Is Your Printing Contract Working Against You?
Labor rates often are starkly stratified in a printing plant, with experienced crew members who have been employed for many years at the high end, and transient, unskilled workers earning far less. The three key wage factors are the region’s unemployment rate (making workers scarce or plentiful), health-care benefits (often withheld from part-timers), as well as raises and cost-of-living adjustments (often small for workers with longevity and high base-pay rates). All told, wage changes in a printing plant do not pace the general workforce perfectly.
For gauging the printer’s change in costs, the CPI is not a terrible tool, but it’s not ideal. And remember that the real goal of an escalation provision is to freeze the printer’s profit margin. If his costs go up, so should prices, but by no more than his costs—and no less.
However, we won’t be happy allowing the printer’s actual change in costs to dictate the changes in our prices. That would mean the printer has no incentive to control those costs while we sit by, dumbly waiting to reach into our pockets for his mistakes.
One of the best escalation structures is using the CPI to cap increases, not to determine them. Prices are allowed to increase by the printer’s actual change in costs, not to exceed a percentage of the change in the CPI. This yokes the printer’s cost-control behavior to an outside index, but gives the publisher the benefit of yield improvements combined with true increases in cost.
The secret of a strategic print contract is that it meets three conditions:
• First, the prices must keep pace with the market, either through an escalation structure that observes the market or through voluntary price reductions, perhaps attached to term extensions.
• Second, the prices at the outset must include a true discount for the value of the publisher’s time commitment. Lately, the rewards have gone to publishers who have played the spot market, taking advantage of the freedom to hunt for those lower prevailing prices. Ironically, the equipment that has reduced printers’ costs is only safe for printers to purchase when they know they can fill it with work. Finding a steady stream of brand-new customers is far less efficient than keeping the ones they have. Core prices must reflect the value of assured volume.