If Copiers Could Talk…15 Jun, 2003 By: Wes McArtor imageSource
If Copiers Could Talk…
I've had the good
fortune to travel all over the United States, training business equipment
dealers of every size and success level. Connecting with so many dealerships has
allowed us to amass a database that includes more than 1.13 million copiers.
With this database and corresponding visits to dealerships, I've learned a great
deal about what makes a copier dealership tick and what makes them profitable.
In a time when most dealers are complaining about shrinking margins and more
determined competition, I hope to share with you the empirical conclusions that
can be drawn from our database, and include some of the more subjective
observations I've made from visiting these fantastic entrepreneurs.
In February of 2003,
I presented a seminar for the ITEX conference in Las Vegas which included a
number of slides based on our database findings. Since then, I have received
numerous requests for this information which I have detailed below.
The chart (unavailable) above clearly indicates how slowly the transition is
occurring from low-end analog to higher-end digital machines. BEI separates
analog Segments 1-6 and digital Segment 81-86, while digital duplicators are
segment 20 and color is 90-96. The database reveals that for most dealers, their
copier install base will be almost 35 percent analog of Segments One and Two.
This is important for a couple of reasons. First, the gross dollar profit
available on this equipment is quite low, averaging less than $50 per machine
per year. This is not to say, however, that some of this equipment isn't 100
percent profitable. Secondly, the Segment One and Two bases are notoriously
disloyal when it comes to their next purchase.
Most of these
machines are fast approaching five or more years old. Statistics show that a
customer with a machine in this age group, who produces less than 2,500 copies
per month and has only one machine of yours, is very unlikely to buy their next
machine from you regardless of the quality of service you've rendered to that
point. They will, most likely buy based solely on price which leaves the dealer
at a disadvantage because dealers tend not to be very competitive in the low-end
printer/multifunction device (MFD) market. So, while your staffing and part
inventories reflect your willingness to provide first class service to these
customers, the reality is, it doesn't matter.
The above scenario,
however, does not apply to those customers who have multiple placements or even
those customers who have a sphere of influence that make them unique. This is
just a general rule of thumb. In a recent customer visit, it was assumed that
they were billing $400 annually on analog segment one. Summing their total cost
to service this base and the service revenue billed, they grossed 7 percent
profit on the entire population. By canceling the contracts on the top 10
percent of the most costly customers, the gross margins jumped to 35 percent,
assuming of course, that this also eliminated the service calls and parts
required. I've seen this same trend over and over again for the better part of
the last five years. This doesn't even take into account the fact that if you
were to look back at all the customer complaints, especially the vocal ones,
you'll find they are probably in this group as well.
The image above outlines the average cost per copy (CPC) for each segment class
using a $45 dollar per hour labor rate plus parts. As is obviously the case, the
CPC of color models is more than triple the CPC of monochrome machines.
Subsequently among analog and digital machines, the cost per copy tends to
decrease as the speed of each segment increases.
This chart (unavailable) referenced above shows the Average Monthly Volume (AMV)
trend for each particular segment of copier. It's important to remember that as
margins decrease, you must move toward increasing the volume created by each
machine. Having too many machines in the lower volumes or lower segments causes
you to staff higher to maintain response time. Although this volume can have
some profit, the actual dollars are quite small. With the additional
availability of higher speed MFD units from commercial outlets, the resale
market in this volume appears to be compromised as well. Some manufacturers have
begun to increase the end user service ability of their lower end MFD offerings,
which minimizes the value of the traditional service organization.
Calls per year vs
Parts per year
The following chart (unavailable) depicts the relationship between calls
completed per calendar year and the parts used for service during that same time
period. This chart (unavailable) acts a substantial guide line for service
pricing. If you know the parts per year and the number of calls, you can
accurately predict the cost of parts and labor and then factor your margins in
to arrive at an annually base billing amount.
