ENX Magazine Business Profile

Hardware margins have sunk like a stone and that’s been a bane to the existence of many office technology dealers. Yet there are some dealers who have been impervious to declining hardware margins. That’s because they don’t sell hardware, or they don’t rely exclusively on hardware to pay the bills. Instead they focus mainly on supplies, especially consumables, or have a diverse product offering. We spoke with two dealers, one a former office equipment dealer who offers an MPS-like program that revolves around printer supplies and service, and a dealer who sells a mix of 75 percent supplies and service and 25 percent hardware who is enjoying success in the MPS arena.

Source Office Products in Golden, Colorado focuses primarily on their traditional business of office supplies while simultaneously winning more than their fair share of managed print services business too. This was an area they were well positioned to grow in since they already had a service department in place for repairing customer’s laser printers.

“That isn’t typical for most office supply companies,” acknowledges John Givens, founder and chairman of Source Office Products. “We were already in the toner, printer, and service business when HP was looking for dealers who could provide the appropriate level of support, service, and sales necessary to run a managed print services program four years ago.”

But what about an office supply dealership without a service department?

John Givens - Source Office Products

“It’s a little more difficult for an office supply company who doesn’t have a service organization, but that’s a hurdle all of us can figure out,” maintains Givens who reports his MPS business is good and getting better all the time. Source generates 120-million pages under contract annually and sells more than $8 million in total HP hardware, supplies, service, and MPS contracts.

Source’s hardware manufacturers include HP for his customer’s 55-ppm and under equipment needs and Canon, who he hooked up with last year, for customers that require a device that outputs at more than 55-ppm.

The reason Givens embraced MPS was the realization that a large portion of his revenues were tied to what he considers printer supplies—laser toner cartridges, ink cartridges, and paper.
“We looked at the amount of revenue tied to laser supplies, ink supplies, paper, and some of the other things we were doing and thought, ‘Would we want that portion of our business to evaporate by not being involved in this area?’ and the answer was a resounding ‘No!’ We felt this was something we needed to do it in order to survive.”

How does Source compete against office technology dealers that provide customers with a wider range of equipment and printing solutions, including MPS?

Givens cites SYNNEX and their managed print services program, PRINTsolv, a program designed to deliver managed print services to the IT channel, as one of the differentiators. Source is also an HP OPS (Office Printing Solutions) Elite partner, which provides them with discounts on HP hardware and HP OEM supplies along with numerous other programs. It also helps immeasurably in building MPS credibility. So far Givens is thrilled with the relationship, something one doesn’t often hear from traditional office technology dealers when discussing HP.

“The partnering HP is willing to do is extraordinary,” says Givens. “Ninety-nine percent of all our MPS contracts are HP OEM and we have found marketing a true HP-branded MPS solution has proven to be a ‘best of breed’ practice.”

He isn’t shy about spreading the word to other office products dealers, which might be bad news for traditional office technology dealers.

“My mission is to make sure that as many office products dealers as are out there know about the program,” he says. “There aren’t a lot of them, but particularly those that are north of $20 million in revenue because they have the toner base and the financial resources to partner with HP.”

Despite the competition for MPS business, Givens feels that his product mix, supplies, service, and hardware gives him the edge.

“Everyone relies on supplies and service, and if left to only selling equipment we’d all be out of business,” he says.

He compares what he offers to a supermarket that offers everything under one roof—butcher, bakery, produce, etc. He considers MPS to be his dealership’s lead category and one of five sub-categories that a customer has to worry about ordering. The others, according to Givens, are office supplies, coffee service, furniture, and commercial print.

“We feel we are in the best position to provide the benefits of what a supermarket would provide for a business partner much more so than the copier or printer guys in terms of their value proposition to the customer,” says Givens. “That may be a bold statement but we’re finding the concept is really boding well in our marketplace with businesses that have minimized their support staff. They’re not looking at how they can buy the product cheaper, but how can they improve business processes to eliminate people touching things. MPS is part of that solution and we’d like to dovetail that into other categories that we feel better position us as an organization to support our clients locally.”

Source’s business model revolves around relationship managers (his term for sales people) who work with subject matter experts who have knowledge of hardware, software, and of course, MPS. Because his relationship managers are more embedded in an account than the average hardware-centric sales rep that often moves onto the next customer after they’ve sold them the equipment, Givens believes this

model gives Source the edge.

“In most cases you can ask the average midsize account who their copier rep is, they probably wouldn’t know unless they were up for an upgrade in the next 18 months,” says Givens.

Jim Vitiello - DataSource Ink

Jim Vitiello, president of Datasource ink in Chicago, took everything he learned as a copier dealer and reinvented himself seven years ago as a provider of desktop printer supplies and service. He made that transition after abruptly leaving the copier business and trying to figure out what to do next. Thanks in part to a long-time relationship with Jim Cerkleski, CEO of Clover Technologies Group, Vitiello was soon back in business selling compatible toners and providing service and support for HP printers. He hasn’t looked back since.

“All my instincts from the copier business came back to me to get into managing printer fleets,” notes Vitiello.

