Add value or plan to sell on price alone

“Value is determined not by what you pay for something, but by what you get for what you pay.” Darn, that’s a great saying! I credit the phrase to Steven Parrish because that’s where I heard it, but there’s no telling where that old gold leaf master got it. He may have made it up.

For most of the years that I have been in the sign business, I’ve assumed that saying is accurate. In the past few years, however, determining the true value of what we do as sign makers is getting harder to pin down.

I started my little sign business in the early ’70s. Luckily, I was fortunate to get to visit with, and watch, quite a few of the old hand letterers, including Stan Bortz. I clearly remember watching him letter a truck one day. I asked him how much he was able to charge for a job like that.

Back in about 1970, he got $150 for the two doors, hand lettered with enamels. I believe he related that the price figured at three hours at $50 per hour. Over the many years since then, it seems many people still charge about the same price, but of course everything associated with our businesses and our lifestyles has gone up drastically.

Another mentor, Jim Mayeaux, owned a glass company back in Moore, Oklahoma. He tried to help me with a few concepts. He explained that when he sent an installer out to do a window install, he charged the same for the install using the new (and expensive at the time) cordless drills and screwdrivers as he did when the crew used to string extension cords all over the place.

The savings in time might have been significant on some jobs. So, the installation was priced according to the “value” of the job, not the fact they could do it faster with the new tools.

Is technology making or costing you profits?

Over the past 10 to 20 years, many people in the sign industry have added expensive equipment to make jobs go faster and hopefully be more efficient. But there’s a catch! Many shops figure their jobs on some sort of “shop rate” based primarily on their labor costs, rather than all overhead costs.

After spending $20,000 to $30,000 on equipment to make themselves faster, a shop that does not increase their shop rate significantly will likely discover someday that they are producing more sales volume, but at a much reduced profit.

Hmmmm? Shouldn’t it be the other way around?

The math is simple, and it’s easier to understand with an example from the days when computers first entered the business. Say Shop A had a hand letterer that can letter a basic aluminum panel in one hour. They charged $100 per hour as their shop rate, so the cost for labor was $100. Shop B, after investing $20,000 to $30,000 in computer equipment, can do the same job in 30 minutes. If they charge $100 per hour to do the same basic panel, they must do twice as many jobs to gross the same amount.

Shop A spent 50 cents worth of paint and supplies, along with a little wear on a No. 6 brush. Shop B spent $10 on vinyl and masking. Allowing $10 for the panel, Shop A billed out $110 and Shop B billed out $70. Shop B has equipment costs, maintenance, insurance and other expenses that reduce the profit on the same job.

That’s more or less the theory. The problem is that so many shops are selling their wares at lower prices that the “value” of the job has dropped. In the example above, the $70 price eventually becomes the “value” of this job in this market. The hand letterer may even struggle to get $70, even though it still took a full hour to letter.

To complicate things, many newcomers have entered the market with absolutely no concept of the historic value of traditional sign products—nor of their costs of doing business. Without much effort, a customer might find someone willing to do this same basic job for $35. Another company might even beat that price.

You can’t always compare sign prices

Unless the specs are exactly the same, you can’t compare two estimates for a sign. Going back to Steven’s quote on value, we usually get to compare prices when we’re buying something.

However, with a custom-made product like a sign, we don’t always see those prices paired with the quality of the final product. Unlike comparing exact products—like the same TV that’s available at three different stores—the sign industry can include a wide range of end products for a sign with the same basic specs.

With signs, a cheaper price can often be associated with lower quality materials—which can be partially justified by the fact the customer just wanted the cheapest price. For example, one company might take the extra time to seal the edges of their plywood panels, including an extra coat of primer, while another might neglect the edges and deliver the panel with a minimal layer of paint. One might use the highest quality industrial enamels and the other the cheapest paint they can buy.

When delivered, the sign panel may satisfy the client, depending on their expectations. Most of us can identify a good value, including quality materials and professional production techniques. However, that has been changing.

As digital printers spit panels and large vinyl sheets out the back end, like cookies coming off a bakery conveyor belt, the value of the job switches somewhat to the capabilities of the person prepping the image for output. The final image, priced by the square foot, makes little distinction between a very complex layout or one with the most basic copy. Despite the large initial investment and long-term maintenance costs, the market for these products can be very competitive.

Equipment costs must be recovered early

Actually, using the term “investment” regarding state-of-the-art computer equipment might be an overstatement or misnomer. Normally, people think of an investment as something that maintains long-term value. In some cases, that might still apply, but a piece of sign-making equipment five or six years old will often be worth just above the scrap value of the metal and plastic. Getting support, maintenance, repairs and spare parts on an older machine gets increasingly tough as the company offers newer and better equipment. Of course, if the manufacturer goes out of business, the end users are left with a poor investment.

In that regard, technology-related costs may be seen more realistically as an expense. If the news isn’t bad enough already, we must also acknowledge that many of the same providers of sign-making technology equipment who market to the sign trade also market directly to our clients. Law firms, hospitals, airports, advertising agencies, office supply shops and quick-print shops are buying the printers and cutters. Overnight, one of our most reliable income sources may go dry, and we are left holding our “investments.”

Make sure you can create and add real value

Most of SignCraft’s articles are intended either to make your business more profitable, your work more efficient, or your signs better and more effective—or any combination of the three. This article is a bit trickier. Hopefully it will encourage some readers to adjust their pricing to reflect their financial investments in their business. Some clients understand the added “value” a sign company can embed in their product. Others may look at their sign as a commodity—not much different than buying a TV dinner. Who cares where they come from when they all look and taste the same?

Spend a little time evaluating your business and your market, and try to consider where the market is headed. Based on the past 10 years, and for the foreseeable future, it appears much of the industry is headed for a huge homogenized mess of mediocrity. If you choose to go down that road, you may be forced to compete on the merits of price per square foot or being “the cheapest.”

Another choice would be to try to define what distinguishes you and your business from all the rest—creating your niche—and then begin playing up those skills and talents. “Fast and cheap” probably won’t be a great long-term choice for most sign shops.

Promoting your skills, training, national awards and other similar attributes may help you show your ability and add value to your products and services. Other clients might like to see tag lines like “Licensed – Bonded – Insured.” The value of a nice showroom and portfolio has been covered before, but it is possibly now more important than ever. You might also want to consider getting involved with your local civic groups such as Rotary, Kiwanis or Jaycees. Just being around other individuals and business people can open doors for you.

In the end, our goal is to impress our clients with a feeling they are getting a good value—even if our prices aren’t the lowest in town. As ol’ Steven Parrish said, “Value is determined not by what you pay for something, but by what you get for what you pay.”

These signs featured here were from our Signs We’ve Seen file and are good examples of how these sign makers added value for their clients. —Editor

From SignCraft, January/February 2007