How and why you should assess your pricing and profit structure.
I hope you’re keeping your head up during these tough and unfortunate times. We’re dealing with uncharted waters and every day brings a new challenge to both our business and personal lives. COVID-19 has opened our eyes here at Digital EFX Wraps. Not only in regard to how we’re dealing with this pandemic, but how we’re going to handle things differently moving forward.
This downtime, or reduction in workflow, has allowed me to dive back into our pricing and profit structures. I assume, like us, most graphic companies are dealing with a decrease in business. I also assume some companies may be realizing they’ve been undercharging for their services and products. When revenue and cash flow become tight or short, it can expose weaknesses in your business structure. That said, this is the perfect time to actually see what you’ve been charging your customers.
We try to go over our design, production, material, installation, and management costs every six months, if not more frequently, to make sure we’re staying profitable. When we first started our business 16 years ago, these goals and pricing structures were not in place. It was as if we were operating in the Wild Wild West. We were just happy to be open and finally running our own business.
In one of my previous columns, I discussed our sixth year in business when we analyzed our pricing, only to find out we were leaving too much revenue and cash on the table. It was a very humbling experience that wasn’t pleasant, but was necessary for our growth.
I realize this may seem like common sense, but it’s always good to peel back all of the layers that go into your pricing structure. Everyone’s business is different, but we’re all dealing with the same components, save for a few products or services. We try to break down our business into segments or departments. Some of these departments might require more labor, more administrator time, more material, or a specialty film that requires mark up to your client. It’s also a great idea to look back on scenarios or previous jobs you felt weren’t as profitable as they could’ve been. We’ve had projects we thought were priced correctly, but when the dust settled we realized we didn’t charge enough for our design time, our square footage was off, and more material and labor was required.
Design and custom layouts take time and are one of the most important aspects of our business. Before, we would simply set an hourly rate or give our clients a basic artwork fee package. We finally had to pull back the curtain and see what was really involved in a customer’s artwork process. Now, we’ve created an artwork form that explains our process, lists our pricing based on the project, explains how payment works, and leaves space for them to sign off on the design. Paying your designer is just one portion of your overhead. We also look at what we spend per month for our Adobe subscription for all four designers, our cloud service, templates, artwork subscriptions, and upgrades to our computers.
Take this time to really see what’s involved in producing your designs from start to finish. It can be eye opening to unearth what your company is spending beyond your design expenses. It’s a good idea to have two pricing points. The first one is your regular design fee to create a wrap or sign utilizing your client’s artwork, logos, and information. The second is what you charge for creating a new image or brand. Starting from scratch or creating a brand-new company requires more time and more research, which in turn raises your pricing for design.
Some shops fail to include production in their pricing. Even though our printers print on their own, we still have to load the machines, RIP files, maintain quality prints, and the printers themselves need weekly maintenance. This obviously increases your labor and overhead expenses. We try to
add in cost to our square foot pricing that covers graphic production time for the client. You also need to factor in how long it takes to laminate, cut, weed, pre-mask, etc. Sometimes the production side can take just as long as the installation process.
Installation time and pricing can be complex if you’re new to the wrap industry. Most experienced wrappers know how long it takes to install a basic wrap and what challenges can affect the installation time. We started to time all of our wraps to really see how long it takes one or two installers to complete certain projects. The most basic install might take longer than other projects due to the nature of the vehicle or design that was produced. Timing your installation will really help with figuring out how much your company needs to charge to be profitable.
We also delved into some under-the-radar aspects of installations: How long does it take to wash or detail the vehicle before you’re ready to apply any film? How long does it take to break down the vehicle, i.e., remove door handles, mirrors, badges, etc.? All of this should be added to your overall overhead and time it takes to complete your clients’ projects. I would walk into our installation bay and wonder why a job was taking so long. After a while I would start to track each job from beginning to end. It was boring, but it allowed us to see how long it really takes to complete a standard full or partial wrap.
Our staff understands that when we’re timing our jobs to adjust pricing, it’s not to question their efficiency. Some companies and installers are faster than others. Speed isn’t everything, but it’s very important. We let our staff know that quality is our main goal, so we want to know how long it takes to produce the quality of work we’ve been producing for the past 16 years. Knowing every element of your business allows you to communicate and explain your process. Our clients’ education is just as important as any other aspect of our business. When your customers really know what goes into their wrap, the pricing becomes the third or fourth most important variable. This should allow you to upcharge or increase your pricing moving forward.
It’s tough for everyone right now. Some businesses have had to shut their doors temporarily, or even permanently. Other businesses have been able to stay open and continue generating revenue as if nothing really happened. Those might be rare, but regardless, now is the time to review your pricing structure. If anything, it may solidify that your pricing is correct and you’re positioned to be profitable. How will you price yourself when everything returns to normal? That may not happen any time soon, or ever again, but keep in mind, business will start back up and gradually go back to a similar format. Don’t sell yourself short or give anything away. Stick to your guns and raise your pricing. Fear comes into play with some people. They feel the pricing is right and they don’t want to change anything. We’re going to offer a small discount to businesses we know were affected by this virus to help out any way we can. But it’s also nice to know we have new pricing ready to go, so when reality comes back, we’ll be ready to be profitable again. Staying profitable and making your margins will allow most companies to get through tough times like the one we’re dealing with now.
Matt Richart is the co-owner of Digital EFX Wraps, a full-service, one-stop shop in Louisville, Kentucky. Matt leads country-wide demos and training sessions on how to sell, market, design, and install for
the wrap industry. Follow him on Twitter @digitalefxwraps.