By Andy Rae, Senior Vice President of Equipment & Marketing, Heidelberg Americas
Why do you buy capital equipment?
Hopefully, your answer is to make as much profit as possible from that purchase.
Many think profit potential is related to the price of the equipment, but that couldn't be further from the truth!
To justify a 25% price premium, you only need about 9% more output for the same cost per sheet --yes, 9%! This is because finance and depreciation only account for 30% of your budgeted hourly rate (BHR). The rest of your BHR is linked to your fixed and variable costs.
So, when looking to buy capital equipment, you should consider these key investment questions:
Based on the price of the equipment and its real potential output, what is your cost per sheet going to be?
Can you utilize this capacity?
Heidelberg has conducted in-depth research using neutral data on press productivity based on real-life performance in the market. This research proves that paying a premium for equipment with proven productivity leads to a significantly lower cost per sheet.
Why? Because the number of sheets that can be printed are enormously higher, and at times, more than double what can be produced on other equipment (and remember you only need 9% more!).
The next task is to extrapolate this thinking across the entire business so that you minimize the cost per sheet, in each cost center. Then you need to align the capacity of each cost center; it's useless buying a new press with an average output of 50 million sheets per year if you are not able to invoice the work because it's sitting in the bindery (as additional work in progress)!
In all, it boils down to a combination of optimal business capacity, cost center capacity, process offerings (stitching, binding, laminating, etc.) and minimizing the cost per sheet of those offerings...oh, and keeping sales & admin costs low, while still offering great service (I didn't say it was easy!).
Once you have the lowest cost per sheet, you can still work on the niche markets or customers that are willing to pay more based on your excellent service and quality, giving you even more profit.
Entrepreneurs with the lowest cost per sheet smile when they hear the competition say, "They will go bust offering those prices." In reality, they know they are making more profit on that "low" price than their competitors would have made at a higher price... that couldn't even win them the job!