Pricing Awards: A Retailer's View

Copyright © 2009 by Davis Multimedia, Int'l. All Rights Reserved.
As Printed in October 2009, Award Advisory
 

Acrylic plaque from Acrylic Idea
Factory, Norcross, GA.

The new Aurora Borealis Award from Pacesetter Awards, Chicago, IL.  

   There are many facets to operating a retail award and engraving shop and each has its own complexities, whether it’s learning to operate a new piece of equipment, designing an appealing showroom or deciding where and how to market your products. But for many retailers, one of the most (if not the most) perplexing issues is pricing. How do you price your products in a way that allows your business to survive and prosper?
   Everything involves a “cost,” and a typical award sale can involve many different costs that need to be analyzed and applied in different ways to arrive at a selling price that is profitable to you and attractive to your customer. Ordering, personalizing, shipping/delivery, credit card fees, overhead and labor are just a few of the costs that need to be considered, above and beyond the actual component cost, to arrive at a final price for a job. In some cases, there are even “subjective” issues that might come into play, such as the type of customer or whether you’re trying to get a first-time customer in the door for possible repeat business in the future.
   One of the most popular topics requested by EJ readers involves pricing products, so we decided to poll experienced retailers to identify some of the concepts and concerns that an award retailer needs to address to arrive at a fair yet profitable retail price for awards. This unscientific survey revealed a couple of interesting points: First, pricing in this industry is not necessarily a black-and-white, mathematical calculation. Second, each of the retailers who participated in this article had different pricing processes, but there are some basic concepts that were shared by all.
   “Pricing is definitely not a consistent thing in this industry,” says Lori Champagne, owner of A Action Awards, Carlsbad, CA. “It can depend on many different factors, including who the job is for and what it’s going to take to get it done.”
   To further emphasize this point, we asked several retailers to price three different jobs (see sidebar, page 8) and explain how they arrived at that pricing. As you can see from the sidebar, the retail price for a job involving one plaque for a corporate client varied considerably among the respondents, with most indicating that the pricing process for a plaque is somewhat arbitrary compared to the other jobs.
   One retailer, for example, said the relationship with the corporation and how difficult the client was to work with is a consideration in the final price. Another indicated he looked up plaque pricing for his region in the results of an ARA survey (2006 Industry Trends & Pricing Survey) and went with the lower end because he is not located in an upscale area.
   The second job retailers were asked to price involved 50 acrylic paperweights engraved with the same message. Interestingly, respondents priced this job consistently. Most indicated they use a straight formula for this type of job, e.g. wholesale cost multiplied by three to cover labor, overhead, etc. The results for 100 assembled gymnastics trophies were also uniform, with retailers indicating they used the same type of formula for pricing as with the acrylic paperweights.
   Going beyond the actual numbers, it’s interesting to see how dealers arrived at the price. While no one used the exact same pricing strategy, there were some constants. Here’s a look:
Setup & Personalization Charges
   Back in the days of the pantograph, most engravers charged for engraving by the letter and/or line, which made sense at the time since someone needed to sit at the machine and manually trace each individual character. Most engravers also charged extra setup fees for engraving logos because of the extra time and effort involved and the cost of having a custom template made. The same held true in the early years of computerized engraving.

