Log in

ISM Article

The Six Methods of Pricing Printer Service

1 Jul, 2005 By: Steve Geishirt imageSource

The Six Methods of Pricing Printer Service

Last month, I discussed the
first three steps necessary to creating a profitable printer service department.
Just to refresh your memory those steps were: 1) gathering information; 2)
gaining brand knowledge; and 3) determining a service approach.

There are five more steps that should assist you in either starting up a printer
service department or help you take your current service to an entirely new

4. Pricing Service

5. Selling Toner Cartridges and/or Ink cartridges

6. Whole Printers

7. Management Involvement

8. Marketing

This month, we’ll take an in-depth look at the fourth step—and the most
important in the process—pricing. The final four steps of how to get into
printer service will be available at www.imagesourcemag.com.

The Six Methods of Pricing

Method 1: Service Agreements

Service agreements cover several points:

o Time period—typically 1-3 years

o An agreed upon hourly rate that is discounted off your Time and Materials
(T&M) rates

o Replacement parts are paid for by the customer, but discounted from regular
mark up

o An agreed upon response time—the shorter the response time the more expensive

o Consumables are typically not included

o Supply items such as maintenance kits are not included

By setting a time period of 1-3 years, you lock that customer into doing
business with you for that length of time. In exchange for the time period
terms, you agree to provide them a discount in the service hourly rate and parts
costs. Prices can fluctuate as they require a faster response time for certain
mission critical situations.

Consumables, such at toner, are not typically a part of the service contract
because some companies will buy toner cartridges on the Internet or from local
office supply stores. Some service providers have been building consumables into
the contract, offering quality remanufactured toner cartridges at a higher price
with free labor. In other words, they buy your toner cartridges, which you make
a profit on, covering your labor costs and then some, thus the customer only
pays for parts. The key to this is having a large quantity of printers that are
running a lot of prints. You can’t do this with 5-10 printers where they print
only a couple dozen pages a day.

Method 2: Maintenance Contracts

This method has many of the same advantages of service contracts. This includes:

o Time period – typically 1 -3 years

o Parts and labor are included in the price of the contract

o An agreed upon response time—the shorter the response time the more expensive
the service

o Consumables are typically not included

o Supply items such as maintenance kits may or may not be included

o Maintenance contract is paid up front

Once again, you lock in the customer for an allotted amount of time, which keeps
the competition out. One of the tricky areas of a maintenance contract is how
parts and labor costs are determined for the next year of the contract. Since
this contract is for at least a year, you need to predict the number of service
calls and parts you will replace over that time.

You’ll need to know each printer’s age, as well as common break-fix information,
so you don’t under price a contract on an older machine. This is vital knowledge
to write a good maintenance contract. Newer printers typically don’t fail very
often, however, older units do.

You should also know the original purchase price of the units and accessories.
There are many software services, such as Buyers Lab Inc. (www.buyers-lab.com),
that give access to printer introduction dates, original printer price,
accessories, etc. Common break-fix information can be obtained from the OEM if
you are authorized, and if you are not, some parts providers have gained this
information from parts sales and technical support calls.

If you choose to exclude maintenance kits, it is very important to make clear to
your customer that they will have to pay for them when they are installed.
Customers assume that all parts are included in the contract and hard feelings
can be created. It’s also important to communicate this in the quoting process
should you choose to include maintenance kits, especially when competing with
another service provider for the contract. They may exclude these kits from
their quote which could make you look expensive and lose the bid.

Another good note when providing a maintenance contract is the fact that
cleanings can reduce service calls and circumvent emergency calls. Dust and dirt
is the number one wear and tear component in a printer. Vacuuming out the
printer with a proper toner vacuum will reduce that factor greatly. It also
allows you to inspect the printer and its parts in the paper path. Depending on
the printer environment, you may schedule cleanings to be done on a monthly,
quarterly or even bi-annual basis. Also, it is wise to clearly state in the
contract that you are not responsible for water damage, lightning damage and
other abnormal occurrences that can damage your customers’ printers.

