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The Search for Cost Recovery

31 Jul, 2006 By: Richard Norton imageSource

The Search for Cost Recovery

I am often asked by copier dealers how they should get into the solutions
business. While there is never one answer that fits every dealer’s circumstance,
looking at the marks on the paper is a good place to start. In other words, a
dealer’s sales and service forces are trained to understand their customers’ use
of hard copy output. It can be a relatively easy migration to have the sales and
service people specifically trained in how to sell and service systems that help
a customer manage his hard copy costs. Furthermore, by starting with cost
recovery systems, you’re selling two things to a customer: the ability to manage
his costs and the ability to charge back for those costs. In the case of
customers such as law firms, this can turn hard copy costs into a profit center
for the customer. However, the most important reason to move in this direction
is that it moves your sales and service teams into the solutions business.

Basically, cost recovery systems are just what the name implies. The system
monitors and reports on usage of office devices. It can enable a manager to cut
costs because he knows where the costs are; the customer can allocate charges to
the appropriate departments and set a variety of limits on machine usage by
enabling certain users for certain types and numbers of documents—so important
for monitoring color use in the office. The system can also recover costs for
the customer by automatically billing for certain documents to clients of the
customer; the usual example is law firms that bill copying and printing to their

I don’t want to sound like I’m just espousing theory without practical
relevance, so with the help of EquiTrac, a leading cost recovery solutions
provider who referred us to several resellers, we were on a search to find out
exactly how the market actually worked.

Delving into cost recovery we discovered two primary sources of suppliers:
software resellers (not copier dealers) who sell and service only cost recovery
systems, and copier dealers who have migrated into solutions sales via cost
recovery systems. In order to understand where the opportunities for dealers
lie, we have to trek into the world of the software reseller where their goal is
to reach the summit to become the first-line resource of technology solutions
for their customers.

A View from Above

How do software resellers get their business? As you might expect, software
resellers develop long-term relationships with their customers by acting as
consultants. They do this by analyzing their customers’ business and making
recommendations about where and how the customer can save money. In some cases,
the savings are targeted at hard copy costs; in others, the resellers span a
number of different brands and types of office products, including everything
from hard copy machines to telephone and computer systems.

An interesting aspect to the customer relationship really resides in the
mindset of the resellers who regard themselves as horizontal market specialists.
We tend traditionally to look at markets as verticals (types of businesses that
the customer is involved in). This is usually reinforced by the equipment
manufacturers who publish sales materials based on these businesses. While it is
true that many of these cost recovery systems go more frequently into certain
verticals like law firms, it is also true that any company could use a system
that would reduce their hard copy costs. In this fashion, a cost recovery system
is really horizontal—making any vertical market a candidate for a cost recovery
system as long as their page volume justifies it. So, these resellers regard any
company as a potential customer for their systems and services.

Tech Support

All of the software resellers we spoke with set themselves up as the first level
of tech support for their customers. There are several reasons for this. First
and foremost, the customer is theirs. That is, the reseller is going to take
care of his customer for as long as the customer is active. The resellers will
not "farm out" the customer to anyone else.

Secondly, providing technical support gives the reseller the opportunity to
generate more revenue. It’s one thing to sell the system, it’s quite another to
provide ongoing support. This tech support is billable and many resellers set
this up in the same way copier dealers set up maintenance agreements. The
resellers provide certain services for the length of the contract to keep the
system running. They also provide training and Help Desk support. The overall
package is billed on an annual basis and is renewable for the life of the

Finally, it helps to build a customer for life. All of the software resellers
we spoke with felt that the customer’s use of cost recovery systems made the
customer more dependent on them. The ongoing support the reseller provides makes
them a more integral part of the profitability of the customer’s business. As a
valuable asset, the reseller’s become hard for the customer to replace.

In summary, these resellers have made a business of consulting with their
customers, saving the customer money by way of hard copy costs, and providing
ongoing technical support to them. Now that you know how software resellers
reach the peak of success, we can look at how copier dealers are finding their
own path to solutions sales success.

