If COVID-19 has taught us one thing, it's that we need to switch our sales and service model from one requiring in-person delivery to one that leverages technology. An interesting note is that in April, online merchants had sales volumes equivalent to Black Friday, EVERY SINGLE DAY. The B2B e-commerce genie is not going back in the bottle. Here’s how you can still move your business into 2020 and beyond.
Let’s first deconstruct the myths that got us here. Managed Print Services (MPS) is a bad business model. It cannot evolve into a program that is attractive to businesses migrating to a home office worker (HOW) model. It can’t recover from separating the printer into two parts: pages and hardware, where pages depended on volumes, and hardware was paid for long ago and the profits consumed. Having founded PrintFleet, I can tell you that monitoring HOWs will never happen. I am purposely being hard on the model because I don’t want to leave this door open, and neither should you. Specifically, I would say MPS is irrelevant for all but large organizations (500+ employees)—even then, it’s still much more complex than needed.
Equipment Finance Should Be Your Top Priority
I recently looked at a rate factor for a dealer for financing an asset between $3,000 and $5,000 for a term of three years (36 months), at “FMV” I was shocked to see the effective rate of interest here was about 17%. That rate is a lot closer to a credit card than it is to a bank loan. The other problematic part of equipment finance is payment methodology. It is done via invoice and check.
It’s 2020. Nobody pays monthly fees with a check. It’s a credit card world.
Online credit cards typically cost about 3% of the transaction to process. So, a $100 payment would cost about $3. Even better, YOU get the other $97 within 2-3 days. What does all this mean? You are giving the finance company a massive amount of potential profit because they are doing two things:
- Collecting money and disbursing it to you
- Taking the risk on the transaction
Look, there is value in taking risks, but that’s a big chunk of an increasingly small pie. Use finance partners for larger deals and higher risks, but if a lot of your business is up and down the street, small businesses, that’s too much profit taken via finance.
How to Price a Flat Rate Product With a Healthy Profit Margin:
Let’s pick a Xerox 6515DNI. It’s a solid printer capable of printing 1000 to 2000 pages. Here are some cost inputs:
- Mono CPP: $0.02
- Color CPP: $0.09
- Hardware Cost: $400
- Three Year Maintenance SKU: $280
So, let’s assume we don’t sell this device at all.
Here’s the logic, based on costs over a 36-month program:
- Xerox 6515 DNI: $10
- OEM Monthly Maintenance SKU: $7.75
- Supplies Cost (1000 pages - assume 60/40 mono): $45
- Monitoring and Management: $3
Total Cost: $65.75
Suggested Monthly Sell Price: $99
Monthly Margin: $33.25, 34% GM
Estimated Full Term Profit: $1200
In this model:
- There are NO OVERAGES and NO ESCALATORS
- We predict that on average, devices will print 1000 pages each
- You can add a clause for abuse, for those that pass a monthly maximum of (for example) 3000 pages.
According to Nexera and its comprehensive WorldStats™ database, 1000 pages for this model represents slightly more than the AMPV of this device. This information is critical, and is accessible to all BEI/Nexera subscribers.
This device is only a sample, and the same exercise should be used to price out several other devices for your program. It would be difficult to perform without current and accurate statistics for each device you may use.
Keep Away From Your Outside Sales Team
Here’s where this model diverges from your current sales model. This program should be offered online via your technical sales team AND NOT your outside sales team. The outside sales team will want to complicate the model. They will want overages and accelerators, and longer terms they can then use to cancel early and “save” the customer on monthly charges. This model can still work, if it has to, for a select group of customers. Why does the model need to change? COVID-19 proved why it is failing. Going back to the outside approach for small business customers would be dangerous. I’ve seen/heard of some resellers “helping” customers that are having trouble paying their current monthly leases, by offering an equipment upgrade and a 90 day deferral payment. How can that make any sense? Tread carefully here, folks!
We do not have the benefit of hindsight, and who could have predicted this global pandemic? Still, I have long advocated, along with a few others in the industry, a need to move away from the sales tactics of the last four decades. Office printing has been found to be less essential to many businesses than we thought. The movement toward e-commerce was already happening, and thus entirely predictable that it would eventually become THE preferred transaction method.
The “eventually” part, turned out to be NOW. Proceeding with a business that ignores e-commerce sends all of your stakeholders a message. You owe it to your customers, your shareholders and your employees to change your tactics. Let’s build this model together.