It’s a given that the copier business is a relationship-based one and Vitiello has forged many over the years while running his dealership, so it’s no surprise that many of his current customers are the same ones he had as when he was a copier dealer.

Datasource ink’s business revolves around the E-Z Print Management Program, an all-inclusive program that includes supplies, parts, and on-site service. The value proposition that Datasource ink sells to customers is that this program can reduce total cost of ownership and improve document workflow. The program offers flexible pricing, an effective way to control output costs, and product and service guarantees that Vitiello says provide clients with peace of mind. And there are no contracts to sign, which translates into an atmosphere of trust.

Vitiello likes working with Clover Technologies, especially since they don’t come looking for orders at the end of the month or ask him to hit unrealistic quotas. This allows him to focus on his core skills of sales, service, and support.

Servicing customer’s printers and providing them with toner is quite the contrast compared to when Vitiello was earning his living as a copier dealer.

“After 10 years as a copier dealer I had 5,000 copiers under service contract,” reports Vitiello. “In the first four years of Datasource ink, I had 5,000 printers in my customer base and I didn’t sell one of them.”

It’s not like Vitiello had a one-of-a-kind idea; he has a fair amount of competition in his market doing things the way he’s doing it and some of those are extremely successful because they’ve been doing it for a long time. Don’t get the wrong idea though, Vitiello isn’t just selling supplies.

“If I’m just selling toner I’m not doing my job,” he says. “I provide a program where if you buy the toner, all parts and labor are included. When I do that my average gross margin is probably 75 percent.”

He tries to compete against the OEMs on HP toner and with that 75 percent margin he’s enjoying, he’s still able to pass on savings of 20 percent to his customers.

He recently spoke with a prospect who was quoted $139 for 20 HP cartridges that Vitiello buys for $135. In that scenario, it’s impossible for him to compete on price.

“If they just want to buy toner cartridges they should buy them from whoever they want to buy them from,” he says. “My program’s a little more involved.”

His program is evolving and is a much more comprehensive program than it used to be. What started with supplies, parts, and labor now includes a key component of HP printers, the maintenance kit.

“When I first started the program I didn’t include maintenance kits because they were too costly,” recalls Vitiello. “But the cost has come down dramatically because of all the competition and I can include those now.”

Datasource ink’s customer base includes Fortune 500 companies as well as verticals such as law firms, banking, and manufacturing companies—many of the same verticals that Vitiello used to pursue as a copier dealer.

He says it wasn’t difficult making the transition from hardware to supplies and Vitiello is fully aware of the pressures his copier dealer friends are under.
“All my buddies are still selling hardware and trying to get into MPS, but at the end of the day they’re still trying to meet quotas,” states Vitiello. “When I got into this it was an absolute relief not to sell hardware. Every customer I visit is a prospect today.”

On the service and support side he doesn’t need as many technicians to service his huge printer population as when he was servicing copiers. For example, when he was a copier dealer he had 30 technicians servicing 5,000 copiers. Today he has four technicians handling the same size printer population. Those technicians are all contracted employees.

“The response and service I give to my customers is much better when you have a contracted technician because they get paid when they touch the machine,” explains Vitiello. “If I call my lead guy who does 70 percent of my work, and he can’t get there in four hours, I go to the next guy on my list. They’re all hungry for that call, so it frees me up to do what I do best—sell.”

It certainly helps that service in the printer world is different than service in the copier world. If Vitiello gets one or two service calls a day, that’s a lot.

“Ninety percent of our customers are HP and Lexmark and really don’t have a lot of service needs,” he reveals.

Whatever Vitiello is doing he’s doing it right, with his business up 40 percent over last year. He’s added two new sales reps and has recently landed some really big customers.

However, his biggest competition is now the Big Box Stores—Staples, Office Depot, and Office Max.

“It’s not often I run into guys who do programs like mine,” notes Vitiello who adds the Big Boxes are now hiring MPS specialists. “They’re losing so much revenue to toner companies like mine and they’ve had to hire some guys to go in there and stop the bleeding.”

It’s still early but he feels he still has an advantage.

“I can’t compete with the Big Boxes in the scope of what they can do, but they’re not good at understanding what I do,” he says. “Their salesman have to focus on 5,000 SKUS and can’t focus on what I do. Plus they outsource service and parts. They may sound good, but they don’t give anything away.”

As far as MPS, he’s never been a big fan even though one might argue that’s the type of program he’s offering.

“When I think of MPS coming from the copier world, I think of it as a cost per page under contract,” says Vitiello. “One of the things I tell people is I won’t do cost per page because I don’t want to be on a race to the bottom to see how low I can go.

Recently I saw a MPS/CPC program for a fleet of HP printers where the dealer went in at .005 for the whole breadth of HP printers. For many of them it’s cost prohibitive to do .005, so I don’t want to get caught up in that race.”

Vitiello has big plans for 2011. He’s looking to penetrate more vertical markets while continuing to focus most of his efforts on the Chicago market even though there are opportunities outside of the area too. He’d also like to add a few more sales people and grow his service department as well as add a few more related products.

“We go where the cartridges are whether it’s a printer, fax or POS machine, but there’s a few ancillary products out there that I can support through a cartridge-based program and grow the business that way,” says Vitiello.