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PERF Special Report and Case Studies: How to Price for Variable Data Printing

In a traditional print manufacturing environment, pricing is fairly straightforward — cost plus. How much money you can make often depends on how well you know your costs and how much “plus” you can get out of your customers, which in today’s environment is increasingly slim. But when it comes to variable data jobs, pricing is entirely different.

VDP projects can require large upfront time commitments in program development, working with databases, and creative and design, as well as any Web development and programming for personalized URLs (PURLs) if you offer them. The actual printing of the job is the smallest component. Thus, pricing requires that you look at VDP not as a complex printing job, but as a marketing program with a printing component.

This can be a real challenge for manufacturers and distributors used to pricing traditional print jobs. On one hand, you don’t want to underprice—either because you undercharge for the value of the end product or because you underestimate your time and costs in producing the job—and leave money on the table. On the other hand, you don’t want overprice and send your clients screaming back to their offices (or to your competitors), either.

It’s a delicate balance that is learned by experience and by wearing a hat many manufacturers have never worn before. In the words of Ed Pierce, owner of Graphic Print & Communications in Meridian, MS, “Pricing for VDP is not an exact science. In order to do it successfully, [manufacturers] must quit being craftsmen. They have to start thinking like business marketing owners.”

No “One Size Fits All”

The challenge is that there is no one-size-fits-all solution to pricing. With print, you can buy a software program, plug in your numbers, and spit out an industry-standard price. With VDP, it doesn’t work that way. Even shops who have been doing VDP for years are still refining their pricing strategies — and almost always up. Every one of the companies interviewed for this report admitted that they were overly conservative in their pricing and had not yet hit the ceiling on what the market would bear.

Does this mean you can set a high price at the outset? No. The ability to continually raise prices is based on years of experience, your track record, and your ability to nurture a client base that understands the value of what you are offering. The standard practice is to price for value, erring on the side of conservatism, and then gradually raise your prices as your reputation and experience (and client base) grows.

There are 10 basic categories that are typically taken into consideration when pricing a VDP job:

• Consulting / project development
• Creative (design, photography, copywriting)
• Database acquisition
• Database cleaning and handling
• Web development (for projects that include personalized URLs)
• Reporting (typically only if the job has a Web component)
• Miscellaneous programming
• Ink on paper (prepress, proofing, printing, bindery)
• Mailing
• Fulfillment

Some charge a la carte for these services. Others consider all the variables and come up with a single package price. Others use some combination of the above.

It would be nice to be able to provide set guidelines for pricing each of these elements, but among successful VDP producers, there is as much consistency in pricing strategy as there is the design of individual snowflakes. And when they are asked how they determine their going rates, the answer is often some variant of, “By the seat of my pants.” This is an experienced seat, of course, but there is a lot of experimentation involved, as well.

Of all of the elements of the VDP project, creative and consulting are among the hardest to price because of these elements’ subjectivity. Experience and track record of results play into the price that manufacturers and distributors can charge.

These fees are much higher than many are used to charging, but they are lower than traditional agency fees, in part because VDP producers are manufacturers, not agencies, and in part because the creative can be subsidized by the production portion of the job, especially when longer runs are involved. These fees can also vary substantially because they are also so diverse. They can include the value of brainstorming, helping clients to develop customer databases, analyzing existing databases and culling them for the most lucrative prospects, accommodating the unique requirements of VDP vs. static design, the use of reporting to analyze the effectiveness of campaigns and tweak future ones, and many other hard-to-quantify components.

Web development may or may not be part of the VDP offering. Many VDP jobs today are driving recipients to personalized URLs, or individual Web pages generated for — and personalized to — each recipient. Here, products can be marketed directly to respondents by name, and respondents’ actions can be tracked in minute detail. Pricing issues include, not just the development of PURLs, but site navigation, functionality (will registration be required? will you be capturing data? doing a survey?), and the level of back end reporting. Clients may want to know, not just how many clicks there were, but who responded, what pages they navigated, who responded to the offer, what they bought, and what to do with the information learned.

In this report, we’ll take a look at the pricing strategies of four successful VDP producers with track records for success. These shops range from small shops with RIP-driven copier equipment to larger, $10 million-plus shops with a mix of toner-based presses and smaller boxes. Clients range from small businesses to Fortune 1000 companies. We will look only at the first eight criteria, since mailing and fulfillment are priced the same as most static jobs.

$5–10 million manufacturer with financial, technology, and manufacturing clients. Runs Indigo 3500 (color) and Kodak 9110 (black and white) presses.

