The Anatomy to Craft a MPS Deal19 Feb, 2010 By: Greg VanDeWalker imageSource
The Anatomy to Craft a MPS Deal
High school biology class is probably a blurred memory for most of us. But if
you can recall one thing, my guess is you remember the stench of formaldehyde
while dissecting some four-legged creature. It was enough to convince most of us
we would never be a scientist. The lesson of anatomy is – it’s a messy job.
Likewise, the anatomy of a Managed Print Services (MPS) deal can be
complicated and messy if you aren’t careful. To make your MPS initiative a
pleasant experience for both you and your customer, it is important to
understand the most basic but vital parts of a deal. This article will help you
craft a MPS deal that makes you profitable today and in the future.
Let’s focus on 4 aspects of the MPS deal:
- The contract
- Upfront funding of equipment
- Move, adds and changes
- Pass-through billing
Playing on the anatomy theme, the contract of an MPS deal is like the skin.
The contract should include everything you are providing the customer. If you
leave items outside the protection of a contract you make it easier for the
customer to price shop. An MPS agreement is a long term contract that requires
flexibility so updates and adjustments can be made as your customer’s needs
change. And just like our skin, the contract needs to protect you from outside
influences. For instance, customers may abuse your program offering or
competitors may be prowling around.
Your contract should allow the finance company to change the monthly billing
as needed, and should include page coverage language to help protect your
margins. Remote monitoring software is a great way to help you measure coverage
and avoid abuses.
In addition, your contract can include escalations to increase profits.
Historically, copier dealers who have escalated payments annually have not had
much push back from customers. Although escalations can be a controversial issue
among MPS pundits, they are a good way to enhance the most profitable part of
Transition billing or interim rent is another concept to consider that will
bring in additional revenue. In most cases, the installation date and the start
date of the finance agreement are different. Instead of back dating the contract
start date, you can have the finance company bill for the spread between the
installation date and the acceptance date, and then start the 36, 48 or 60 month
A contract pain point with MPS can be legacy devices. Ensure that your
finance company has the ability to include legacy devices on the contract.
Second, make sure the finance company clearly identifies financed versus
non-financed devices. The following story that a dealer recently shared with me
shows the importance of checking these things out: There was a company that
financed five new devices and took over fifty legacy devices. The customer was
experiencing some financial trouble and the leasing company repossessed ALL 55
devices, not just the five financed devices! This experience left a bad taste of
MPS with the dealer. With the right finance partner you have a great
advantage...the ability to include everything on one contract and a one-invoice
Once you have the contract figured out, think about upfront funding. You will
stumble upon customers who have very mismanaged environments. Good dealers may
have the ability to save the customer huge amounts of money. It may be tempting
to keep some of that savings for extra margin instead of passing it on. The
issue with this practice is that dealers then request very large upfront funding
relative to the MSRP of the devices financed. Funding guidelines apply to MPS
deals just like normal copier deals so this practice should be managed.
Over funding MPS deals also makes it harder to upgrade individual devices
that need to be replaced during the term of the contract. MPS deals are
considerably more fluid than a traditional copier lease and savvy MPS dealers
need to be flexible. Over funding will reduce your range of flexibility,
especially if you have a large upgrade.
To help combat the over funding problem, a recent trend gaining momentum is
going to a “low or no” residual to the dealer. Dealers are rethinking the long
term strategy of MPS deals and being conservative on the upfront funding. By
having a low or no residual program you can pull out bad equipment much easier
than you could on an overfunded/high residual deal. Since the upgrades have no
residual, the dealer owns the devices free and clear. This is an advantage
because some printer models have aftermarket toner and parts that are in high
Track, Record, Monitor
As mentioned earlier, MPS deals are fluid. Moves, adds and changes will
begin when you start doing quarterly reviews with your customers. Your finance
company must be able to handle the frequent changes with ease and accuracy. The
responsibility of the dealer is to carefully track the devices to avoid mistakes
and headaches. Situations can arise when a dealer has been moving equipment in
and out, swapping devices and has not kept the finance company in the loop. When
it comes time to upgrade, if records haven’t been kept then the finance company
won’t have the right serial numbers and you’ll have a mess on your hands. Make
sure you have a process developed at your dealership with your finance partner
to manage the moves.
Revisiting our anatomy theme, we move on to the circulatory system a.k.a. the
pass-through billing piece. A large part of the total payment on MPS deals now
belongs to the dealer and not the finance company. Cash flow is the lifeblood of
your business and for some, releasing control of invoicing and collecting can be
a concern. Select a finance provider who has a proven ability to bill, collect
and remit your MPS transactions with ease.
The other piece that makes your MPS deal function is remote monitoring
software. Without a good system to remotely collect meter reads and monitor
devices, your MPS program will bleed to death. Your remote monitoring software
will supply meter reads to your ERP system. This will reduce, but not
eliminate, your painful manual processes. This system also enables you to
download the meter reads from your ERP system to the finance company’s billing
system. Once the money is collected, the information can be posted back into
your ERP system by your finance company.
At GreatAmerica, the loop has been electronically closed. This means we can
go from meter collection, invoicing, collecting, posting and money in the back
with limited human involvement. This technological advancement demonstrates the
ability to streamline the pass through billing cycle just in time for the
evolution of MPS.
MPS deals can be messy, just like that distant memory of your high school
biology lab. But if you were like me, I sought out a lab partner who is now an
arthroscopic surgeon. That lab partner had a vested interest in the overall
success of OUR work and truly enjoyed anatomy. That high school lesson applies
today to your MPS success. Choose the right finance company that can provide
you the tools and experience to successfully dissect the most complicated MPS
deal in town.
Greg VanDeWalker is Senior Vice President, Strategic Relationships,
GreatAmerica Leasing Corporation. Vist
www.greatamerica.com for information.