Method 3: Time and Materials

This is an open system where no contracts exist. If a customer contacts you fix
a printer problem, they are charged by the hour—typically a one-hour minimum—and
for the parts or materials you put into it.

This brings up the issue of mark up on parts. Some people mark up parts 100
percent across the board. In a more competitive market this wouldn’t happen.
Yet, in a less competitive market, some dealers mark up parts more than 300
percent. Others yet will mark up a $2 part 1,000 percent and make $20 on that

Although some would call this price gouging, it comes back around on the more
expensive parts, as some dealers explained during my ITEX seminar. For instance,
in replacing a main logic board that may run $900, marking it up 100 percent may
keep a customer from repairing the printer, and be squeamish about future
service calls. Thus, more expensive parts are marked down to get the repair.

Method 4: Flat Fee Plus Parts

This is becoming more popular among customers who are not under contract. This
is a more competitive tool where a service provider charges one hour of labor
plus the cost of the part. The selling advantage is that the customer will only
pay one hour of labor regardless of how long it takes the technician to fix it.
This often works well for the service company as most printer repairs take less
than one hour. For those that do take longer, the service provider absorbs the
additional cost.

In discussion at the ITEX show attendees asked, “How much per hour should you
charge a customer?” The answer varied as it was dependant on local competition.
Some dealers call the competition from home and ask for a quote to repair a
printer. This gives them a feel for what the market will tolerate. It was also
noted to not go in too cheap. There are some who will charge $40/hr just to get
the business.

However, customers sometimes wonder why they are so cheap while everyone else
charges more. Customers often decide to not use the low-priced technician out of
concern for quality. In time, that same technician will tend to raise their
prices or go out of business.

The 2004 BTA Service Productivity Report had a median number of $96/hr. Of
course, it varies depending upon your location. If you are providing service in
the heart of a large city you can, and need to, charge more.

Method 5: “By the Job”

This is a commonly requested method of service for those without a contract.
Again, this is done at the request of the customer who needs to know the repair
price up front. They use this number to determine if they want to repair the
printer or put that money toward a new one.

You don’t want to over-price the repair and talk them into buying a new printer
in most cases, but you don’t want to quote it to low and end up losing money on
the deal. Most service providers are quoting on the higher side to cover
possible unforeseen costs. Technicians are typically accurate in their diagnosis
and thus the service companies take the extra money as profit. If the customer
decides to buy a new printer, you have the opportunity to be involved in that
process since you were talking with them about their printer in the first place.

Method 6: Cost per Page (CPP)

This is much like cost per copy. Pricing is based on the number of pages a
customer prints in a month’s time. Toner can be included or excluded. Most of
the dealers I spoke with, who were succeeding, were not including toner in a CPP
contract. This was due to customers being able to find toner cartridges out on
the open market at a better price.

If toner is included in the price of the contract, it is imperative that you
know what the percentage of coverage is for that printer. The old standby for
printers has been 5 percent coverage while copiers have traditionally used 6
percent. With the Internet, customer can have coverage levels of 15-20 percent.
There are software packages that will calculate percentage of coverage from
scans of sample prints. This works as long as the customer gives you a good
overall blend of documents. Another way to gather this information on many of
the newer HP printers is look it up on the printer’s usage page. This will give
you a clear history of the percentage of coverage.

Along with percentage of coverage comes the task of keeping track of page counts
so you know what to bill the customer. Software packages do exist for this,
enabling you to keep track of printer page counts connected to the network. For
printers not on the network, you’ll have to physically check the printer page
count, which is often listed on the main information page. It’s probably most
important to do this over the first couple of months and then every quarter
afterwards. Over time, you can assume the customer usage hasn’t fluctuated much.

Don’t forget to visit www.imagesourcemag.com to read the final steps to printer
service success.

WebinarCase Studies and White PapersSand Exchange Blog

imageSource Magazine Quick Links
Upcoming Events
ITEX Expo & Conference
©2015 Questex, LLC. All rights reserved
Reproduction in whole or part is prohibited
Please send any technical comments or questions to our webmaster