   Some retailers still use this pricing strategy to some extent. For example, in pricing the plaque, one retailer multiplied the cost of the plaque and plate by 21/4 plus $2 per line of text plus $8 to engrave the logo. He also charges a one-time set-up charge of $25-$75 depending on the complexity of the logo. If the logo is already in his database or if the customer sends camera-ready digital black-and-white artwork, the logo set-up charge is dropped. Laser engraving and other imprinting methods are often factored in by the square inch.
   The majority of retailers interviewed for this article say they no longer quote “piecemeal prices” mostly because they don’t want to confuse the customer. “We don’t charge by the letter. With our pricing, we try to make it as easy as possible for our customers,” says Mike Larson, owner of Northwest Engraving Service, Lewiston, ID. “If you charge them a logo charge and then a setup fee and then a per letter and then upcharge them each time you change something to the plaque it gets frustrating for them, so I just give them one number. If they only put three words on the plaque, it’s going to be the same as if they were going to write a poem.”
   Up-front pricing also allows you to employ some basic sales and marketing techniques. “All of our engraving is free engraving. We don’t distinguish how many characters, how many lines or anything like that. Logos are also generally included at no charge,” says Ed Duprey, Great Lakes Trophy & Engraving, Inc., Garden City, MI. “Our policy is that if your artwork is in a high resolution format either for us to scan or digital, we don’t charge for cleanup or an artwork charge.”
Standard Markup
   Factoring all the dynamics of running a business into your pricing strategy can be complicated to say the least. Pricing can include everything from materials and labor to shipping and freight to billing and credit card fees. All of the retailers who participated in this article use a standard markup percentage of 21/2 to 4 times the cost of materials for most, if not all, of the products they sell (an exception, as noted earlier, tends to be plaques). Although this markup might vary slightly depending on the job, for the most part it is across the board and is intended to compensate for the other costs associated with completing a job.
   As noted, some retailers use a more “arbitrary” pricing strategy for plaques and a more structured system for other products. For example, for completed trophies like resins, one retailer charges double the cost plus $4 for engraving. Items like silver jewelry boxes are double the cost plus $8 for personalization due to the increased engraving difficulty vs. a trophy plate. The majority, however, tend to include personalization costs in this markup instead of charging for it separately.
   Sometimes the perceived value of an item will affect the way it is priced. For example, one retailer typically triples or quadruples the base price to cover costs. Occasionally, the mark-up is substantially more, e.g. an 8" x 10" piece of curved beveled glass that only cost $5 may be marked up to $50-$60.


     

