Is it Time to Get Serious About Your IT Hardware Offerings?
21 June 2018 | Norm McConkey
It’s hard to think of any product or service you have today, that is not built and bundled as a monthly service. Netflix, Amazon Prime, Microsoft Office, and your mobile phone are all great examples. Office print hardware has leveraged this model for years, but dealerships have been less successful using the same approach with IT services. In fairness, it is harder to build bundles and add high margins for laptops than it was for A3 hardware, but let’s work through some examples to show how to do it and make it profitable.
When a finance person is given a quote for a product that has a monthly price tag, they will immediately look for a sale price, divide that by the monthly payment, and calculate out the effective interest rate. Most of us do this for something like a vehicle. Here’s a good link to this, but if you sell someone a product that costs $10,000, tell them the monthly payment is $166, and the term is 6 years, they will immediately know the interest rate is 6% and the total interest is $1932. It’s what they do!
In the A3 copier world, it becomes more difficult to figure this out. We don’t share the sticker price with them, as most product prices are not visible online. As a result, they don’t know if they are getting a good deal on the hardware. Then, we add pages and include service, which is not something that is easy to plug in a number for. The technical term for what we are doing is obfuscation.
Basically, we make it difficult to clearly see a price, and an effective interest rate. This works in the dealership’s favor. Leasing $10,000 equipment usually has an effective interest rate higher than 6%. If a finance person calculated an effective interest rate of (for example) 13-14%, they would quite likely not proceed with the deal as they may have credit lines with lower rates and, therefore, save money. Thankfully the obfuscation of an A3 sale prevents this from happening, and has done so for almost 30 years.
You can immediately see the issue with products like laptops. Ten seconds after a SKU is provided, and a monthly payment provided, they will find the lowest price online, and workout the interest rate. This will squeeze margins and…game over.
Let’s bring obfuscation back into the process. Let’s also note that if you have customers that always beat you up on price, don’t approach them with an added value program.
Two of the best intangibles when it comes to hardware selection are:
In addition to these intangibles, there are many other per seat services that should be added to a laptop.
Building out these offerings will take some time, as well as working with new vendors like Google, Microsoft, Avast, Adobe and others. The good news about hardware products like laptops is that business-ready laptops are not $300 products. They should range from $1500 to $4,000. Financing them over three years, makes them much more accessible to small businesses. They are also often bought in bunches. $150 a month for a high-end laptop that includes everything is good value—even better if they need three or four.
The IDC estimates that the IT industry is worth over $1.5 Trillion, annually. It’s growing by almost 7% annually. That’s 10x bigger than the office print industry, which is shrinking by about the same annual rate. If your margin expectations are 40% for IT, that’s not a realistic target, but 20-25% is. Consider all of your valued small business customers; all office workers need computing hardware, telephony, and IT software and services. If your sales team can sell copiers, they can sell this too. Building these quotes through your website will make them even more successful. Need help? Let us walk you through the process.
About the Author
Norm McConkey has been involved in the print, imaging, and software/tech business since 1993. Holding executive level positions in a number of emerging technology firms, he founded PrintFleet in 2003, and Tangent MTW in 2009. A founding member of the MPSA, an award winning author and presenter, Norm has spoken at various industry events around the world including the Lyra Imaging Symposium, Photizo confernece, ITEX Tradeshow, Regional BTA conferences, Remax Europe, and World Expo. He has been contracted to consult and build go to market and sales training programs with several OEM manufacturers such as Canon USA, and HP, and distributors such as Parts Now and Supplies Network, as well Resellers including Office Depot. Norm’s current project, MPSToolbox (www.mpstoolbox.com), is a software platform which helps technology dealers develop and maintain e-commerce websites.