You Can’t Make Money At MPS?4 May, 2014 By: Tom Callinan, Strategy Development
So, you can’t make money at MPS?
I hear this all the time and it sounds like the guy that says you can’t make money in the stock market, despite the fact that since January 29, 1985 through March 3, 2014, the DJI was up 1,177%. Those aren’t arbitrary dates they are simply what Yahoo finance pulls (on the day I wrote this article) when you ask for a maximum timeline chart for the DJI (Dow Jones Industrial Average). But if you took your money out in October of 1991, and waited two years to put it back in the market, then took your money out again in October of 2001, and put it back in two years later, then took it out in March of 2009, and put it back in the market two years later, you’d be absolutely correct in your statement that you can’t make money at MPS.
You, with the emphasis on the person and specifically your investment style, cannot make money in the stock market. The significance of those withdrawal dates is they were the trough of the market in the last three recessions; a time when people made poor investment decisions.
I believe people make mistakes in MPS for the same reason they make mistakes with their investments, i.e., lack of knowledge and emotions. I’ve sat through numerous MPS presentation from various “experts” that have advocated the wildest things imaginable. One consulting firm actually told the audience, and this is pretty much verbatim, “Just charge the customer two cents a page and figure out how to make it profitable.” Another told the audience that the industry model equipment GP in MPS was sub 20%, when my actual experience from working with clients to sell equipment inside of an MPS agreement demonstrates that it is north of 40%. The largest issue with MPS is that it involves a device that puts ink on paper, so copier dealers thought that they intuitively understood how to sell and manage it, but they didn’t – most still don’t.
Correctly selling and managing MPS is a highly profitable business; as or more profitable than the copier business. If you want to make your MPS program profitable here are some tips:
Have the correct selling strategy: In small accounts, fewer than 25 total devices to include both printers and copiers, you consolidate and put all of the devices on a single 5-year CPP lease with minimums. In large accounts with more than 60 print devices, you sell an outsourced agreement with minimums and use the quarterly business review (QBR) to expand your share of wallet. You don’t need to conduct a QBR in small accounts.
Have the correct assessment strategy: When the prospect has 16 printers in their single office, don’t over complicated the assessment with software; simply print configuration pages and divide the lifetime meter count by the number of months since the manufacture of the device. If the 16 devices were doing an average of 2,000 images a month and you were off by 20%, your risk is 6,400 pages a month, or about $120 (16*2000*20%*$0.02). You’ll get paid for those 6,400 pages with your quarterly overage and a $360 bill won’t send any customer into orbit. But if you had a 100-device installation and you were off by the same 20%, that quarterly overage bill would be $2,400, and that may be launch time for your customer (100*2000*20%*$0.02). On larger installations do a more thorough assessment to minimize your risk.
Get the prospect’s current spend: You don’t want to ask the prospect “what do you spend a year on printers?” or they may very well go do some research and almost always they’ll come up with the wrong figure. We already know they have “rogue” toner buyers and they won’t capture that spend; and they probably won’t do anything more than pulling some vendor’s annual spend from their accounting system. Rather, after you’ve completed their assessment, provide them a list of the toners they should be buying and ask them to provide you invoices or pricing on each SKU. Also get any outside service expense and the cost of units they are replacing rather than fixing. If you don’t get the data you cannot justify your price, and you won’t be as profitable as you should.
Have the correct focus with the QBR: The QBR has 3 goals with descending priority. 1) Sell something; 2) Change the contract; and 3) Show value in the transaction. Since in the small account opportunity you have everything wrapped into one agreement—copiers and printers—and you have those on a five year lease, there is very little opportunity to sell anything and the fleet is so small it is difficult to show value every quarter. Therefore, no QBR is required, although you may do bi-annual or annual reviews. In large accounts, QBRs are an absolute necessity to maintain and increase profitability and revenue. Nothing good happens if you don’t execute on your QBR, and the two primary goals are selling something and changing the contract.
Stop selling printers in a discreet transactional: The only way to sell a printer is as part of a CPP agreement and based on total cost of ownership. You will never make money selling printers discreetly. Therefore, you need to sell printers as part of your QBR or in an overall refresh plan for the account.
Your focus after the sale needs to be on cartridges shipped: So many copier dealers get all tied up in servicing the printers, and I believe that’s because of their historic copier focus. In the copier world, service represents 70% of the aftermarket revenue and toner only represents 30%. With printers that equation is flipped, and cartridges represent 70% of your cost. You absolutely, positively have to ensure you are not over shipping toner cartridges. I’ve seen dealers shop their cartridges to five different reman companies just to save a couple of dollars; and then turn around and ship enough cartridges to produce 10 months of prints to the customer (in one case, it was 18 months-worth…no kidding, it was over $30,000 in cartridges!).
Match the cartridge restock program to the fleet: If a customer has 16 printers; 7 different models, it makes sense to use auto ship to have a cartridge available for every printer. Here, too, your risk is low (and one of the primary considerations in any financial decision). If the customer has 90 printers across 5 locations with no location having more than 20 printers, the auto ship option would also be the perfect fit for this customer. If the customer has 90 printers in 1 location, 40 that use the same cartridge and 4 different cartridges between the remaining 50 printers, it probably makes sense to have a set stock in a supply cabinet that is restocked periodically, depending on the inventory (i.e., if you have a month’s worth of inventory at the customer’s location then bi-monthly restocking is fine. If you have 10 days’ worth on hand, then weekly stocking). If the customer has 300 printers in their building, it almost certainly makes sense to stock a supply cabinet. Why? If 40 printers use the same cartridge and they use 10 cartridges per month, why would you want to have 40 cartridges; 4X what is needed, expensed out of your inventory long before you recognized the revenue for those cartridges?
- Don’t ignore service: I have worked on QBRs with clients and have seen multiple situations where a service person went out multiple times to service a printer that could have been replaced for $100. Why would you go out four times in a month to service a $100 printer? Thus, triage printer service calls before a technician is dispatched, and delivers the lowest cost of service.
There are other areas of opportunity, but I hope I provided you with enough areas to help you improve your MPS strategy and start reaping high margins.
Tom Callinan is the founding principal of Strategy Development, a management consulting firm for the technology and outsourcing space specializing in advanced sales training, operational improvement and performance improvement strategies. Callinan was an executive with IKON Office Solutions (acquired by Ricoh in 2008), including VP & GM of IKON’s largest business unit with revenue of $1.4 billion. Prior to IKON, he was founder /CEO of Copifax, Inc., an award winning copier dealership listed on INC 500’s list of fastest growing private US companies. Copifax was acquired by IKON. Callinan graduated with honors from The Wharton School, University of Pennsylvania. At: firstname.lastname@example.org or phone 610.527.3317 or http://www.strategydevelopment.com