   Quantity discounts also come into play when marking up prices. For trophy parts, one retailer’s pricing strategy involves a standard markup of 3 or 3.1 times the less-than-case price. For one trophy, he adds about $9 for assembly and engraving; if the trophies are identical, he will charge $5.40 for 2-9; $5.15 for 10-30; and $4.90 for 31+.
   Dick Manard, owner of B & B Awards & Recognition, Bloomington, IL, says that even though he offers quantity discounts, he doesn’t pass on his own supplier discounts to customers. “We buy tons of stuff in volume at the show where we might receive free shipping or a 10 percent discount and so forth. When we price something, we don’t consider that. We still use the less-than-case price point,” he says. “Just because I saved 10 percent on my component purchase doesn’t mean that I can discount it to my customer. Number one, I might not sell it for a period of time and I’ve got money tied up in it. If I do sell it, it’s a good investment and I made a good return on it. It offsets those bad investments—the ones you toss after ten years and you haven’t sold any.”
   Rex Tubbs, owner of Engraving Connection, Plymouth, MI, uses a standard worksheet (Fig. 1) to simplify the process of quoting jobs: Material cost and man hours x $19.75 = total direct cost; total direct cost x 1.9 = overhead; total direct cost + overhead cost = breakeven cost; breakeven cost x .340 (25%) = profit cost; breakeven cost + profit cost = sales price.
   “This is what I use for large orders,” says Tubbs. “Sometimes I change the profit percent on the worksheet to a lower number, such as 15-20 percent. In a bid situation or when I’m dealing with a possible new account that I want to get in the door, I sometimes have to lowball my bid. With this process, I can make sure I’m still making a profit or decide whether or not I should walk away from the job,” he explains.
   “The funny thing is many times the competition has very similar labor, overhead and cost of materials,” adds Tubbs. “If the competition undercuts my bid, I expect they’re just trading dollars or downright losing money. The most important thing is I don’t want to win a bid and find out after the fact that I have lost money!”
   As everyone in business knows, pricing is not always a simple multiplication problem. For some retailers, this base markup includes everything involved in getting a job out the door, but there are always other issues to consider.
Stock Items/Components vs. Ordered Items
   If you have the plaque from our first sidebar example already in stock, would you sell it for less than if it had to be ordered? In general, this concept holds true for most retailers (although some do not distinguish between the two), but as with any pricing policy, there are always additional factors to be weighed.
   Lori Champagne says she typically charges less for items that she has in stock as opposed to having to order them unless it’s something that will result in reoccurring orders on a regular basis, in which case she won’t charge extra for ordering. In some cases, she says she will substantially discount in-stock items just to get rid of them.
   “If it’s been here more than five or six years, it’s going out the door one way or another, says Champagne. “I’ve got a pewter statue here and I know it’s worth $75 to $100 retail. I’ve looked online and I’ve found some similar things that are in that price range and I’m giving it to a customer for $50 because it’s been here for 10 years. Customers love it when they feel like they’re getting a good deal and, quite frankly, from my end I’m just finally making some money off something that has no value here anyways,” she says.
   Ed Duprey says that if the order is just for one plaque, he generally doesn’t charge more, but for a quantity he will. “I would say this is what we stock, we don’t have to order it and we can do that for this price. If you want these special ones all from Tropar or something and I have to order them, well then I won’t discount them as much,” he says.
   Unless it’s a stock item that has to be reordered anyway, Dick Manard generally charges a flat fee of $10 due to the time involved in ordering and quoting the job.
Outside Personalization
   If you have a supplier personalize the product with their own imprinting process, do you mark that up?
   For some retailers, that question is moot since they do almost everything in-house. Another business owner indicates that this can be a touchy subject if the customer is ordering out of a catalog and has seen the retail price. Some retailers farm out large orders, like 100 pens and ID plates and for those jobs, retailers typically use a simple “keystone” pricing formula where they multiply the outside cost by two.
Freight Expense
   How do you factor in freight expenses? Some retailers factor in a standard inbound shipping charge, e.g. 9-10 percent. Others consider it included in the base markup while others will adjust the base pricing to accommodate shipping, e.g. if the item is heavy, the markup might be adjusted from 3 to 3.1. Still others will base shipping charges on the supplier, e.g. one retailer tacks on a little extra for shipping when working with a supplier who tends to “overpack” merchandise. Of course, overnight shipping usually incurs additional costs, which are typically passed on to the customer.
Shop Labor
   Some retailers base labor costs by the hour, but most consider that cost as part of the markup. “I have considered over the years how to charge appropriately for labor,” says Champagne. “The problem is, some days things go real nice and easy and some days you just sit there and try to make a line the right thickness and spend hours on it. I don’t know how to charge for that.”
   Dick Manard bundles labor directly into one price. “A bull-riding figure costs about $2 and if you do a 3 times markup on it, you come up with a pretty good profit margin. If you buy a baseball trophy and you pay 50 cents with a 3 times markup, it’s a buck and a half. You’ve got the same amount of time putting those two trophies together,” he explains, adding that this is one of the reasons they offer quantity discounts. “It takes longer to sell one trophy so I feel you have to charge a little bit more for one than for a quantity. If it took the customer twenty minutes to figure out what one trophy they wanted, how do you make any money on it if you charge the same price per trophy?”
Overhead
   Overhead expenses are all the costs of doing business except for direct labor and materials. They include expenses for accounting, advertising, depreciation, insurance, interest, legal advice, rent, repairs, supplies, taxes, telephone bills, travel and utilities. How does one factor all of these things into the pricing structure?
   Once again, most business owners consider overhead as part of the basic mark-up and leave it at that. However, some will determine their true overhead costs. For example, Ed Duprey adds up his yearly overhead expenses, in this case including labor, and divides that by 365 to determine his overhead costs per day. Doing this annually allows him to ascertain that his pricing structure is adequately covering his overhead costs.
Equipment
   Do you have a standard hourly rate for a particular piece of equipment that is intended to cover equipment wear and tear? The industry standard appears to be $50-$60 per hour for laser engraving. However, none of the retailers who participated in this article singled out this expense.