Pricing philosophy: Because buyers of VDP are used to cost-plus for print manufacturing, this shop feels that providing a package price makes the cost per unit appear too high. Thus, it breaks its pricing into manufacturing and non-manufacturing components so that the per-piece price appears more in line with what clients are used to seeing.

Consulting — Pricing is highly variable, based on estimated time investment and value to the client. Database analysis and development are often critical aspects of the campaign. To price, the company not only considers the value to the client, but also the overall strategic issues, such as length of print run, likelihood of future business from that client, and the number of divisions or stores that can be tapped for business. The depth and extent of the project is also considered. Does the client have the program already mapped out and just wants it executed? Or does the client need analysis and development? Does a Web site need to be integrated? Does the database need to be analyzed?

Creative — Hourly fee.

Database acquisition — Cost of the database, plus mark-up. If the client requires consultative services, such as analyzing existing databases for best prospect targeting, it is built into the consulting fee.

Database cleaning and handling — Hourly fee.

Web development — Technical execution is charged at an hourly rate. Design, purpose, and navigation of the site are built into a separate Web development fee.

Reporting — Built into the Web programming fee, with pricing based on the number of reports.

Miscellaneous programming — Hourly fee.

Ink on paper — Prepress, proofing, bindery, and printing costs taken into consideration. VDP jobs are priced per click slightly higher than static jobs since the RIPing of the job can be slower. RIP times for VDP jobs can vary by the number of variable elements and the software used to create the job (whether elements are pre-RIPed or whether each document is RIPed on the fly).

Invoicing — Manufacturing is invoiced as an inclusive unit cost (ink on paper, prepress, production, bindery). For consulting, creative, and Web, there is no hard fast rule. Sometimes reporting and programming are bundled with Web development. Sometimes consulting and development are bundled with creative. Database services and acquisition are always separate line items. For some clients, almost everything is itemized.

Small, recently established print manufacturer, under $1 million in sales but on target for 10% growth this year. Outputs VDP jobs on a RIP-driven small-footprint copier/printer. Clients are mid-sized regional businesses.

Pricing philosophy — This manufacturer breaks out manufacturing and non-manufacturing separately, with all non-manufacturing items lumped together under a general consulting/creative fee. Manufacturing prices are cost-plus, based on suggested pricing offered by company’s PrintSmith software.

Consulting/project development — Included in the creative and design fee.

Creative — Pricing starts with an hourly estimate of the time to put together the project. The shop then assigns a value to the ideas themselves. How is this determined? “By the seat of my pants,” says the shop owner. “It sounds ridiculous in this day of spreadsheets and forecasting, but this is such a new area and fundamental shift from our normal pricing that it is uncharted territory. As we gain experience in pricing, we ratchet it up all the time.”

The shop has also checked its creative and consulting fees against those charged by agencies and found that they are two-thirds of those charged by local agencies — exactly where the owner wants to be. “I see agencies as much as competitors as I do other printers,” he says. “This is a major shift in my thinking from years past. It is a very fine line to walk, but is the key to survival. I want any agencies’ business, but if they do not bring it to me, then I go after their clients for design/marketing work as well as printing. I figure, if they are acting as print brokers, they are fair game.”

Database acquisition — This is a major area of distinction and profitability for this shop, so the time spent analyzing and selecting lists and other services is charged at a high level of value. The list itself is charged at 50-60% over cost, but the analysis is wrapped into the creative fee.

Database cleaning and handling — PrintSmith pricing.

Ink on paper — PrintSmith pricing, plus a premium. Depending on the relationship with the client, pricing may or may not include postage.

Invoicing — Consulting/project development and database acquisition are separate line items. Occasionally, creative is broken out separately, but in most cases, it is included in the consulting fee. Everything else is priced under the single line item of “manufacturing.”

Marketing services company spun off from a print manufacturer that now farms out the production portion of the job to print manufacturers around the country.

Pricing philosophy — This company charges a single project fee for all of the non-manufacturing portions of the job. The print charge is invoiced separately. If the client demands that jobs be unbundled, the company will excuse itself from the project.

Consulting / project development — Based on preliminary meetings with the client, the firm estimates the amount of time it will spend in each of five phases:

• needs analysis
• marketing plan development
• creative development
• production
• analysis/ecommendations

The shop builds its estimates based on experience with previous jobs. In the early stages, when the company was still a printer, “we were wrong a lot,” jokes the firm’s president, so adjustments were baked into the final printing charge. Because the per-piece costs ended up being too high and, because they were a manufacturer, clients were not willing to pay for consulting or creative work. Now, as a marketing services firm, the company charges one package price for all creative and development and the first check comes before they even begin the brainstorming. Language in the contract allows for pricing flexibility for unexpected revisions or time commitments, but is usually couched with “not to exceed [defined] dollars.”

