Serving Up MPS Compensation7 Dec, 2009 By: Steve Rolla & Teri Dunn imageSource
Serving Up MPS Compensation
Dealers who ask whether or not they should have a Managed Print Services
Specialist to sell their offering or just allow the entire Sales Force to sell
Managed Print Services (MPS), quickly follow that question up with, “How do I
pay them?” Like all other forms of compensation, there is a fair rate you
should target for MPS compensation, but there are a number of ways to get to
that fair amount.
It’s important to first understand a fundamental philosophical difference in the
compensation that is earned by a Sales Professional who sells an MFP, verses the
compensation that is earned by a Sales Professional who sells MPS. In general,
the commission that is earned by a Sales Professional for the lease or sale of
an MFP comes out to be 10% to 12% of the net equipment revenue recognized in the
transaction, or 30% to 40% of the net Gross profit from the transaction. When
compensation and all other selling related expenses are deducted from the
equipment transaction, the equipment lease/sale should have a minimum 10%
contribution margin to the dealer’s overall operating income. In an
organization’s general ledger of accounts, the bookkeeping of this transaction
is fully retained within sales expenses.
Managed Print Services revenues are obviously not equipment transactions but
aftermarket transactions. The revenues associated with MPS in most cases are
allocated 65% to supply revenue and 35% to service revenues. This is the exact
inverse of the typical allocation for a MFP supply/service contract.
Managing service margin has always been and will continue to be a focus of the
most profitable dealer organizations, however, over the past few years, leading
edge dealers have made total aftermarket gross margin, not just service margin,
a key focus for operating improvement.
MPS commissions are an expense associated with the aftermarket and are most
appropriately booked as an aftermarket line item. We don’t believe that where
you allocate the transaction will lead to more or less success in MPS. However,
we believe the allocation is a component of a solid management process for MPS
that deserves consideration. This also is another “call to arms” for the dealer
to make certain that their MPS financial model incorporates the new benchmarks
associated with MPS as identified and taught by BEI Pros.
Many dealers are enticed by reports of 60%, 65% and even higher gross margins in
MPS aftermarket. In most cases, when we took a closer look at these fantastic
margins, we found the commissions that were paid for the sale of these MPS
agreements were tucked in equipment sales related expenses. If you restate these
MPS commission expenses, to associate them with the MPS aftermarket revenues,
the overall MPS aftermarket margins are more accurately stated at a very
respectable 55% to 60%.
The typical dealer principal who is razor sharp at managing his/her
profitability has already deduced that MPS is therefore compensated at or around
5%-6% of the MPS revenues - but don’t stop reading now! How you pay this 5%-6%
to drive the maximum MPS results, retain these valuable contracts and keep your
MFP sales growing all at the same time, is the Rubik’s Cube of MPS we will now
After talking to hundreds of dealers that participate in Managed Print Services,
and after 10 years of research and participation in MPS, we have come to the
We endorse that if Sales Professionals can get a commission on print clicks they
should also get a printer click quota. We suggest a printer clicks quota/month
for “down the street” MFP reps and a different printer clicks quota/month for
Major Account Representatives. The quota could be ramped from start up over
three months. If there is compensation, there should be quota. If a “down the
street” MFP rep does not want the quota bearing responsibility for MPS, they
shouldn’t in our opinion, have the privilege of receiving the MPS compensation.
Should this occur, the MPS opportunity in that territory should be turned over
to an MPS Specialist.
A realistic and easily attained start-up quota might be 50,000 pages per month
for “down the street” MFP sales reps, and 100,000 pages per month for major
account reps or MPS Specialists.
For MPS we recommend using benchmark profit packed click rates as “Sales Out”
costs. Benchmark would be defined as 44% GP on supplies and 52% GP blended into
the click rate. The sales rep blends a rate based on volume of specific
printers to get a blended cost per print (CPP). The sales rep’s job is to sell
CPP as high as they can based on the discovery work they have done on the
customer’s actual cost per page (cartridges, maintenance kits, service calls or
contracts, added value, etc.) You would then pay the rep a percentage of the
spread between blended out cost and blended selling price on actual monthly
clicks each month for up to 50% of the contract term while still employed.
