined from a pre-defined, fixed grid. Placing pricing decisions in the hands of individuals who don’t understand the principles involved or who are more prone to discounting than to balancing the prices could result in several financial consequences for a printing company,” he adds.

“Conversely, when pricing is done correctly—and by that I mean charging for additional value when the situation warrants and using price as a profit-generating tool—it can be a real boon to a company’s financial performance.”

Cone points to an “intuitive element” in pricing that is not part of estimating. “Because estimating is a defined process based on repeatable scenarios, it has inherent stability and safety measures. If every job was sold at the estimated price, the company should, in theory, make a profit,” he notes. “Pricing, on the other hand, requires a judgment decision that, if not made wisely, erodes financial stability. Therefore, it’s a critical management function.”

Since the salesperson is generally the first point of contact between a printing company and a customer, he or she plays a critical role in determining that both estimating and pricing are done correctly. In “Price Doesn’t Count,” Cone defines what he sees as the salesperson’s role in both estimating and pricing, listing estimating-related activities as:

* Gathering correct specifications.

* Obtaining a dummy, sample, or mockup of what the finished piece will look like so the estimate can reflect the job’s level of complexity.

* Clarifying all information provided by the client to avoid confusion.

* Determining critical dates: When will files be submitted? When is the product needed?

“These activities are needed to arrive at an accurate estimate and that, in turn, enables proper pricing,” Cone says, pointing out that “the estimate forms the critical base for price variations or adjustment. Incorrect or inaccurate information at the start compromises the entire process.”

Cone advises printers to not accept estimating information from salespeople that is vague, inaccurate, or skewed by a desire to lower prices just to win the job. Also keep in mind that some clients may provide less-than-accurate specs to keep the price down, he says.

“It’s the salesperson’s role to sift through his own mindset—and that of the customer—to make sure he is providing information that realistically represents the job to be printed,” he contends.

Although, as noted, Cone sees pricing as a management decision, the salesperson plays a critical role in this arena, as well—a role that entails providing answers to the following key questions:

* How is the product going to be used?

* Why is the customer asking for this price? (i.e., fishing for a lower competitive price, etc.)

* Is the job a “real” job or just a concept?

* Have there been any sales efforts to get a pre-commitment to produce the job?

* Is the customer a “cherry picker?” (i.e., breaks the job up in parts and shops each job for the lowest price.)

* Is the customer a “moving target?” (For instance, will the client shop around this time for the lowest price and do so once again when the job is to be reprinted or another job comes up?)

* What is the relationship with the client? (Is there a history of working with this customer?

* What are the quality expectations? Payment history? Annual printing purchases? Is the work a good fit with the printing company’s capabilities?)

Pricing Rules

All of these areas must be addressed before pricing is determined, says Cone, who notes that “printers often make the mistake of adjusting an estimate—up or down—based on too little information or inaccurate guesses by the salesperson.”

How a printer uses pricing as part of its overall competitive strategy is a key element in pricing decisions. Cone addresses a number of ways that printers should—and should not—use price.

For instance, in most cases, he believes lower prices are not an effective way to attract long-term customers. “Rather than attracting valuable clients, lower prices generally attract ‘shoppers,’ who will continue to shop around the next time they need printing,” he says. “Loyal customers, on the other hand, place value on the service offered by the printer and are a source of repeat business.”

Some printers use low prices as a way to get their foot in the door—a strategy Cone terms as “risky at best.” This approach doesn’t allow the salesperson to learn and focus on what the buyer really needs, which is one of the best ways of building client loyalty,” he says.

He notes, however, that using low price as an entrée might work, however, “if a printing company has a well-thought-out, solid pricing strategy that includes a lower introductory price as part of an overall program for building and maintaining customer relationships.”

Just as lowering prices is not the right strategy in some cases, raising prices in certain situations is also the wrong approach, according to Cone. For instance, “printers often raise prices to discourage certain market segments,” he notes. “This is done all the time, but it doesn’t make it right. Every printing plant has certain segments of work that fit its equipment better than others and receives requests from customers for jobs that it is capable of producing, but will not make a profit.

“Rather than raising prices on this work, management would be better served by focusing on the work that fits the plant, and being straightforward with clients about what fits and what doesn’t.

“In the long run,” he adds, “neither the customer nor the printer benefits from using inflated prices to discourage work. When customers eventually realize they’re paying inflated prices, you won’t have a happy customer.”

Adhering to a well-thought-out pricing strategy helps a company maintain its financial integrity, adds Cone. He stresses that exceptions to this strategy can be made in special circumstances, but notes that they’re no longer exceptions if they’re happening every day or every week.

“Clear pricing goals and practices create smoother sales management and financial management, and make it easier to change direction when the company’s objectives change,” he concludes.

Note: To order NAPL’s “Price Doesn’t Count” by Gary Cone, call (800) 777-8074, or visit www.piworld.com/bookstore.