Creative — Hourly rate. As with all of the job components, the estimate is based on time projections, not actual hours. If a job is estimated at 40 hours, but the shop has 120 hours in it, that is part of the risk of offering a packaged price. “But when you lose hours on one portion of the job, usually, you make it up somewhere else.”

Database acquisition — If the client requires database acquisition, the list research and consulting fee are built into the consulting fee. Once the list is purchased, that’s a separate fee, with the company’s mark up, billed on a separate invoice.

Database cleaning and handling — Based on an hourly rate and built into the project fee.

Web development fee — Based on an hourly rate and built into the project fee.

Reporting — Built into the consulting fee and included on every project.

Programming fee — Based on an hourly rate and included in the project fee.

Results analysis — Built into the consulting fee and included on every project.

Ink on paper — The cost of printing varies based on the location of the third-party manufacturer, so the marketing services firm develops its own formula for the value of the print. This remains constant, regardless of the actual cost of the production run charged by the manufacturer.

Invoicing — The shop breaks its invoicing for the consulting and project development into a payment schedule, varying by client. Printing and postage are invoiced separately, as are any other large expenses, such as mailing lists and images.

Specialty manufacturer with $1.5 million in sales, producing marketing programs for nonprofit organizations. Outputs its VDP jobs on two Oce 900s and one Oce 700.

Pricing philosophy — This shop prices its VDP jobs as a single package price. The owner “doesn’t like nickel and dime-ing clients” and feels that, by itemizing every item, this creates arbitrary barriers to entry. He also feels that breaking out individual services encourages clients to commoditize and cherry-pick the services they want based on price. This provider is selective about its client base, only working with clients it has a strong certainty that it help increase their donation bases. Only works with organizations with good internal databases.

Creative/consulting — The first check the client writes for this shop is a hefty one to pay for the creative and project development. This establishes early on that the client values the manufacturer’s expertise. “I am the doctor, you are patient,” muses the company president. “You are coming to me for advice.” For this fee, the shop will provide all non-manufacturing services, including design, copywriting, and cleaning and managing the client’s data, and populating the variables in the piece. To keep the time commitment to a reasonable level, the package price sets limits on the number of revisions. This includes a lengthy consultative session, up to three comps, two passes at the data, and one client edit of the script. Additional comps or rewrites will result in additional charges, although the company works hard to avoid this.

Although the upfront fee is significant, the fee is low for the value provided. However, the company charges a hefty per-price fee that brings the overall project cost in line with the desired profit margin. The company has a strong track record of results (its average is 9% response rate for first-time contacts and sees an average of 40% increase in giving year over year for long-term clients) and its client base (and initial fee) is growing.

Ink on paper — While not really an “ink on paper” charge, but rather the back end of the pricing package, this shop sets a per-piece price that reflects the desired profit margin. The owner knows what he wants to make, then takes into consideration the run length and upfront fee, and works out a per-piece price. That margin is not set in stone, but reflects other strategic factors, such as the frequency of the client’s jobs, the amount of work that goes into each job (especially the database work), and the longevity of the client with the company. Regardless of the factors, the owner never sells himself short, and only offers price breaks above 10,000 runs.

Although the pricing structure is atypical, the owner feels that it protects the value of the product. “When the clients view the elements of project as commoditized, then they can buy it elsewhere,” he says. “It results in Café VDP. ‘I’m sure I can take the data portion to so-and-so and our in-house guy can do the creative.’ When this happens, the relationship [with the VDP manufacturer or marketing services supplier] becomes adversarial and counter-productive.”

Invoicing — Clients are billed for creative in advance. Other line items are the quoted "per piece" price and postage, which is paid before the project drops at the post office.

If you are a manufacturer or distributor looking to get involved in variable data printing, what can you take from these examples? It can be boiled down into a few simple steps:

• Get a very good handle on your internal costs. Understand what it will costs you per hour for all of the categories described in this report.
• Understand the value that can be placed on the personalization itself.
• Decide whether you want to charge a la carte or as a package price, or some combination of both.
• Be conservative in your pricing and gradually increase your rate as you gain experience and client base.

Of course, as this report indicates, these “simple” steps are not so simple. There is a lot of variability within what seems to be a straightforward process. There is also the added element of local client and what your geographic marketplace (if your market is geographically limited) will bear. So take your time and allow for adjustment. Shop around, as if you were a client, to get a sense of what others might be charging for the same services. Attend seminars and worships on variable data printing and network with others doing the same work. Gradually refine your pricing model as you go along, and as you do, try to have a little fun along the way.

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