Chargeback: Critical to Your Survival
If your in-plant has been getting by for years without charging back, it’s time you faced facts and started doing it—otherwise you can’t prove your in-plant is less expensive than outside providers. Recent IPG research shows that 78 percent of in-plants charge back—leaving 22 percent that do not.
Chargeback systems are not difficult to set up and are easy to administer once you determine your standard rates. Regardless of how difficult you may find this process, at some point in time it may very well be the saving grace for your operation.
An article from the IPG archives offers some excellent tips for those who want to learn more about setting up a chargeback system. The printing cost is divided into three primary categories: Labor, Material and Overhead. Spending reports are the best place to begin to determine the cost basis for Labor, Material and Overhead. If you do not receive a spending report each month from your financial organization, check with your upper management to see if they get a report, and finally check with finance to get their assistance.
Begin by reviewing your expenses for the last 12 months and calculate the monthly average for each account. Divide the accounts into one of the three categories (Labor, Material or Overhead) and find the sum of each category for the average month.
Labor: The total labor cost is the sum total of all labor, benefit and temporary labor accounts. You should be looking at an average monthly total. Now determine how many hours were available to work. There are a total of 2,080 hours available per year; if you have 15 employees, you have paid your employees for a total of 31,200 hours annually or 2,600 hours per month. Divide the average monthly labor expenditures by 2,600 to get the average hourly labor rate.