You actually could give away the whole spread above out cost as a bonus if
specific goals are achieved.
If blended out cost is $.018/click and sales rep sells it for $.022/click &
account does 135,000 pages/month,sales rep would make (.022-.018) X .30 X
135,000) = $162/month for up to 50% of contract term when sharing 30%of the
spread with the sales rep.
(.022-018) X .40 X 135,000) = $216/month for up to 50% of contract term when
sharing 40% of the spread with the sales rep. The objective is to inspire
selling multiple contracts to build up income over time.
We have also been exposed to other intriguing compensation programs that we feel
merit consideration. We also will tell you that our recommendation of any of
these programs to other dealers would depend on the dealers MPS offering’s
maturity, and the ability of that dealer to administer the program.
One such program associates the sale of an MFP and a printer on a Cost per Copy
lease. In this situation, the Sales Professional is paid a multiple of the base
billing based on the number of years in the term of the lease; the multiple
increased as a reward for tying the clicks into the lease for an extended
period. The multiple goes up as the term of the lease increases.
The key to this type of compensation is the incorporation of monthly or
quarterly minimums combined with the “out cost” pricing model. Additionally, we
would caution against making residual payments in any pay period that the sales
person does not achieve 90% of their equipment quota.
Other organizations we have spoken to have asked for a model that simplifies the
administration of the compensation and at the same time keeps the Sales
Professional’s focus on retaining the MPS contract for multiple years. To this
end, we recommend a plan that rewards the initial transaction and additionally,
for the first time, offers a residual payment that is paid either quarterly or
annually for some portion, but not the entirety, of the life of the MPS
When a Sales Professional sells an MFP on a CPC lease & adds printer
maintenance/supplies to the lease, the sales rep might get 2 or 3 times monthly
maintenance payment on a 3, 4, or 5 year lease up front or 5% of the monthly
base for up to 50% or the contract term.
The printer service rate must be at printer service list pricing.
Printer service must have separate minimums & overages.
In the event that the Sales Professional departs the dealership, the residual
payment is not forwarded to the succeeding Sales Professional. Paying for only
a portion of the contract term, as well as retaining unpaid residuals when a
sales person parts employment, increases the profitability of MPS contracts in
the back end of the contract term when the cost to service the contract likely
Some of the dealers we have spoken with who employ such a model, have also tied
some level of achievement of an MFP quota to the payment of such a residual
commission. We applaud the creativity that has led to the residual payment
We are thoroughly convinced that one of the tenants of a successful MPS program
is the consistent coverage required by a Sales Professional to retain the
Residuals (another form of annuity) may be just the extra ingredient along with
solid leadership and management skills to arrest some of the Sales Professional
retention issues that have plagued our industry for too long.
THINK “CUSTOMER SHARE”
We believe, given the nature of MPS, that Sales Professionals who assume
both an MPS quota and an equipment quota, will find themselves unable to manage
the same geographic or assigned account portfolios that they have been
responsible for in the past, yet their hardware and aftermarket results will be
As a result, they will be earning more, and your organization will be impacted
by considerable growth.
Currently, whether you realize it or not, you are in many cases sharing your
accounts with competitors. As your sales professionals get deeper, wider and
broader within their accounts, you will experience an increase in “customer
share.” As a consequence, as a dealer principal, you will then have an
opportunity to increase your “market share” by adding additional Sales
Professionals and increasing your customer base.
For more information on how to implement or improve your MPS compensation
model, help is available to you from the Print Management Solutions Group.
• To have the privilege of earning MPS commissions, there must be an MPS
• Commissions on MPS should only be paid for 50% of the contract term to assure
proper nurturing of the account & extension of the contract.
• If a Sales Professional assumes an equipment quota in addition to an MPS
quota, MPS residual commissions should not be paid unless the rep is 90% of
Steve Rolla and Teri Dunn are senior consultants and facilitators for Print
Management Solutions Group (PMSG) based in Florida. PMSG, an alliance combining
two expert training & consulting companies; Learning Outsource Group & BEI Pros,
provides a complete suite of MPS consulting and dealer education services.
Contact: 800-403-9379 or