Want to start a riot at an MPS event? Mention MPS, TCO, and CPP in
the same sentence. I realize MPS has attracted practitioners from
many, formerly different, business models: supply companies,
printer service companies, VARs/resellers, managed services
company, printer and copier OEMs, and BTA dealers. I also
understand that CPP as a billing approach originated in the copier
world. What I don’t understand is how CPP becomes a copier sale,
and in the minds of some MPS players, cannot be an approach to
billing an MPS transaction that was justified on a TCO basis.
Let’s eliminate the emotion and the misinformation on CPP billing.
MPS (managed print services) is a business model; TCO (total cost
of ownership) is a financial term used primarily in management
accounting: TCO was around long before MPS. CPP (cost-per-page) is
a billing approach. The business model, financial approach, and
billing approach work perfectly together so let’s debunk the myth
that that CPP is not TCO with a little education.
|
Current Monthly Imaging
Expense |
|
Copier
lease |
$1,200
|
|
Overage
billing |
200 |
|
Printer
depreciation |
750
|
|
Fax
depreciation |
150
|
|
Printer
supplies |
600 |
|
Fax
supplies |
50 |
|
Carrying
cost of supplies, $18,000 at 10% per annum |
150
|
|
Sunk cost
of toner not associated with printer, $1,200 |
100
|
|
Eight (8)
hours of IT support time per month at $60/hr fully
burdened |
480
|
|
Total Cost
of Ownership (TCO) |
$3,680
|
|
100,000
images per month |
|
|
Cost Per
Page |
0.0368 |
At least one entity agrees that CPP is a legitimate approach to
billing a TCO justified MPS agreement: Gartner. You’ve probably
heard of them and in case you haven’t here is the first sentence
from the “about” section of their website: “Gartner, Inc. (NYSE:
IT) is the world’s leading information technology research and
advisory company.”
If you are in the MPS space it would be hard to believe that you
have not heard of Gartner’s “Magic Quadrant,” as it seems most of
the OEMs, both printer and copier, quote their position in this
quadrant. Page 8 of Gartner’s latest Magic Quadrant for MPS has a
section titled “How Do Customers Pay for MPS?” Here are the first
three sentences:
MPS does involve a consolidation of spending, but the actual
payment schemes vary. Generally, the external service provider
either owns the hardware or (more typically) leases it from a
finance company in its customer’s name. The customer usually pays
a per-page charge, which covers the cost of the equipment, any
leasing costs, the supplies, the parts, the service and other MPS
elements.
What? Gartner mentions “consolidation of spending” and “other MPS
elements” in the same sentence as per-page billing? Yes, and I
believe there is a good reason for that: cost-per-page billing is
logical when you are paying for printed pages! Do you pay for
electricity per kWh? Do you pay for gas per gallon?
But you say, “What does Gartner know about TCO?” According to
Wikipedia, they know quite a bit: “TCO analysis was popularized
for the Gartner Group in 1987.” So the research company that
popularized TCO, and according to the same Magic Quadrant report
noted above, coined the term managed print services, states quite
clearly that billing on a per-page basis is the most common
billing approach.
You can, and most of the time in my opinion should, use CPP to
demonstrate your savings in TCO for an imaging fleet. To provide
an investment figure to a prospect you need to provide them some
financial figure to grasp. I see three approaches to provide that
figure. One would be a straight, or absolute, monthly payment,
e.g., $5,000 per month, which includes 100,000 images. The second
is a per-page approach, e.g., $0.05 per image includes a minimum
of 100,000 images. The third is a per device approach, e.g., $50
per device for 100 devices listed on schedule A. The research and
math above the final calculation is all the same. Let’s take a
look: (see table above)
There will be those that quickly grasp what they believe could and
should be included in this table, items like electrical
requirements. I could find other areas that can be added or
deleted, but the point isn’t whether or not the table is
comprehensive, the point is that regardless of what you include to
calculate the TCO you can divide that expense by the images
(prints) and you have a CPP. I certainly hope that this example
clearly indicates that TCO and CPP can be one in the same.
If you have heard me speak, followed my writings, or are a client
of Strategy Development (SD) you have heard me—and the entire SD
team—say many times that there is never a single solution to a
problem and there is certainly never a single approach to a
complex sale across multiple prospects/customers.
Is CPP billing the correct approach all the time? Absolutely not.
Let’s look at some examples of when it very well will make more
sense to focus the prospect on a monthly expense rather than a per
page expense:
You have captured all aspects of the document in your
initial sale, with or without agreement on future savings:
Let’s say you have conducted a document lifecycle assessment and
not a simple print assessment. In that lifecycle study (which I
hope you charged for, because it took you a great deal of time and
the person/people performing it were highly qualified analysts
that make a nice income) you identified every aspect of the
document from creation to destruction (or, from cradle to grave).
You know precisely what the enterprise spends and you can provide
a suite of software, services, and hardware that will improve the
effectiveness of the document lifecycle while reducing the cost.
Show that TCO in absolute terms—as a monthly figure.
You are going to take over all responsibility for document
output throughout the enterprise in the initial sale:
Slightly smaller scale then the first example but you will take
over every device in the enterprise so there is no possibility of
gaining additional output.
You sell other products or services not related to the
document and you want a platform to add those products or
services: Let’s say you are HP or Xerox, and you sell
technology related to the document, but you also have a large
business unit that provides business process outsourcing (BPO), or
you sell IT hardware like servers and switches. In this situation,
I believe an agreement in absolute dollars provides a “platform”
to add those additional products or services.
These three examples primarily fit large enterprise prospects, not
a segment where most of our clients spend their sales time. They
also tend to be equipment-led approaches as opposed to service-led
approaches.
What does a good opportunity look like when using a CPP based
billing approach? When your initial MPS agreement captures a
portion of that cradle to grave lifecycle and you have every
intention of gaining additional output and adding solutions. Also,
when the company is shifting more output to color devices. If you
are not experiencing that shift you have larger issues than
worrying about whether to bill on a CPP basis since mono pages are
decreasing and color pages are increasing industry wide.
Whatever billing approach provides you with success in MPS is the
approach you should use. Nevertheless, I hope this article ends,
or at least mutes, the debate on CPP not being TCO. It is
certainly the last time I will waste a breath or keystroke on the
subject.
Tom Callinan is the founding principal of Strategy Development, a
management-consulting firm for the technology and outsourcing
space, and the leading MPS consultancy specializing in business
planning, sales effectiveness, advanced sales training, and
operational and service improvement (
www.strategydevelopment.org ). From 1998 – 2005, Callinan was
an executive with IKON Office Solutions, most recently vice
president and general manager of IKON’s largest business unit with
revenue of $1.4 billion. Prior to IKON, Callinan was the founder
and CEO of Copifax, Inc, a copier dealership that was recognized
with numerous awards including inclusion on the INC 500 list of
fastest growing private US companies. Copifax was acquired by IKON
in 1997. Callinan graduated with high honors from The Wharton
School, University of Pennsylvania. Tom can be reached at
callinan@strategydevelopment.org or 610.527.3317
