Reduce Pricing and Improve Profits with Contribution Pricing
Printers that succeed with the GPO do so by applying strategically contribution pricing. As a secondary market, the GPO can be turned on and off to accommodate immediate production needs, fill otherwise unused production capacity and generate revenue.
This is very different from primary markets where it is important to be steady with pricing for one customer or even within one market, as it can be dangerous to the customer relationship to offer a print project for 50 percent less than that charged for a similar job. Customers expect printers to charge consistently at a level that the customer expects.
Overall profitability is obtained not by charging one stagnant rate on every project. Instead, profitability is a blending of rates charged to different customers in order to obtain as many orders as possible. Primary and secondary markets are served differently with higher prices for primary market printing and lower discounted pricing for secondary market work. When the work is produced is one important factor that can drive pricing. Of course, quality and on-time delivery must not be compromised regardless of the price charged for each project.
"When contribution pricing is applied consistently and strategically, a printer can improve its bottom line profitability from an industry average of about 2 percent to an impressive 17 percent or more by filling otherwise unused capacity, even when these additional fill projects are sold at prices reduced by 25 percent to 50 percent or more," Snider said. "It just makes good business sense to do work for a lower fee than to do no work at all. Wear and tear on equipment and additional usage of utilities are all negligible. The universal formula is still true: No work equals no income. Printers that can serve the immediate needs of their customers while filling otherwise unused downtime with lower priced work will prosper."