Question on Figuring Costs/Pricing...

[kdw75]

When figuring the hourly cost of a piece of equipment, such as a leased copier, how do you figure the number of hours to divide the monthly payment by? If for example, I have a machine that I pay $1,000/mo for, and it is kept running for 100 hours per month, that would mean my cost was $10/hr. Now if my pricing for the job marks that up 50%, you see that I would be charging $15/hr.

Now if my competitor has the same machine for $1,000/mo and runs his machine 200 hours per month, then it only costs him $5/hr.

If I am running 100 hours per week, and price accordingly, I may lose jobs to the other guy, but that is my cost. I could set my cost and price, assuming that I will be able to keep the machine busy for 200 hours per month, and in doing so, lower my price, which may bring in more work and fulfill my expectations, but until that happens.....

I would appreciate your thoughts and opinions how you handle this.

 

[arossetti]

If you only have half as much work as the guy down the street buy a smaller/slower/cheaper printer so you only pay $700/mo and can compete better.

 

[Stephen Marsh]

Yes, the budgeted hours are a critical factor in this type of calculation, more productive hours = less cost, greater margin and more (potential) revenue.

Your total fixed costs are your costs, you can lie to yourself about them, however that is only “helpful” in the short term!

You could look at one or more of the following:

* Reduce markup/margin – what you would like to get and what you can actually get are two very different things.

* Factor in the footprint of the machine and use that to scale/shift the costs of resources (you have a total floor space with both profitable/productive and unprofitable/unproductive areas, divided by the footprint of the productive/profitable resources and larger resources may pay more of their share)

* Shifting some of the cost from the expensive item into the hourly rates for other productive resources. If you can’t change your overall costs (as arossetti suggests with a cheaper unit), you can change how you spread those costs around.


Stephen Marsh

 

[lantz_xvx]

Trying to focus solely on price could lead you to a dead end. Don't compete just on price. Your prices should obviously be competitive, but focus more on value. What can you provide that your competitor can't? Most of our business is word-of-mouth and personal referrals, and people rave about our prompt responses, solid customer service, and quick turnaround. Other shops will always have different circumstances, different overhead, etc, but you can't control that. Just figure out your costs, do market research, and price yourself reasonably. But also focus on what your competitors do poorly that you can do better.