Climb Every

How do Copier Dealers get into the Solutions Business?

The dealers we spoke to began the climb for solutions success several years ago.
They indicated that their customers were asking them to help manage their costs
better. The customers sought out their dealers because the dealer had sold them
cost per copy plans that were intended to help the customer manage expenses.
These dealers scoured the landscape to find the best cost management software
possible in order to help their customers, and now have incorporated cost
recovery systems into their hardware offering as an additional value to their

How do the Dealers Sell Solutions?

First of all, every sales rep is trained and authorized to sell solutions.
Secondly, every sales rep is compensated for his solutions sales. In fact, sales
reps are compensated at the same rate for solutions sales as they are for
hardware sales. Finally, and most importantly, the hardware sales reps are
supported by a technical support team that participates in pre-sales support
(designing the solution and interfacing with the customer’s IT management) and
for system installation. In our language, this team acts as the product champion
for the solutions business.

The dealers sell cost recovery systems to existing customers by using the
contacts that the hardware sales reps already have, and move into the IT
department of these customers. Interestingly, dealers are also able to develop
business with customers who have equipment from other manufacturers. In these
cases, the technical support team can act independently and actually cold-call
on any companies in the dealer’s territory. In these cases, the technical
support team is actually acting as a new conduit of sales for the dealer and
sells new products. They conduct the sales call and lead the discussion with
solutions. In this way, the dealer is able to differentiate himself from
competition and come out on top. Furthermore, these dealers have often been able
to displace the other manufacturers’ products when they come up for renewal.
This happens because the customers see the systems dealer as providing services
that are critical to the customer’s overall business, no longer just as a copier

The Customer Relationship

Not surprisingly, most dealers concentrate on the legal and education markets
although new versions are offering more affordable cost recovery opportunities
for businesses. It is almost eerie that the copier dealers echoed the sentiments
of the software resellers, saying that selling cost recovery software ensured a
longer relationship and repeat business with their customers. Customers are
becoming more dependent on the dealer for his (the customer’s) business
processes. In other words, the dealer is taking on the role of business partner
rather than copier vendor to his customers. The customer then is much more
likely to remain a loyal customer and pay for the service.

dealers who get into the solutions business develop a business model similar to
the copier model. They sell the system and sell a maintenance agreement that
covers service during the useful life of the system. In this case, the
maintenance agreement covers technical support, Help Desk support, training and
sometimes in-version upgrades to software. Dealers charge 20-30 percent of the
selling price for the annual support contract price. One word of caution: make
sure the exact services are spelled out in the agreement. Dealers generally
enjoy about the same margins on systems support as they do on copier

The Net Result

The copier dealers we spoke to had several important things to say about their
cost recovery systems and other solutions business. First, the dealers said that
machines can only take you so far. Hardware competition is fierce and copiers
are a commodity in the market. By extending the functionality of the machine
with cost recovery systems, dealers are able to differentiate themselves from
the competition. The dealers actually realize higher margins on the hardware
when the hardware is included in a systems proposal. In other words, by focusing
the value discussion on solutions, the customer is less likely to negotiate
strongly on the hardware. The customers are confident that they are getting a
total package that will save them money (or better yet, generate revenue for
them) and are happy to pay the quoted price.

Reaching the Peak of Success

Adding cost recovery solutions is something of a "no risk" endeavor for copier
dealers. Even if you do not believe that solutions are an absolute necessity for
the future survivability of your dealership, the outcome from climbing into
solutions is that you can develop an additional revenue and profit stream for
your company. Cost recovery systems are a natural addition to any cost per copy
plan and this additional revenue stream is complimentary to your base business
of enabling customers to make marks on paper.

The best example of how this could be a good deal for dealers is shown from
companies in the market (like those resellers mentioned earlier) whose whole
existence is based on these software systems of which they are making a good
living from. So, the worst that can happen is additional revenue, and the best
that can happen is that you truly begin to rise above your competition and
differentiate yourself by bringing even more value to your customers.

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