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Color Supply Gross Profit–Boon or Bust?

9 Jul, 2007 By: Jack Duncan imageSource

Color Supply Gross Profit–Boon or Bust?

In my travels to dealers in many parts of the country, one of the things that
I see all too often is a loss in supply gross profit in many accounts. It’s one
thing to have a loss in a few cases in black and white, but all too often I see
it in color, which makes the losses even much more severe.

Set up supplies

Let’s start at the beginning by probing the question of where the cost of
startup supplies should go. If our goal is to have the ability to do an accurate
profitability analysis of the account after the sale, then I suggest that the
supplies necessary to set up the equipment should be considered cost of sale
items, and not billed on the customer’s account, even at $0 dollars. In the days
before color, startup supplies consisted of a bag of developer and some toner,
amounting to less than $50 dollars; but now with the advent of color, those
supplies could cost in excess of $750 dollars. Service revenue for a year in
many cases will not overcome that loss if those supplies are not considered cost
of sale.

Initial Supply Shipments

All too often I see machines go out the door with one or two bottles of each
color to make sure the customer "doesn’t run out," which really breaks the bank
on that account. This can only add insult to injury as far as profits are
concerned. Good judgment must be used in determining what supplies are delivered
with that brand new machine, to make sure that the profits on that account are
not "in the tank," so to speak.

No Base Color

Another critical issue to consider can be in the B to C machines installed
with no base charge and no minimum. Remember that you can have up to $1,000
invested in supplies to get that machine in the customer’s door, so how are you
going to recover that cost of goods? Perhaps a much better alternative would be
to include the black toner in the contract and charge the customer for color
supplies as they need them.

Regular supply shipments

All too often I see supply gross profits flying out the warehouse door. By
that I mean, excess supplies are being shipped to the customer because they
think their supplies are free! It costs them nothing to call up and say, "I have
a big run coming up; please send me two of each color and one extra black."

What is often the definition of this "big run"? I have seen situations where
more than $700 worth of supplies at cost have been shipped to an account on
multiple occasions that result in an annual loss of six to seven thousand
dollars! What does that really mean? Well, if you stop and think about it, this
takes $7,000 to get to the break even point, and another $4,475 to get to the
target GP of 44 percent.

The "Gate Keeper"

How can we avoid these losses? We need to have a Gate Keeper somewhere in
our organization that watches for supply shipments that exceed the norm for our
accounts when considering monthly volume vs. quantity on hand. That person
should have information available to them on yields per cartridge, average
monthly volume per machine, etc., so as not to ship excess supplies to accounts
causing losses in GP. They must watch for excess orders being placed, as well,
for those "emergencies" that can result, often adding insult to injury when the
customer says they are out of supplies and then you must ship them by courier.

Copy Quality?

What about the business color machine where the customer insists that the
copy quality needs to be improved? In some cases, this can be done by the
technician with a series of adjustments. But at what cost? The toner consumed in
these situations can be three to four times the normal amounts, whereby again,
we have put ourselves in a loss situation.

Contract Verbiage

I would also suggest putting wording in your contracts where supplies are
included, allowing you to bill for usage in excess of a manufacturer’s yields.
This is a critical step in controlling your losses and, let me emphasize this
point, it should not be overlooked!

The Bottom Line

The bottom lines is that color can, indeed, be a great boon to gross
profits. Left uncontrolled, it can be a huge OTSU (Opportunity to screw up)!
Black and white supplies must be controlled and accounted for, but as we move
into the color marketplace, it is even more critical that we control our cost of
goods so that it is not just shipped out the warehouse door. Contracts with no
base are losses waiting to happen if the supplies for color equipment are not
billable. If you must, include the black toner but exclude the color and bill
the customer as they need it. Gross profits in supplies can be as much as 55 –
58 percent if managed properly; but surely will suffer if we do not control our
cost of goods.

Jack Duncan is the President of JDC-Jack Duncan Consulting, an organization
that specializes in helping dealers become more efficient and profitable in the
service and supply arena as well as educating service managers in the business
aspect of service. To learn more, visit
or contact him at
or (469) 287-2605.

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