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Service the new economy what now?

10 Nov, 2009 By: Wes McArtor imageSource

Service the new economy what now?

Over the past 12 months, the vast majority of our customers have noted a
marked downturn in sales activity. No surprise there. But in a recent study that
our company conducted, consisting of more than 200 dealers on over 1.3 million
machines, we saw an alarming decrease in page volume as well. Within our
exclusive database of independent dealers and manufacturers’ operations, there
was an average decrease in page volume of nearly 20% from the peak seen a couple
of years ago. This isn’t totally unexpected as businesses try to find ways of
reducing spending in order to survive the slumping economy. But it’s more
complicated than that. Many companies that are surviving this new era of
government economy are doing so by creatively finding ways to cut spending,
which means they will be less likely to purchase new imaging devices. The future
indications from our studies show a trend of lower page volume on aging

So what does this mean? 

First, in another study that we completed, indicators show unequivocally that
most machine segments 3 and above, have a page volume-specific sweet spot. For
example, a 45 ppm machine’s CPP (Cost Per Page) can vary more than 400% from its
optimum page volume band to the volume band where most of the population is
placed. So what we see happening are machines that were running at or close to
their sweet spot volume band are declining in page count, and thus sliding into
volume band areas that are no longer profitable. Therefore, your service cost
metrics will stay about the same while your service revenue will be pressured
downward. While most dealers are focused on the reduced sales activity, the real
killer is going to be the loss of the profits that service generates.  Machines
that were already in less than optimum volumes will only get worse.

In addition to these problems, there is another one looming out there that
hasn’t hit yet.  As the base begins to age due to lack of new machine sales and
replacements, you are going to see an increase in parts and labor expense due to
the aging process of the machines. Based on page volume, our data shows distinct
trends in service cost over the life of a machine. If you were to graph this out
over time, the CPP would start rather high at install then plummet shortly; this
initial high CPP is due to install costs, tech learning curves and customer
learning curves. Once this initial time passes, the CPP drops and stays
relatively constant until the consumables hit their first replacement cycle.
With the advent of more cartridge and subassembly replacement concepts, this can
be a costly spike. This cost is then slowly amortized over the new page volume
created. This usually lasts for two to three years depending on page volume.
Then, parts and labor cost rise due to wear of items not included in the common
consumable base replacement. Things such as bearings, clutches, belts, etc.
These aren’t necessarily costly items, however the labor involved in getting
these items replaced can eat up the profitability of that machine very quickly.
This rise tends to flatten at the higher rate for a period of time, and then
rises again at about the fifth year due to the failure of non-consumable parts
that the OEM did not project to fail. So what does this mean?  Again, increasing
costs at a time when page count is declining.

So what’s a dealer to do?

First, be very proactive in managing your machine base. The quality of each and
every service call can impact the longevity of all parts as well as the time it
takes to repair the machines. Being as efficient and as effective as possible
has never been more important. BEI Services data shows as much as a 65%
difference from the best dealer to the worst on any given product. So knowing
where you stand in this equation is very important!

Next, be proactive at managing your contract rates and, where possible, start
bumping the percentage increase of the CPP amount to offset some of the increase
in cost. This is very important once the machine crests at that 3 to 4 year old
threshold.  This increase can be sold as a cheaper alternative to purchasing new

Also, consider replacing machines that are no longer on lease and whose
volume has dropped; consider lower copies per minute used machines that can run
the customers new volume more efficiently. This may also work with very old
machines or high page count machines as well. Replacing the machine with a lease
fleet used box at a slightly higher CPP has the net effect of lowering your cost
and increasing your revenue.

Another effective method is to get your technicians on an incentive program
that pays them to reduce cost and increase efficiency. Our data shows that the
majority of dealers are overstaffed due to time accountability and first call
effectiveness issues. So addressing this through an effective compensation
program, and more diligent management, can have a dramatic impact on your
service costs.

Remember that research numbers and statistics don’t lie; they simply allow
you to get inside what’s going on in your base, so you can prosper in these
difficult times.

Wes McArtor is co-founder & president of BEI Services with more than 25 years
of experience in the imaging industry.  BEI, established in 1993, provides
independent imaging dealers with an unbiased set of standards and benchmarks to
better manage their service organizations.  For info visit

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