Establishing Budgeted Hourly Rates Boosts Competitiveness

Working with accurate BHRs helps in-plants track operational costs to better justify their operations.

AUTOMOBILE MILEAGE reimbursement rates are designed to represent the true cost of driving by acknowledging insurance and maintenance costs as well as gas and oil. Similarly, to understand the true cost of a print job or communications campaign, in-plants need to account for salaries, equipment leases, power use and building rent, as well as materials like ink and paper.

The best practice for capturing these costs is with Budgeted Hourly Rates (BHRs) for each process or piece of equipment in the shop. Best practice further requires BHRs be re-calibrated at least once a year to reflect cost-structure shifts.

The rewards can be significant. BHRs help print providers maintain accurate budgets, competitive bids, fair charges and healthy cash flow. Since price—along with security and turnaround time—is a key metric in determining when a job is produced in-house, accurate BHRs can be fundamental to a print operation's success. And since BHRs provide benchmarks for measuring and improving performance, they help in-plants justify their operations and preempt any management initiatives to diminish their roles.

Here's a brief overview of how to establish effective BHRs.

Getting Started With BHRs

The first step in establishing BHRs is to gather the necessary data about the shop's equipment and operations. We recommend working in a software program, such as the in-plant's estimating or MIS application, or even a basic spreadsheet, such as Microsoft Excel. 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 BHRs.

• Equipment specifications

• Floor space required (in square feet)

• 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 non-digital equipment, such as offset presses, 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.

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