Pricing variable-data is not Voodoo: demystifying the unknown, layering the job, cleansing the database, testing the elements, proofing the logic, printing the run, fulfilling the contract and making money
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When you ask the users of variable-data print engines how they handle pricing the most common answer is, “Whatever the customer will pay!” And, of course, they are right. But there are different strategies to approach the pricing of these projects so the customer is almost eager to pay for the value of your service.
No single approach will work all the time because the applications will be as varied as they are complex. The key is in knowing your internal requirements and your customers’ expectations.
A multi-tiered approach
Variable-data print projects can be broken into distinct layers. The first is the set-up, which includes data cleansing, postal sorting, page layout/design (number of variable elements per page), program design, testing and consultancy. The more complex the job, the more the up-front costs to prepare it.
The second layer of pricing is related to the number of pages that are produced, which then can account for material usage and handling. This is primarily an issue determined by the size of page, type of paper and amount of colour. Additionally, consideration will have to be made for finishing (cutting, folding and binding), fulfillment and warehousing. This is usually the easiest part for the printer to estimate and price due to their familiarity with the basic processes. It can get more complex when the variable-data printed pieces are combined with off-the-shelve components, in a pick-and-pack application. The costs are easily defined and can be readily calculated with accuracy.
Another layer that is placed on top of these segments is the most complex of all, which is the value proposition for the end consumer of the project. The value proposition is considered in pricing the turnaround time, the added projected revenue and the increased customer satisfaction. It is in this layer that the producer of the project must be completely aware of customer expectations. And this is where the complexity lies.
Evaluating the project’s pricing requirements for return
During the estimation phase, it is extremely important to have the input elements clearly defined, to evaluate their condition. Is it necessary, for example, to have the database cleansed? Is the database provided in the necessary format? Are multiple databases going to be used? What is the number of variable fields in the job and number of variable elements to use for each field? Who is responsible for the design and layout? What is the level of consultancy required and how is testing/proofing going to be accomplished to verify design concept and database utilization?
The price for cleasing the database is most often determined by the number of records. There is a charge of X placed on each record and you multiply the X-charge by the number of records. Most printers are ill prepared to address this, so it is best to out-source this requirement to an organization that specializes in this service, such as a mail-list company or a database company.
To bring this service in-house, the printer must have a significant volume to support the individual assigned to the task. Database preparation is typically found in a mature variable-data print organization due to sophistication and volume of work. It is not a capability that a new installation will have available internally or should be expected to have.
Many variable printing organizations supply their own design services, which is the most efficient way to be organized to take full advantage of the technology. It is the general trend in the printing industry as a whole. Understanding the capabilities and opportunities that variable-data printing offers is not a talent that most designers have. They have not been trained, because, after all, there is nowhere for them to be properly trained in its use.
More and more printing organizations bring design in-house so that they can fully optimize the print communications manufacturing process. The pricing of the design process will be very similar to conventional print design. There is already a premium put on the design process by nature of having the added price of using the variable elements. Therefore, the organization will receive additional revenue for each time they create a variable-data print job because of all the processes that must be accounted for. Some organizations put a slight premium on their design services for variable-data print jobs, but it typically is not beyond 10 to 20 per cent of conventional print design pricing.
One approach to determine part of the set-up costs is to price each variable field and element separately. So, if there are five fields with two elements possible for each field, the number of potential elements is ten. If you charge $70 per element, then the total price for ten elements is $700. This is just the price for programming the layout with the logic that is required to access the elements – a general estimate on how much time the programming will take multiplied by your chargeable hourly rate. This will be added on top of the cost of element selection and/or generation (in situations where the element must be written, drawn or photographed).
The price for consultancy on the project is usually a percentage based on the total price for the set-up or an estimated hourly cost. To be successful in marketing and implementing variable-data print jobs, it is recommended that you assign project managers. Their time is the basis for what is going to be charged for this service. This is a difficult area for many, because if you don’t assign a project manager then the chances of failure for the project increase. But when you do assign a project manager, you have added additional costs to the project that is not normally a cost of a conventional print job. It’s a real Catch-22.
The object of pricing set-up elements of the job is to make sure that you cover the costs of project management plus make a reasonable margin. The range of pricing for this element of the project can range from $90 an hour to over $175 an hour depending on the sophistication of the project and the scope of services provided by the project manager.
The responsibility of this individual is to bridge the gap between the salesperson, the design/production department and the customer. It goes beyond what is expected from the conventional customer service representative that is normally provided by the print organization, which is why the cost for this individual needs to be taken into account.
Testing a variable-print project is complex at best. With each print being unique, it can become difficult to absolutely proof every page. A test suite of elements and data has to be designed to exercise each logic branch within the project. In the situation of five variable fields with two elements per field, you will have 64 different combinations that have to be tested.
As the number of fields and variable elements increase, it becomes increasingly difficult and time consuming to test all combinations. As you are testing, there is also the determination on whether you go to print or just generate a PDF file for viewing on the monitor. Depending on the requirements of the customer, both approaches have been used successfully. Obviously, printing the pages is more costly, but it also provides a more complete verification that the project is prepared to run successfully.
During this cycle, you are not only proofing the logic, but also the overall layout and colour. So, at some point, you will have to generate prints for the customer to review, but through use of soft proofing you can keep the printed copies to a minimum. As more and more people become comfortable with reviewing jobs on the monitor, you will see this technique becoming the standard method of operation. The reduced cost and time required in the proofing cycle is yet another added bonus of using PDF files for proofing.
