Cost of production is a fundamental economic concept that applies to nearly any business model. Due to the high risk and slim profit margins in the print industry, it is particularly important that PSP's understand the costs and potential revenue associated with each business they manage.

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Costs that do not vary with output within a production period are known as fixed costs. These include expenses such as depreciation, taxes, land charges, salaried labour and insurance. Indirect, non-cash and overhead costs are other terms used to describe fixed costs. Fixed costs are important to consider when making long-term decisions regarding which enterprises to invest in. Once a PSP is engaged in a particular enterprise, these costs are incurred whether or not production occurs, or “fixed” in the short-term.

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Expenses that vary with a PSP's level of output are known as variable costs. Examples include ink, paper, repairs and hourly or seasonal labour expenses.

 

Other terms used to describe variable costs include cash costs, direct costs and out-of-pocket costs. Variable costs most often influence short-term decisions regarding the scale of production and approach to management.

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Estimating and managing production costs require a great deal of information and a lot of PSP's don't have the time or the resource to spend making sure this is accurate.

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RBM have skilled personnel that are able, in a short space of time, to give you an accurate cost analysis that can be integrated into your MIS or any other form of estimating/accountancy system so you can accurately estimate jobs and have a clear understanding of where your best margins are.