The chart (unavailable) above shows the percentage of times that a customer's
original service call resulted in either a callback (CB) or an incomplete/hold
for parts call (HP). What needs to be determined is what percentage of customer
calls will result in an additional call being generated because the machine was
not serviced completely or the tech did not have the needed parts available. As
you can see, for our customer base (who were all measured using the same
criteria for call backs and the same methodology for identifying the hold for
parts calls) more than 40 percent of the time, an additional call was generated
from the customer's original complaint. To put this a different way, these calls
force you to carry manpower for no other reason than to cover your own
Wouldn't it make
more sense to pay the good techs more and eliminate the need for excessive
manpower? The vast majority of customers using a bonus method have been able to
do just that. They manage more copies with less people because the techs they
have understand that they can earn more money by doing the job right the first
time. The targets I've outlined below for these two categories are just that…targets.
You should be striving to be much better than that.
I have dealers that
are able to sustain a ten percent call back rate and six to eight percent hold
for parts rate. The commitment to achieve this level of excellence is
substantial. You must not only invest in the right people, but your training and
support system must be equal to your performance expectations. A case in point
is the hold for parts rate. In order to solve the problem of high rates, you
only have two choices. One is to maintain a large inventory. This can be done
effectively if, and only if, you can document a reduction in calls and
The other option is
to shorten your parts delivery cycle. This is often overlooked and I am
constantly amazed to see how much obsolete inventory is sitting on warehouse
shelves. It gets this way because most dealers won't invest in the right person
to do this job. With the cost of technician manpower associated with hold for
part calls alone, most dealers could hire a person with a degree in distribution
management, pay them $50,000 a year and still be ahead money wise. Instead, most
dealers have an untrained administrative person who gets paid much less than
technicians, and will wind up costing the dealer not only manpower salaries but
inventory dollars because they can't forecast or prepare efficiently. Your main
warehouse inventory levels are determined by only two things, what parts you use
and the length of time necessary to acquire those parts. Technician inventory
levels are determined by only two things, what parts they use and the length of
time it takes the dealer to restock them. You must restock a tech's inventory
daily, not only to reduce the number of hold for part calls, but to reduce the
inventory dollars as well.
Call back rates can
only be addressed via compensation and training. You must to be able to
determine which products and techs cause the most call backs. In this way, you
can approach a tech with a call back issue and show them a way to make more
money by addressing and fixing products more effectively. Many dealers have
tried to tie compensation to first call effectiveness and/or calls per day and
net calls. Some have succeeded but, the vast majority has not gotten the desired
results. Speaking from the success of our own customers and, in a market as
competitive as today's, you need to be looking for every way possible to control
costs and increase profits. Make your technicians and your technician support
system reflect the way you want your customers to see your service.
The Copier Field
Smaller dealers are generally newer companies with smaller populations of lower
segment analog machines and as a result produce more copies and more revenue per
Dealers who divest
themselves of poorer performing low volume analog products have higher
technician productivity. This can be done logically and with little impact to a
dealer's reputation in the marketplace.
Digital products are
only costing less because they're placed in higher volumes. The lesson to learn
here is that volume placement is critical to overall profitability. I was
surprised by this conclusion and though it's not true for every product, the chart (unavailable)
above validates that the digital segment one machine has more calls and consumes
more parts but, because of volume, has a lower cost per copy.
Copies per tech
should be 1 to 1.2 million per month
Parts per call is
not as valid a benchmark as parts' cost per copy. Parts per call is not a true
reflection of performance; you just have to do more calls to lower the parts per
call. Parts usage is relative only to copy volume so rely on parts' cost per
copy to determine the correct parts usage.
effectiveness, especially no part calls, are a major issue for most dealers.
I've seen this number as high as 69 percent, but averages well over 35 percent
for most dealers. Remember this is measured as I outlined above. Without
reliable benchmarks you cannot determine where your department really is, even
if you think it's the best!
Dealers who focus on
higher volume sales, have higher tech productivity and revenue per tech.
Targets for CB calls
should be 23 percent or less and HP calls 12 percent or less. This needs to be
measured as a percentage against the first calls placed by the customer, NOT
totals calls. What you are trying to determine with this measurement is what
will happen after the customers original call, and what percentage that will be.
So, if a customer calls for service and you go back the next day, you have a 100
percent call back rate.
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McArtor is the owner and president of BEI Services which offers customers copier
performance comparisons and a variety of benchmarking and reporting tools to
improve machine and technician performance. If you have any questions or
comments about this article, contact Wes at 316.772.0234 or Wes@BEIServices.com.