 
 
     

   One dealer pointed out that the sample jobs evaluated for this article don’t lend themselves toward charging an hourly fee for machine time. An hourly machine charge, though, seems to be particularly useful for long (time) jobs which tie up the machines for an extended period but involve a relatively small amount of production labor, such as a big panel engraving job.
Waste
   A lot of items will involve waste, e.g. most retailers are very lucky to utilize 75 percent of a sheet of brass or plastic. Is this a factor that is accounted for in pricing?
   Ed Duprey says he typically has more waste in sublimation because it’s a trickier process to produce an imprint that is “just right.” For this reason, he will quote a certain amount of waste in each sublimation job, but others say waste isn’t much of a factor. Lori Champagne is a self-proclaimed “pack rat” and tries to use even the smallest scraps whenever she can. Plus, she benefits from others’ waste as well. For example, her acrylic fabricator typically gives her his “waste” acrylic pieces.
Front Office Time
   How do you plug in front office time, such as billing? Interestingly, most retailers don’t do this at all, indicating that billing falls on their shoulders as part of owning the business. Those who did, once again, considered it part of the basic markup.
Working with Customers
   Working with customers is a given part of any retail business and is something you generally don’t see in your accounting books. Yet it’s a very real part of doing business that involves time, which of course is money.
   One retailer adds in a small surcharge for those customers who are going to take up an inordinate amount of time, e.g. the corporate client with a committee that insists on seeing three or four different layouts. This retailer also typically charges corporations more than, say, kids’ sports teams, and she typically barters with nonprofit organizations.
Hidden Costs
   Retail business is rife with hidden costs. For example, how do you deal with credit card processing fees?
   Ed Duprey says he averages just under two percent on processing fees, which he marks as two percent on his cost. Lori Champagne doesn’t charge more for using credit cards but if the customer asks her what payment method she prefers, she always says a check. “If they want to pay by credit card, that’s fine because I get paid pretty much immediately and with the check I have to wait thirty days. It’s a matter of do I need the money now or can I wait?”
   On average, about two or three percent gets taken out by the credit card company. “I don’t really mind on small stuff under $100,” says Champagne, “but when you’re talking $500, three percent of that could pay for a nice lunch somewhere.”
Overage
   When ordering merchandise for a job, the general rule is to always order an extra one or two to compensate for the customer changing his/her mind and/or a mistake. Most, however, do not add this into their pricing structure with the thought that eventually the item will be sold.
   “I usually do buy an extra one or two because of mistakes or because at the last minute the customer will want one added to the order,” says Duprey. “We stock an awful lot so it’s not an issue.”
Conclusion
   Summarizing the pricing techniques used by retail award businesses can be complicated, but there are some basic factors involved. Successful retailers agree that it is crucial to periodically review and adjust your pricing policies in order to remain profitable.
   Dick Manard tracks pricing in his shop with a form that details the costs associated with a job, including material costs, how much time is spent with the customer, time spent setting up for and doing the engraving, cleaning, packaging, invoicing, etc. From these numbers, he can determine the cost of doing the job and whether or not his pricing structure is generating a profit.
   “Every year we reevaluate and adjust our base pricing maybe two or three percent; there’s nothing consistent. You almost have to wait until the end of the year and adjust your prices accordingly,” says Manard. “I look at what I have at the end of the year as far as expenses go. I’ve heard people say they don’t have time to adjust their pricing but if you don’t take time to adjust your prices you can end up in plenty of trouble. It’s one of the biggest faults that we have in this industry.”
   Rex Tubbs agrees. “I need to know what my true cost-to-do-business is. Every couple of years, I recalculate my overhead cost and labor cost against my year-end books and make adjustments to my overhead and labor cost,” he says.
   While we haven’t given you a simple one-size-fits-all formula to follow, hopefully this retailers’ view of pricing policies has provided insight into what goes into pricing jobs in this industry. While there are some basic factors to consider, it really boils down to knowing the ins and outs of your particular business and, of course, reevaluating those policies on a consistent basis.


 

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