As you can see from our production capacity, we have a lot of unused hours that the press could be better utilized. We’re using it less an half an hour a day if you divide out the number of hours in a month the press is in printing mode. It’s not great utilization for us, and while the work we do is profitable, we don’t have enough volume on the press to make serious money.
Late last month we decided to launch another venture with a business model based upon aggregated volume rather than a larger profit. Based upon our numbers, we will use a standard letter size 4/0 print as our “less profit” leader, and then allow for upgrades to the stock, size, bindery, etc. Our other products would continue to be sold at the same price as our primary Printelope website.
We needed to build a website very quickly for this venture, so we used Websites for Printers as our base site. They offer a 60 day free trial of all their features, so this works well for our experiment. If we decide the experiment is a success, we can convert the free trial and our website will be kept intact. The options we are using are the base site ($975 setup and $120 a month) and the Instant Online Price ($425 setup and $65 a month). Note that the setup fees aren’t charged until after the trial converts – a great business model. So, our total cost would be $1,400 for startup and $185 a month. It took about 4 hours to set up the site with the pricing module, so it’s not a huge outlay of time to put it together. Plus, the tech support questions I had were answered quickly, so it didn’t delay the launch.
Websites for Printers also offers options like UDesignIt for personalization ($425 setup and $65 a month), but we still prefer PageDNA for this as every design you create costs money to upload to your site, and while you create the artwork, you have to rely on Websites for Printers to load it to your site.
For the domain name, we chose 10centcolor.com (that probably tells you what we’re charging for our base price).
In terms of profitability, the base 24# Hammermill print doesn’t make us much money. We figured about 3 cents a sheet in tabloid size paper (we’re going to use the Dynagram Inp02 software to gang single letter sheets together) and around 7 cents for heavy coverage toner across a tabloid sheet. I expect we’ll get a fair amount of light to moderate toner coverage on most work, as we’ve already experienced. If you want something more than 24lb Hammermill, you can upgrade your stock and from there we’ll eke out a little more money. In theory, we’ll make less money than a good retail price but make it up in volume.
We’ll still continue to sell our other product, like envelopes, at our full price which brings us a much higher profit margin. For example, on a #10 envelope, our cost is $24 for 1,000 envelopes and an average of 2 cents an envelope for toner, so $20 for toner (based upon the last 10 jobs we’ve printed). They take a half hour to print, so $16 for press payment time ($31.25 an hour x 160 hours a month = $5,000). Labor is about $9. Total cost then is $69 and we sell it for $199 so the gross profit would be $130.
We’re going to tie the new site into a promotion to drive business. We’ll put details of the promo on our Twitter and Facebook sites, which will be a free Apple iPad Wifi ($499 retail cost, plus tax) with the first 30,000 letter size impressions you print on any stock. If you print 4/4 11×17, then it would be 4 impressions counted towards the total reward number. We’ll also put a deadline to it of 3 months.
This new site won’t have feet on the street selling it. It will be solely through direct mail, social media, and flyers. It’s really no frills printing, the same as what you would expect taking it to a copy shop, except that we’re printing on a digital press. Files need to be PDF otherwise they will be rejected, or offered to be converted at a set price before we can print it.
So, that’s our new experiment. We’ll report on how it does over the coming weeks.
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{ 6 comments… read them below or add one }
Kudos to you! I also have a small print shop in Mexico with both digital and offset printing. I have been trying to show my business partner how we should lower the price on our digital prints to a lower price to draw more clients. We too are a small start-up, and most printing is people coming off the street. I am thinking about opening up another shop and just trying to blow the competition out of the water with this guerilla tactic. Cheers, Kristian.
Dropping prices to attract customer? This has been tried before. Let’s all work 26 hrs a day for pennies. The low price model creates volume, volume means work, more work means less time spent on developing a customer base that actually pays, is long lasting and, above all else, profitable. Loss leaders work for the “costco” or “fedex(kinko)” model because they have economies of scale. They pay minimum wage and have astonomical advertising budgets. The small independant, quick/digital, printer still relies on relationship printing. We have to have the ability to pay ourselves, something this experiment has not yet done, as well as our employees. I realize this is an experiment, however at some point this experiment needs to address real world obstacles. The direction you are going reminds me of the old adage “if you want to make a million $ in this business, just start with 3 million…”. Most of us out here don’t have the beginning capital to last 6 months with no pay and no sign of a quick recovery in sight. Back to the “10centcopy”, bottom feeding prices attracts bottom feeding customers who soon move on to the next lower price.
Peter
This is an experiment and it is worth the try. My suggestion is to look for how to lower cost and offer unprecedented value at the same time. I agree with Peter that at this cost without some value that cannot be easily replicated, the volume will come and there will be little to hold the customer down. This seems to be like a rabbit hunting approach, (I understand that you are looking to hunting elk on one side and using rabbit hunting to fill up excess capacity). My real question is this, can you really make 3 cents on the “10centcopy”? Have you factored in all the costs, toner, stock, labour, machinery, etc. 3 cents is 30% profit margin and if it is real, 30% margin with 50% capacity utilisation on your press will bring in a lot of money. I really appreciate what you are doing, I am writing from Africa and looking forward to starting a digital press soon (We had an offset press). Your experiment has been a great help and I hope “10centcopy” delivers because I believe in hunting rabbits primarily and elk on the side.
peter thanks for the words of encouragement! i to am trying to find a way to pull more customers off the street with a low price on 135 gm paper for .40 a sheet. my preliminary thought was to offer this price only to students with a valid ID, and hit up all the campus’ with a lot of flyers. I am want to lower my pricing on digital printing to compete with offset (flyer, business cards, letterheads,posters) put keep my single sheet price at the steady at .65. i am looking into contract pricing for the local government to help my profit, and some larger corporations. thanks for all that you do for the printing community, its very aspiring! cheers, kristian.
10centcolor.com is not the site that will bring us sustained, profitable income over the long term, but for now it’s a capacity filling proposition for us. It runs independently of our primary business; has no walk-in traffic or even lists an address where you could go to find it. It runs within our daily shift and doesn’t extend into overtime or weekends. It’s strictly mail order with no frills.
And yes, the customers that come through this site are the bottom feeders, but as a PDF file provided workflow where we insert those jobs into idle time workloads, it’s at least some income coming into to supplement the better paying work.
I think it does make sense. As a start up cash flow is key and so far as the 10 cents work doesn’t suck away too much time and advertising dollars, it should bring in critical cash to chase higher paying work. It isn’t for everyone to try though. Since the social nature of this effort is expected to generate cheap web traffic, this model simply takes advantage of that. Not doing this is leaving money on the table. Overdoing this is pitfall albeit easily avoided. Good luck!