Grow Your MPS Business Organically to Harvest Revenue6 Apr, 2015 By: Norman McConkey
Question: Do you think that office printing is a growth industry?
Everyone in our industry wrestles with this question. We want to answer “yes.” We want to say that the business we own or work at is healthy. We want our industry to continue to grow. Lately it’s been getting harder and harder to ignore the facts.
- Office printed page volumes are declining by over 5% year over year;
- Hardware prices continue to fall;
- OEMs are reporting shrinking revenues and profits.
So what is to be done? It seems that companies are embarking on a few tried and true strategies.
- Ignore the business reality and invest more in sales and marketing to take business from your competitors;
- Branch out to an adjacent business segment, like Managed Services;
- Harvest. Reduce all costs and focus on growing profits instead of revenue.
All of these strategies are good. All of these strategies are bad. All of this depends on your business. What I don’t like about Managed Services is that it’s being promoted as an easy transition from Managed Print Services. In fact, it’s quite the opposite. Most businesses fail when they try to enter a new market. Think about Managed Print Services. Most businesses have failed to transition from transactional business to MPS. If you have not made that jump, then the jump to Managed Services will be even more difficult.
At its heart, Managed Services is about fixing problems remotely: 90% of the time. MPS tends to solve 90% of problems onsite. These two models are polar opposites! Managed Services is also a lower margin business than printing. While some distributors are offering outsourced solutions for helpdesk and service, this approach slices an already thin margin. Keep in mind; those already in the market have survived on low margins for years. They are lean, battle tested competitors with existing knowledge you do not yet possess. Not someone I would “jump in the ring” with willingly.
Ignoring the business reality and pushing on by displacing other providers is another strategy. There is merit in this approach, as other providers that have been losing revenue and margin are getting weaker. They may be running out of oxygen –also known as working capital. The issue is that unseating competitors is expensive. You will gain new business as companies fail, but the wisdom here is that customers switch as a result of problems from their current vendor and NOT by an opportunity for better service. They may switch as a result of cost savings, but that savings needs to be significant - 10% or higher. In a mature business, 10% less than the incumbent is not impossible, but difficult. Focusing on this strategy will mean a heavy investment in business development: good sales people. So that 10% cost advantage can evaporate quickly.
Harvesting is in many ways the easiest strategy, but it’s very hard on your ego. It feels a lot like giving up. It feels a lot like admitting that your existing approach is wrong, and that you made some mistakes. I am not a therapist, so you will need to overcome that emotional hurdle yourself. What I can say is: it’s less a function of your business as it is your industry. All industries have their day. One of my clients opened up a business three years ago doing iPhone repair, and guess what - his business is booming. He can barely manage growth, just like anyone that got into office printing 25 years ago. iPhones will not last forever, and office printing is on the wane.
So, what’s all this about harvesting and what should you do about it?
- Revise your sales structure and compensation plan. You no longer need expensive sales reps. Most sales you will get, especially for “new” hardware, are just replacements for existing devices going off lease. It’s not quite stuff that a trained monkey can do, but it’s certainly not worth spending $150,000 of your working capital on.
- Stop investing in new hardware, software and systems. Your event horizon is no longer 10 years or 5 years, it is today. New systems and software come with a long learning curve, longer implementation plans and dubious returns on investment. Keep what you have and make it work.
- Be brutal with your overhead costs. BRUTAL. Instead of adding headcount in hopes that your business will increase, assume revenue will drop by 20%. How will that affect accounting, sales and service groups? It’s likely that you’ll have the same headcount you did when business was 20% higher.
- Stop investing in new projects. This will be hard. For the last 25 years people have managed the business like it will grow forever. It is not going to grow any more.
- Move to a “new hardware/replace” instead of a service model. Its 2015. Service is dead…Ok, ok, it’s not quite dead, but repairing 10 year old monochrome printers is a sign that you are not adapting. Customers accept that if they a) paid less than $2,000 for something, and b) it’s 10 years old and broken…it’s junk. Don’t believe me? In 2003 I bought a 32 inch Sony Vega TV. A 250lb technology marvel. It cost $1,100. The HP4200 was launched the same year. Why would you fix either when a replacement costs less and is 2x as fast? Better yet, move the customer from a monochrome replacement device to a color MFP.
This is the whole point of harvesting. Look at your existing accounts. Look at your existing contracts. Look for ways to avoid incurring costs like servicing old useless devices by replacing them with newer MFPs. Better yet, replace them with disposable MFPs that have a three year life span and a $500 ticket price, that also have low cost supplies.
How can an “MPS toolbox” help you reap more than you sow? Each account you have is quite likely on a steady decline in terms of page output. You need to look for ways to reduce your costs by 15 to 20% per account. It’s unlikely that the client will allow you to increase their prices, but you can control your costs.
- Stop servicing old devices.
- Replace high CPP devices with lower-cost alternatives.
- Encourage customers to add low-cost color ink MFP devices to replace their old single function monochrome fleets. They might think this increases costs, but in reality it’s negligible when you consider that their page volumes are decreasing.
All of these tactics are built into our MPS Toolbox in the form of fleet optimization. Let us know if we can assist you.
Norm McConkey is the creator of MPS Toolbox, a software solution architected to leverage existing MPS program investments and infrastructure. He is the co-owner of Tangent MTW Incorporated, a marketing communications and software development agency, and the President of RentThePrinter.com, a web-based office technology rental service. McConkey has 25 years of experience in office printing and business productivity software. He has held various executive positions at Corel Corporation, and was the founding President and CEO of PrintFleet Inc.