3 Ways to Thrill Your CFO
Curious about how to send your CFO a budget that will actually be approved? Here’s your cheat sheet to an impressive and accurate production budget.
It’s that time of year again—time to start preparing marketing budgets for next year! Production Solutions understands the difficulty and sensitivity of this process. With so many elements to consider, it’s always a challenge to allocate enough funds to cover industry increases in freight, paper, print, mailshop and postage. These are all very difficult markets to predict, as there are many elastic variables that cause fluctuation in price. Lucky for you, we’ve done the research and offer the following information for your 2015 budget planning.
Freight: The hidden cost revealed
Freight is a common factor that causes a “hidden” rise in production costs, as almost all aspects of production incur some type of freight (wood to mills, paper to printers, paper to mailshops, mail to post offices, mail to recipient). Freight prices are driven by fuel costs and fortunately fuel has remained fairly consistent for the last 2 years. The United States Energy Information Administration projects diesel fuel costs to remain at the current level throughout 2015. If that remains true, then the mailing industry shouldn’t see much of a change in freight costs next year either.
Paper: Consumption down, price up
Paper is a very difficult commodity to predict. Over the last 7 years, paper consumption has dramatically dropped. Many domestic paper mills have either closed, been consolidated, or have changed their equipment from paper production to newsprint or linerboard. About 60% of all paper consumption is produced by the top 3 suppliers in the country, which could increase to 80% if a current merger is approved in the coming months. Those top 3 suppliers control the overall pricing structure, which is based on the competition for wood product and industry paper demand.
Currently the uncoated/offset market is fairly stable, but we will likely see a 6-12% increase for coated paper throughout 2015 (increases will be distributed throughout the year). Since paper is only part of your print costs, that does not mean that your coated print costs will go up 6-12%, it means that coated print pricing will increase; but the overall increase will be based on the weight of the stock being used and the amount of stock being purchased. Furthermore, print production costs will likely increase based on the Cost-of-Living Adjustment (COLA) in 2015; which is estimated to be around 2%. As with paper costs, COLA effects the cost of print, but that doesn’t mean print production will directly increase by 2%. So, between paper and COLA, we suggest a 3-5% overall increase for coated print and a 2-3% increase for uncoated/offset print.
Mailshop and Postage
Mailshop production costs have remained relatively flat for the last few years. Besides COLA, we don’t foresee a reason for costs to increase very much in 2015; however it would probably be safe to estimate a 1-2% increase for planning purposes.
In August, we made our predictions on 2015 postal increases (the full article can be read here.) To summarize, the USPS will be required to remove the 2014 exigent increase of 4.3% by the end of 2015. However, based on their current financials, we anticipate that it will be removed in the summer of 2015. The USPS will likely file for a CPI rate increase when the exigent increase is removed, which will probably be close to 2.5%. Therefore, if all comes to fruition, we may see postage rates drop by 1.8% after next summer. Since there are several variables that could change this prediction, we recommend that you budget for a 1-2% increase in postage costs.
So what does this all mean? Besides the unstable coated paper market, cost increases in 2015 are fairly reasonable compared to the last few years.