Selling a Chargeback Pays Off

When pitching a chargeback system, be prepared to answer a lot of questions.

Upper management will want to know the benefits and drawbacks. If you know the answers up front, it will be an easy sell.

If you don't … watch out.

What's a chargeback? A chargeback is merely a way of billing in-plant clients for services rendered. It can be a hard chargeback, where hard dollar expenses to produce printing requests are billed directly back to the customer, or a soft chargeback, where the in-plant absorbs the direct material and labor costs and bills back a soft or indirect cost to the customers. Some managers use a combination of both.

The Soft Approach

If the in-plant assumes all the direct expenses, including paper, but bills through a soft chargeback system it can produce some questionable results. The more successful the in-plant is, the bigger its budget will grow. The in-plant's operating expenses will be artificially bloated by the material purchases for other departments' projects. In a world of budget cuts, the spotlight will be shined directly on the in-plant. The soft chargeback will clearly explain the increases, but the in-plant facility might still be forced to cut services to meet budget requirements.

Also, by having a 100% soft chargeback you run the risk of producing more unnecessary printing. Since customers aren't assuming the direct expenses they might run more than they need on paper that is pricier than necessary.

The Hard Way

Billing all or some of the direct expenses back is preferable. With a hard chargeback you can grow the in-plant to satisfy your company's needs, while reducing unnecessary printing and the perception that the in-plant is an expense.

Why bother with a chargeback system? It creates more work and will probably scare away customers, right?

Wrong!

A chargeback system is one of the most important tools for building a successful and outsource-resistant in-plant. The benefits of this system far outweigh the time devoted to development, conversion and maintenance. Even the best operation would have difficulty sustaining itself without charging back.

You may be asked, "Why not allocate the in-plant's operating cost evenly across the company? Wouldn't this be simpler and serve the same purpose?"

Not at all.

As attractive as an across-the-board allocation of printing expenses looks, it can get ugly really fast. Operation cost for printing services is divvied-up equally, and magically appears on every department head's expense report with nothing more than the in-plant facility's existence to substantiate it. First the expense is questioned and then the source's value.

Since the charge is not on a per-job basis it isn't a fair allocation. Departments that use the in-plant more than others will be charged the same. Unnecessary printing will proliferate.

This system doesn't do the in-plant any favors either. Without a real system of billing, the publishing operation is unable to measure its value. It is simply a support expense on a report. Unjustified expenses usually get cut.

Benefits To The In-plant?

Foremost, a good chargeback system gives the in-plant publishing operation an excellent means of measurement. An in-plant can be doing a great job, but if it can't measure and report its effectiveness, upper management will be left to make its own determination. You're doing great—compared to what?

Don't fall into a common trap: Only recording impressions and the number of jobs isn't a good way to measure or justify your existence. It's simple, easy and has a million holes in it. There is no dollar amount associated with it. Management would have no other choice but to divide these numbers into your operating cost to gain some sort of measurement. This will not show a true picture of your cost effectiveness.

Also, what if your job mix changes from simple black-and-white work to shorter-run, fancy color-saturated print requests? This new type of business will be more time consuming, but will save your company more. However, your impressions will go down drastically.

Many Uses For Chargebacks

The new measurement capabilities offered by a chargeback can be used in many ways:

• Cost recovery: By knowing how much it costs to produce a print request, you can fairly charge clients for services rendered. The in-plant can then recover the cost of operation. This service can no longer be viewed as just an expense.
• Show savings: Now that the in-plant knows its costs, it can compare itself to the competition and report savings. After all, this is one of the major reasons the internal operation was created. If the savings are substantially higher than the cost of operation, then your in-plant should achieve the respect and security it deserves.
• Increase productivity: Knowing the margin of savings, in-plants can bid for win and retain more business, providing they can also meet customer requirements. Increased productivity and utilization will help drop pricing and further grow savings.
• Find your niche: An accurate chargeback system can help determine the type of work you reproduce. What happens if your utilization is good, but your bids are consistently higher than your competition? Underbidding will only result in losing money. You won't recover operational cost. The answer is simple. Stop bidding on that type of printing or reexamine the process. Obviously, the in-plant is not technically or systematically geared for this application. Move towards your operation's strengths and you will become a valuable asset to your organization.
• Justify new equipment: Without a chargeback system, an in-plant manager has no way to justify new equipment. All that can be said is: "It's old, it's fully depreciated and it's costing me a fortune to maintain." How much a replacement or upgrade will save is unknown without a chargeback. With a good billing process in place, justifying equipment is simple. You can determine how much business and savings it can capture and accurately predict the return on investment.

By this point, you have sold the benefits of a chargeback to your operation and you should be able to answer the next question.

How Does The Organization Benefit?

Many organizations have a hard time getting their arms around their printing expenses. This applies to both internally and externally produced printing. Along with this uncertainty of printing costs is a nagging suspicion that they are being taken to the cleaners. Without a good audit mechanism in place to answer these questions, companies usually resort to hiring expensive consultants, or bringing in facilities management providers.

With a proper chargeback system in place, your company will be able to track its printing expenses accurately.

A chargeback system also presents a good scale to weigh internal versus external printing costs. Comparing bids from the in-plant with outside print vendors provides irrefutable documentation on efficiencies and savings, while keeping both honest in their pricing.

In addition, by being able to track and weigh print expenses through a chargeback system, your company can sizably decrease these expenses by eliminating unnecessary or inappropriate printing, and conducting price comparisons and process improvement.

Put Your Plan Into Action

By now, you should have gotten management's attention. With your foot wedged firmly in the door, it's time to swing it wide open. All you have to do is anticipate the next question.

Can this be done and who's going to do it?

This is when you present your chargeback report. You've already done your homework, acid-tested your billing system, started compiling data and created reports. The only thing that needs to be done is to put it into action for real.

You don't have to be a rocket scientist to create a chargeback system. It's simply knowing your costs and billing for them. There are many software programs on the market that you can purchase for this purpose. They range from generic and inexpensive to specific and very costly. If you are just getting started you'll probably want to choose the low-end software. Actually, if you have to, you can get by with a pocket calculator and a notepad. Just make sure the chargeback system is accurate.

Management should not only be sold, but also enthusiastic on instituting a print chargeback system.

If you take these steps, you may encounter a curious side effect. An in-plant that takes the initiative to run like a business and prove its value cannot help but impress its employer.