This article is sponsored by Profectus as part of WhatTheyThink’s Print Product Spotlight series. In preparing this article, the WhatTheyThink Print Product Section editors conducted original, in-depth research into Profectus’ Cost Rates Advisor Software. This Product Spotlight describes what the editors feel are the product’s strengths in the marketplace. Profectus previewed the final article for accuracy but had no editorial control over the content.

Running a successful printing and packaging business is a complex puzzle that must be solved daily. Costs are constantly fluctuating due to changes in expenses, staffing, workloads, equipment, materials costs, product demands, and other contributing factors. Understanding your costs is the key to profitability and a thriving business, but it is challenging without the right toolset.

Another factor is that businesses don’t stand still. The evolving nature of running a business brings additional operational considerations that force owners and managers to watch costs and budgets closely. Finding and retaining employees is an industry-wide challenge. Competition and scarcity in the labor market and the printing industry’s difficulty recruiting have led to higher labor costs. At the same time, recruits and existing staff push for higher wages and flexibility in work schedules, putting pressure on budgets and turnaround times.

Finally, the cost of operating a printing business is always fluctuating, including utilities, taxes, interest rates, service contracts, and other expenses essential to support the business.

The result is a more demanding operating environment, requiring greater diligence and effort to track and manage overhead and factory costs - ensuring a business understands the breakeven point and profitability of products and services.

Most printing and packaging companies rely on a Print Management Information System (MIS) or Enterprise Resource Planning (ERP) software to manage costs and operations. These systems heavily depend on Budgeted Hourly Rates (BHRs) for critical functions like estimating costs, applying price markups, tracking job costs, calculating commissions, analyzing sales, and valuing work-in-process. However, the accuracy of these functions is only as reliable as the BHRs that drive them.

Budgeted Hourly Rates (BHRs) are the costs (per hour) required to operate production equipment or deliver a service. BHRs represent the minimum rate you must charge to break even or recover your out-of-pocket costs.

Industry experts recommend reviewing and updating your rates every six to 12 months or whenever significant changes occur in expenses, equipment, staffing, production, or other cost factors. Traditionally, shops invest substantial amounts of time gathering data from their accounting and MIS/ERP systems and entering it into spreadsheets to analyze costs and calculate BHRs. This antiquated, time-consuming, and overwhelming process often causes delays in capturing and analyzing the needed data and putting it to work.

Cost Rates Advisor software from Profectus allows any printing or packaging business to quickly analyze costs, create budgeted hourly rates, and compare their results to industry benchmarks by importing their accounting data directly into the platform. Using actual financial data ensures that all costs are accurately reflected in BHRs, providing a reliable foundation for estimating, pricing, and costing orders.

Given the industry’s competitive landscape, even minor discrepancies from outdated BHRs can significantly impact a company’s ability to win orders or maintain profitability. Both overstating and understating costs can have serious consequences. Overstated costs lead to higher estimates and prices, making your business less competitive, reducing production volume, and creating the illusion of lower profits. On the other hand, understated costs result in prices that fail to cover all expenses, giving a false impression of higher profitability—ultimately risking financial instability and even bankruptcy. Many companies only realize these issues after their competitiveness and profitability have suffered.

"Successful companies know their true costs before pricing and accepting orders" says Craig Press, President of Profectus Inc.

Cost Rates Advisor eliminates pricing guesswork by determining the minimum amount a company must charge for production equipment and services to cover out-of-pocket costs and, more importantly, ensure sustainable profitability.

To confirm that you are accounting for all costs in your Budgeted Hourly Rates (BHRs), the markup applied to cost estimates should align with the profit reflected on your financial statements. For example, if you are targeting a 15% profit margin for the year, your estimates should, on average, include a 15% profit markup. However, pricing decisions should also consider product type, customer expectations, market conditions, competition, and other strategic elements.

Companies assess BHR accuracy retrospectively by tracking net profit margins on financial statements. Businesses using outdated BHRs often find that actual profits fall short of the markups applied in pricing.

Cost Rates Advisor takes a proactive approach by aligning a company’s rates with its financials by creating a projected income statement based on the BHRs. It forecasts factory costs, materials, outside services, SG&A expenses, sales and value-added ratios, and, most importantly, the project profits - helping businesses maintain accurate pricing and profitability.

Cost Rates Advisor is cloud-based software tailored for the printing and packaging industry that streamlines the process of analyzing costs and calculating the budgeted hourly rates of equipment and services. It allows instant updates by importing or entering the latest expenses, wages, and other financial data. The BHRs calculated by Cost Rates Advisor serve as the foundation for estimating, pricing, cost tracking, and analyzing sales and profits within your MIS/ERP software. By ensuring recovery of 100% of expenses through sales, Cost Rates Advisor enables businesses to price jobs confidently and competitively without compromising profitability.

According to Tonya Spiers, President / Owner of Knight Abbey in Biloxi, Mississippi, "I don’t know what I would do without the software. In one year, we saved $100,000 in costs based on the information and insights delivered from the Cost Rates Advisor solution."

Knowing your actual costs is crucial for staying competitive, but wouldn’t it be better to understand how your operation stacks up against others in the industry? As a quick litmus test, Cost Rates Advisor provides a Competitive Cost Score that benchmarks your labor, factory, and overhead costs against the median values of hundreds of other companies using the platform. Use this benchmarking feature to identify competitive advantages, spot areas where your costs are higher or lower, assess equipment utilization and refine your pricing and markup strategies.

The intuitive interface, an Advisor AI function offering insights and guidance, an online Quick Start guide, and built-in industry best practice formulas make setting up and using Cost Rates Advisor simple. Once set up, BHRs can be updated in minutes by re-importing your updated financial and payroll data. This streamlined process keeps your BHRs current, enabling more frequent updates and providing an accurate view of your costs. With this, you can confidently estimate, price, and cost jobs, giving you greater control over your profitability.