Obvious costs, hidden costs and the need to raise your own prices - Matic Media MD and Print Scotland vice president Richard McCombe considers the implications of all these for print businesses.
Everything is going up in price. Should our print? Here at Matic Media [based on the outskirts of Glasgow] we are considering what effect rising costs, and raising our own prices, will have on our business.
This started back last year when we purchased, what we thought would be a year’s worth of key media stock (ACM, PVC, banner, vinyl). This was largely to allow us to avoid any temporary price hikes and shortages. This decision was based on factors like the Suez Canal blockage, delays from China, container shortages, depleted European stocks, Covid-19, and my wife saying that she had a conversation in the supermarket with an employee who could see prices spiraling.
Nine months down the road and the situation is not improving, although the circumstances and problems are somewhat changed. At the start of 2022 we received our energy renewal notification - and the variable rate of electricity was 60p per KWH whereas our previous contracted rate was 13.7p per KWH. We eventually - through gritted teeth - entered a contract for two years on 27p. No doubt you, like me, can see where this is heading, and it’s not a trouble-free road.
I’m the vice president for Print Scotland and this gives me a great insight into our neighbouring industries, and how their problems are becoming ours too. Paper has seen a 50% increase in the last year for instance. This is particularly worrying as many print businesses will struggle to gain repeat orders of things like annual reports and further education prospectuses as the paper price hikes are bound to accelerate the switch to digital.
Then there are the bigger things going on as I write this. We have a world in turmoil as the Ukraine is invaded by Russia and political leaders turn their eyes on trade and economic embargoes with Russia. Is this affecting our businesses?
There is no doubt it is and will. There’s bound to be further price disruption to our business supplies, the obvious ones being material and energy driven by oil, gas and wheat. Plus, we can see other overheads rising, and with inflation at its highest rate in many years, what impact will this have on employee pay expectations?
We will also see on our customers invoices surcharges on fuel, but not just in relation to couriers. Last week we purchased glass and it had an energy surcharge, which I’ve not noticed in the past. So something else to build in.
We run management reports that are published on the 10th of each month, and it is becoming more important now to watch how ‘hidden’ areas of our business are seeing a creep in costs. For example, we probably all use nitril gloves, blades, packaging and many other things that are not entered into our quoting system to cover such consumables. All of these hidden costs are going up too and are likely not accounted for when working out our prices.
For those of us that have/use installation crews, we also need to keep a close eye on the costs of running vehicles - our annual fuel bill is eyewatering and that cost is increasing daily.
So, in response to all the above, what do we do to remain a sustainable business? The obvious answer is to increase prices. This is always a daunting consideration, let alone activity, but the long and short of it is that if we do not increase prices then our own net profit will decrease. Our business overheads are going to increase.
My point is, many of us need to rethink our pricing structure. It’s no good just looking at the materials costs when working out pricing - it’s everything, from office stationery, diesel in your van, inflation that will raise questions about pay increases and the many other things I have not noticed yet.
However, there may be a non-confrontational bright side to this. Those of us who have a business model based on ‘many transactions for many customers’ may realise that the jobs are not repeats - each client places a different order each time, of a different product and this a different price. Therefore, these customers may not identify price increases, other than commoditised products, like banner and roll-up banner stands (although you will notice that the £21 roll-up banner appears to have disappeared!). These customers will simply accept the price offered, especially if there is a positive relationship there.
And that leads me to my conclusion - prices must increase to sustain our businesses and now, more than ever, relationships must be rock-solid to discourage our customers from shopping around.