Proofing the database itself is usually a manual process, during which the database will be printed out (separate from the layout) and visually checked. The size of the database will determine if it is spot-checked or alternatively if every record is checked. In projects that have thousands of records, it becomes uneconomical to proof every record. If the project has a few hundred records, then it is easier to check every record for completeness, which is different than accuracy.
The accuracy of the record is the responsibility of the creator of the database. It is not possible for the characteristics (address, name, phone number, sex, etc.) to be checked by anyone except the owner of the database. All that can be checked is whether or not there is information in the field and that there are no duplicates. In review, the elements of the price for the set-up fee are:
Design/layout: normal (or slight premium) as a conventional print job plus cost per element.
Database cleansing: per record charge, normally completed by an outside source. Could also require set up for postal sorting to reduce postage costs.
Consultation: per cent of set-up fee or hourly cost ($90 to $175 an hour).
Testing/proofing: cost per unique design and number of database records used.
Presenting this to the customer is another challenge all together, one that is discussed later in this article.
Princing for the print run is an area that printers feel comfortable with. The cost of the consumables are well defined, the number of prints are known, ink/toner coverage is easily estimated, and the cost of equipment – with overhead included – is fixed. So the calculation is routine, given the number of prints, finishing required and targeted margin that the printer requires from their production process.
More and more companies are providing integrated finishing and fulfillment with their variable-data printing process. This trend will continue to gain strength as more pressure is put on the supply chain for printed material. It is only through use of an integrated design, printing, finishing and fulfillment process that the customer can realize the total value of what their communications manufacturing provider can offer them. Turnaround time for just-in-time manufacturing will become more important than price. This is an advantage of the digital print imaging systems available today. In review, the elements of price for printing, finishing and fulfillment are:
Materials cost: including paper and ink/toner. Must evaluate coverage to be more accurate. Can use an average gathered from all jobs to simplify the process).
Number of prints: just do the math!
Equipment: amortized over the usable lifetime (three to five years). Be sure to include service contracts and overhead costs.
Finishing: standard pricing. May require specialized camera verification for quality control.
Fulfillment: standard pricing.
Warehousing: standard pricing. Should be minimal due to reduction, if not elimination, of storage for printed material. It should be shipped as it is produced.
Strategies for pricing implementation
The presentation of the pricing to the customer can take many forms. The two standard strategies are to present set-up and printing as separate prices or to bundle them into a single price. Most companies prefer to present the price as a single number. There will be those customers that want the pricing broken out as individual components, but this will tend to minimize the value of your bundled solution.
It is best to present it as an all or nothing service, so the customer can get the full benefit of your integrated solution. You should do this even if you are outsourcing parts of the project. The bottom line is that your organization is responsible for the successful delivery of the project, so how the pricing is broken down should not be a significant issue. However, for internal purposes you will need to keep them separate to evaluate your performance during the production of the job and as a final evaluation after the job is completed.
Certain projects can be designed so that the initial effort can be used multiple times with either the same customer or new customers to the service. Such as a variable-data postcard, which has a unique image on the front based on a particular field in the data-base and one text element (beyond name and address) that is more representative to the end user’s interest. In these instances, you may want to take the approach of reducing, if not eliminating, the set-up charge so that you can reuse it across multiple customers.
At the same time, you may want to increase the per-unit charge a small amount so that in the long run you will receive the return on your set-up and perhaps a little extra. The object of this strategy is to acquire multiple clients with similar requirements. This would require a targeted marketing approach to further identify the profile of the clients and to get access to them to present the solution.
Larger projects that have significant set-up charges and/or longer print runs may require another approach. For instance, there is a $70,000 set-up charge for a catalogue print run that will be in excess of 100,000 units of eight pages each. Clearly this is a project that you will want to run multiple times through the organization in case the customer pushes back on the set-up charge. You may provide the customer with a rebate (X per cent of the total set up charge) based on the number of times that the catalogue is re-printed, with perhaps different images and text, but the basic logic remains the same.
Another strategy that can be used with the prospects that are more skeptical with the value of variable-data printing is to tell them that you will absorb the cost of the set up, but will participate in the added revenue from the program.
An example would be if a direct-mail program, with static data has an average return of 1.5 per cent with a value of $105 per order. The printing communications organization can get 50 per cent of the added revenue from the program up to covering set-up price and then get 25 per cent of the gross above average or just maintain the 50 per cent split on the additional revenue.
This is a bold approach, but it demonstrates to the customer your conviction in the value of your offering. It will limit their risk in becoming believers of the capabilities and results of using this exciting new marketing technology tool. Customers have become converts only by experiencing results of this exciting new technology and they will return sooner rather than later.
This area of technology is still evolving and there is no one way to position and price variable-data printing capabilities. The one constant is that every job is different and every customer has a different set of expectations. Customizing your pricing strategy to the situation, while maintaining a consistency of philosophy, will be critical to your success. Remain flexible. Remain focused. Remain profitable.
Rick Littrell currently provides international consulting services through Littrell Associates, which focuses on developing and implementing marketing plans around digital printing technology and e-technologies. He was vice president, North American field operations, for Polaroid Graphic Imaging Systems and senior worldwide product line manager for CTP systems for Agfa. He can be reached at email@example.com.
There is a $70,000 set-up charge for a catalogue print run that will be in excess of 100,000 units of eight pages each. Clearly this is a project that you will want to run multiple times through the organization in case the customer pushes back on the set-up charge.
Copyright Youngblood Communications Co., Ltd. Aug 2003
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