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Vinyl Sign Pricing
By Scott St.Cyr
I saved this industry segment for last because it is the most fluid of all the segments. While there are variations in pricing in all industries, the reasons for the variations are not as obvious in the vinyl sign industry. The prices for vinyl signs do not tend to tie as directly to the producer (you) as in many segments. This is not to say that vinyl sign pricing is illogical. It is simply influenced by the entire local marketplace more than by any one location.
Question: What is the most common technique used in pricing vinyl signs?
Answer: In vinyl, the most common technique used is market pricing. Here we diverge from most other sign segments, where production and sales costs are the dominant factor in pricing. But before explaining what pricing is normally used, we need to touch on why most vinyl sign companies do not use cost-based approaches.
Compared to digital, electric, or screen printing, the investment in a vinyl sign company is relatively small. For example, a single large-format digital printer will often cost more than all of the equipment in a vinyl sign company. So equipment costs are not dominant factors in vinyl sign pricing.
Nor are material costs a major concern. The average vinyl sign company spends between 18% and 24% of revenues on materials like vinyl, coroplast, and other hard-costs. While this is not immaterial (no pun intended), there is less correlation between costs and prices than you might expect. In most markets, for instance, vinyl lettering usually commands a greater price than vinyl on aluminum. Similarly, though banners may be cheaper than MDO signage, the difference in price is not proportional to the difference in costs.
This leaves labor costs and overhead as the remaining costs, but these costs vary widely between any two vinyl sign companies...yet pricing in a market remains fairly consistent from shop to shop.
Question: Are you asserting that costs are not relevant in pricing?
Answer: No, only that your costs may not be relevant to the pricing in the market. Ask yourself, could I do 10% more work without hiring additional people or buying more machines? 20%? 40%? In most cases, the answer is "yes" (at least to the first two) in vinyl, but "no" in electric, digital, and screen printing where equipment and other constraints are dominant.
From my experience and observation, in any market the labor costs and overhead of the least efficient operators set the pricing. In most cases, this is a vinyl sign company earning between $14,000 and $22,000 per month. Current pricing supports this store's overhead and 2-3 employees and allows the owner to stay in business paying himself or herself a comfortable salary.
With the same overhead and equipment and few additional employees, however, it is usually possible for the same shop to double or triple their monthly revenue. In a cost-based approach, the owner should lower their pricing to reflect the reduced overhead burden. This has not happened (much) in the vinyl sign industries. Instead, the more efficient producers have kept pricing the same and pocketed or reinvested the money, allowing the less efficient producers to stay in business.
Question: So how do you determine market pricing?
Answer: By definition, knowing your market pricing means sampling the market place. Most people think of this as calling the competition and getting a price. And that is a great tool and still not a bad idea (though caller ID makes it harder today than it used to be). But you have many other sources of competitive pricing information.
The most effective way to get this information is to ask for it directly. When following up on estimates, especially those given to new prospects, ask for a copy of the competitors' estimates. Explain you are simply trying to understand where you stand in the market and it does not have anything to do with this specific estimate. You'll be surprised how often they will share this information with you and what you will learn. Do this for each estimate, whether you win or lose the job. The customer will be more willing to share this information when you win. Additionally, if you get this information only when you loose an estimate, you will have a tendency to only move your prices downward!
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Question: What is the actual form of pricing used by most stores?
Answer: The (obvious) answer is that almost everyone uses a square foot approach to vinyl pricing (square meter approach for the international crowd). There are, however, two significant variations. The first uses a variable price based on size. A typical pricing scheme might look like this:
I would like to make a few points about this method. Why give a break at 3sf and not at 4sf? In some cases, the material is available in different sizes that are relevant, but primarily the size breaks are arbitrarily chosen to meet some pre-determined market price. Additionally, it is very difficult to compare pricing information between products. The information contained in the pricing is, at best, difficult to grasp.
Question: How else is pricing approached?
Answer: A cost-plus model is still used, most commonly by companies that do vinyl signage but not as the mainstay of their business. An electric sign company, for instance, will commonly use cost-plus calculations for all pricing, including vinyl signage.
Among "purer" vinyl sign companies, many analytical thinkers will often modify the above pricing by adding a setup charge. This change typically produces fewer breakpoints, which in turn makes pricing easier to compare between products. For example, the above pricing is very close (though certainly not identical) to the following pricing scheme:
The rationalist usually explains the logic of the setup in terms of representing the physical "setup" involved in the order. While this might be true, this is irrelevant when one considers that we are only trying to get at a market price and not reflect our actual costs.
A graph of the price of a sign using these two pricing examples would look like this:
Note: There is a big difference not shown on this graph involving the purchase of multiple signs. When a customer purchases 2 or more of the same sign, you will need to double (or more) the setup to achieve the comparable pricing. In this sense, it is more of a per-piece setup instead of a fixed setup charge. Using both a per-piece and fixed setup charges is an effective way to model complex pricing, but this is beyond the scope of this article.
Question: How should I add in my overhead?
Answer: It is my (debatable) position that in a market based pricing scenario, your overhead doesn't matter. What you can charge is not dictated by your costs, so why should your overhead be included. Considerations of overhead are important in strategic decisions such as what to sell, what you can sell profitably, and where to invest. However, they do not affect what the market will pay for your work.
Question: Can my pricing be automated?
Answer: Yes, Cyrious Software and others sell software to build your pricing logic into a comprehensive business system. But this is not a sale brochure, so you'll have to find out about automation and business software elsewhere.
In the next article in this series will cover the concepts of Budgeted Machine Rates and Overhead. If you have a question before then you can contact me at email@example.com.
About the Author: Scott St.Cyr is the C.E.O. of Cyrious Software, Inc., a software company that specializes in pricing and business management software for the sign and graphics industries. He formerly owned 5 sign companies with Vinyl, Electric, Screen Printing, and Digital Printing departments. He holds a BS in Electrical Engineering from the University of Louisiana and an MBA from Harvard University.
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