Fresh Opportunities in SCANNING & COLOR SOLUTIONS16 Apr, 2007 By: Lou Slawetsky imageSource
Fresh Opportunities in SCANNING & COLOR SOLUTIONS
Let’s briefly examine both the rewards and risks of strategies that make use
of either (or both) scanning or color.
We’ll begin with scanning. Since the launch of the first truly
multifunctional digital products 18 years ago, (time flies when you’re having
fun), we’ve come to understand that, regardless of the brand or model, the MFP
really consists of two separate components – a print engine and a scanner (add a
fax board to the mix if the system includes facsimile capabilities). By
combining these components, the system could offer multiple functions.
The traditional dealer business model involved using the hardware sale to
generate aftermarket revenues for service and supplies over a predictable
installation life of more than five years. In fact, aftermarket revenues and
profits became so important that dealers often sold hardware at or near cost in
order to capture that business – anything to generate the pages that drove
service and supply revenues.
In this context, copying, printing and even fax receptions made sense. They
all generated pages. But, what about scanning? The fact that scan capability was
an integral part of the MFP configuration meant that scanning applications would
soon follow (“If you build it, they will come.”). But, the act of scanning does
not directly generate page volume and, consequently, most dealers thought that
it did not generate the aftermarket revenue on which their businesses thrived.
Not true! There are significant aftermarket revenues to be captured from
scanning if you know where to look. First, there’s increased (that’s right –
increased) print volume. Our research indicates that, traditional hardcopy file
systems (remember file cabinets?) will generate 1,000 copies for every 1,000
documents over the active life of those pages. That’s not to say that every page
is copied once, but there is a 1:1 ratio between pages filed and pages copied.
What’s the “active life” of a document? It’s the period (usually 60 – 90
days) during which the document is used for transactions. For example, an
invoice is active until paid. A purchase order is active until the terms are
satisfied and a check is written against it.
When hardcopy documents are scanned and electronically filed, the document to
print ration jumps to 1:3 or higher. That is, your customers will print three
pages for every page scanned. Why? Because, when a traditional paper document is
needed, it’s retrieved, referenced and refilled. When an electronic document is
needed, it’s retrieved, printed, referenced and tossed into the trash. No need
to save it, since anyone can retrieve the electronic version when it’s needed.
So, the irony here is that the very technology designed to reduce or even
eliminate paper (scanning) generates at least three times the page volume when
compared with traditional paper based filing systems. Scanning, then, generates
incremental page volume along with the service and supply revenues that volume
brings with it. But, it happens over time – once again, over the active life of
the documents scanned. The key to success here is to capture the paper document
during its active life. The earlier you capture, the more you print.
Of course, all of this assumes that your sales representative possesses the
skills to help implement a document capture system. This assumes knowledge of
the scanning software, indexing techniques and the document workflow that will
be addressed by the implementation of this solution. It also assumes that you
will be compensating your sales reps for these activities. Pay them to sell
boxes and that’s just what they’ll do, employing their best “hit and run”
techniques. Pay them to generate pages and they’ll work with their customers to
implement any and all solutions that might possibly earn them an extra dollar.
But what about the act of scanning itself? While the print engine is not used
during this process, the document feeder, lamps, clutches, etc. are all engaged.
Yet, our most recent Imaging Systems Dealer Strategies Report shows that fewer
than 12% of dealers charge for scanning activity. Here’s your worst nightmare. A
customer uses a workgroup product (say, 50 PPM) to scan 25,000 per month and
never copies or prints a page! How would you like that service contract?
In fact, our research, published in The Office Products Analyst, indicates
substantial scanning activity, the above extreme aside. When scanning is enabled
on a multifunctional product, scan volume averages 2,267 pages per month –
that’s 136,020 scans over a five year product life. Dealers currently charging
for scans average $0.0019 per cycle. That’s an extra $256.50 for every unit on
which you have enabled the scan function. Do the math. So, scanning offers both
rewards and risks.
- Increased print volume for documents captured during their active lives.
- Increased revenue when charging for scans.
- Decreased service margins if you don’t charge for scanning activity.
- Increased sales cycle complexity for implementation if the sales rep is
not properly trained and motivated through compensation.
At the risk of overstating the obvious, color may be your fastest way to
substantially increase aftermarket revenues and profits. Simple math tells us
that every full color page generates four times the revenue as that same page
printed in monochrome (black). Actually, the spread is significantly greater
than that because:
- Color toner costs more than black toner.
- Color toner yields tend to be lower than yields for black toner. You
simply use more to produce the same image.
- Page coverage for full color images will be higher than that found in
typical black and white documents. More about this in a moment.
Product launches during the last two years have made color ubiquitous in the
office. Image quality for “business color” devices has improved to the point
where it is more than acceptable for most business applications and even for
some applications formerly reserved for graphics applications. The advantages of
color, including focusing the attention of the reader, increased retention of
information, less confusion, etc, are obvious. But, these are difficult to
quantify. There are, however, benefits that can be cost justified, including:
- Faster action – studies have shown that people will pay an invoice
30% faster where the amount due is in color. That means a 30% drop in
- The ability to print in color allows users to produce work in house that
was formerly outsourced.
- In house color allows for variable data print applications that might not
otherwise be practical. Studies have shown significant increases (up to 10X)
in response rate when mailings or brochures are personalized.
There are, however, losses. Unfortunately, the window may be closing on color
profitability just as it did a few years ago in the monochrome world. Reasons
- Increased competition – every vendor now markets a full array of
- Decreased cost per page – increased competition has led to severe
erosion in the full color cost per page, with prices approaching $0.05 each.
That’s squeezing the margin out of the transaction, since dealer cost has not
dropped as quickly as the retail price per page.
- Page coverage – vendors calculate toner yield (the major cost
component in a full color system) based upon an estimated yield of 5% per
color (20% total). Our research shows that the true average is closer to 8.5%
per color (34%). Few vendors are able (or willing) to share the impact of this
higher coverage on dealer cost when these higher coverage rates are
encountered, leaving the profitability of any all-inclusive service contract
- Image density – not often discussed, the density of the image (the "depth”
of toner applied) also has an impact on the true cost per page. Again, dealers
do not realize the impact of density on their cost until it is too late to
- New technologies – we have become entrenched in laser technology and, for
most, we have built our business models around it. But, new technologies will
have an impact later this year. HP’s Edgline ink jet products will offer
higher speeds, higher quality and lower hardware cost. Per page cost will be
competitive to laser. Ricoh has launched GelSprinter products that offer a new
formulation of liquid ink that is non-water soluble and has less bleed through
than traditional ink jet products. Xerox continues to evolve their solid ink
products and may soon move up market to higher speed ranges. All of these will
have an impact on your ability to sell laser based systems. Increased
competition from these technologies can only serve to depress margins even
So, what have we learned? It’s not all “gloom and doom.” There are many
revenue and profit opportunities remaining for both scanning and full color
solutions. But these opportunities are not without risk. Recognize those risks,
design strategies to minimize their impact and act now to implement them before
the opportunities are gone.