Is it true that most dealers don’t do MPS right? To be honest, that’s an exaggeration, but the reality is that many dealers are still struggling with MPS even as others have it all figured out.
“There are a couple of places where you can go wrong in significant ways,” says Bill Melo, Vice President of Marketing, Services & Solutions for Toshiba. “The first is being able to provide a price quote to the customer that provides you a good profit margin.”
Bill Melo – VP of Marketing – Toshiba
That may be a no-brainer, but it’s one of those issues that nitwits who don’t know how to price MPS properly can ruin it for everyone. It’s sort of like that kid in class who acts up and the teacher ends up penalizing the entire class even though they did nothing wrong.
“A lot of times we’re captive or vulnerable to our dumbest competitor and if they quote 8 mils a page for a monochrome printer and you don’t know if that’s profitable to you or not and you decide you need that deal, you can be upside down in a major way,” adds Melo. “Pricing one of these deals can be extremely complicated and labor intensive and you can make a serious financial error if you don’t have the right tools or right skills to do that.”
Consider that statistics show that the average customer with say 50 printers will likely have more than 20 different printer models each with different toner, different yields, different costs, etc.
“And every one of those 50 printers may print with higher image areas or lower image areas,” notes Melo. “All of those are factors you individually have to calculate to come up with a price for taking over that fleet. If you have someone who doesn’t know how to do that, or doesn’t have the right tools, or just makes a mistake on a spreadsheet, you can be upside down really fast.”
The other place that dealers go wrong in MPS is on the execution side. “Now you have these 50 printers you’re servicing and they’re ordering toner every day; you have to make sure you know how to manage those so that you’re not shipping out excess toner to people and that you’re shipping them the right toner,” emphasizes Melo. “Imagine 50 different printers for X-number of customers if you don’t have a good apparatus for doing that. You may have priced the deal right, but you’re executing it wrong.”
“You have to start with the understanding that the revenue in prints is five times the revenue in office copiers,” explains Tom Callinan, managing principal of Strategy Development. “If a copier company had copier aftermarket revenues (service and supply) of $3-million they would need $15-million in printer aftermarket revenue to have the same printer market share as copier market share. Taken in that context, most dealers don’t do MPS right.”
He emphasizes that there’s pain in change and MPS remains a big change for the copier industry.
“For decades the copier business has had a simple formula: Sell a copier and gain aftermarket revenue. We all followed the ‘model,’ developed at ALCO (IKON) and popularized in the dealer community by Tom Johnson, after he left ALCO, which tied sales compensation to equipment revenue and margin. This model effectively suggests that a ‘normal’ sales person should earn an income of approximately 35 percent of the true equipment GP they bring to the company. But with units and images declining is paying on equipment GP still the correct approach? Of course not. Changing compensation is never fun for the company or the sales professional but it has to be done as the industry has changed. Sales professionals need to be paid on the total revenue they bring to the company. The industry needs a new compensation approach to be effective with any services-led sales approach, including MPS.”
This leads to the second change required, business owners focusing on total revenue increase and profits rather than equipment sold.
Tom Callinan – Managing Principal – Strategy Development
“I use an example that shows a 60-printer outsourced transaction that generates $2,400 a month in revenue at 50 percent GP vs. a three-unit copier deal that generates $25,000 in equipment revenue at 35 percent GP and $300 per month in aftermarket at 50 percent GP, and 100 percent of the time the copier audience says they want the copier deal over the printer deal,” says Callinan. “But in reality the printer deal produces 2.4X the revenue and almost $30,000 more GP than the copier transaction. The gal who brings in the $25,000 copier transaction gets a trophy and the guy who brings in the $2,400 per month MPS transaction gets no recognition. We don’t analyze the true value of a transaction because we’re hypnotized into the simplicity of thinking equipment revenue equals success.”
Doug Johnson – Senior VP – Supplies Network
Callinan also believes dealers need to better segment the prospects they target and educate their sales professionals on enterprise-selling skills.
“It’s a lot harder to segment than to send sales professionals out randomly cold calling, but it is a critical foundation to success in any business,” states Callinan. “Moreover, our sales professionals have been trained for far too long on selling lease to lease.”
Finally, Callinan points out that the operations aspect is far different than copiers.
“There are a lot more printers, they move, disappear, reappear, and are in remote locations. You need an IT person to keep the remote monitoring software stable and you need a CSR to get meter reads. This leads people to believe that the business is a lot more expensive on the G&A side when in fact it has lower G&A than the copier business.”
He adds that the average MPS customer generates $4,500 per month in aftermarket, more than 30X the average copier customer.
“So you have less billing and less collecting,” states Callinan. “You also don’t stock the type of inventory you do with copiers so you have significantly fewer assets tied up.”
To do MPS right, a dealer needs to develop a network of service providers and understand the nuances of repairing printers.
“These operational differences are a significant change, and hence barrier, to success—not that they’re difficult to overcome, just that they need attention,” concludes Callinan.
Doug Johnson, Senior Vice President of Supplies Network, finds that some of the biggest challenges to selling MPS these days are burnout and the willingness of some resellers to secure a deal at any price.
“Everybody has talked about it and rallied around it, and these guys are out there competing to the fourth decimal point for pricing on deals. People get burned out because it can be overwhelming.”
Not to turn this into a commercial for Supplies Network, but Johnson notes that at the end of the day if a reseller is out there making money and doesn’t know why, Supplies Network can provide the tools that can help them peel back the layers and find out where they have holes in the bucket while identifying how they can fix them or Supplies Network can fix them.
“More often it’s a combination of both and that gets them back on track,” says Johnson. “For the newer guys who haven’t invested a lot on the operational side and are just buying pages from us, the conversation is a lot easier. We’re just billing them for the pages their customers consume.”
The biggest thing he’s seen over the past few years is that most of the focus in the industry has been on the business of selling managed print—sales training, how to do assessments, and how to close.
“Obviously that’s very important, but we’ve found a lot of resellers and OEM partners come to us on the operational side,” states Johnson. “You can teach resellers any day of the week how to make 40-50 percent gross margin on the front end, but how do you not lose all of it and then some on the back side? That’s our specialty and we can provide them a range of a la carte services or a fully inclusive cost-per-image at the device level where they buy a page and sell a page and it enables them to more confidently sell the next deal so at the end of the day they’re going to make money when it’s all over.”
Not every dealer or reseller is willing to admit they need help, especially those who have been doing it a long time and have built the program themselves and have an infrastructure in place, even if it’s not working well.
“Letting go of some of that and partnering is a little bit harder for them,” acknowledges Johnson. “A lot of the guys that are newer to this are either VARs or managed services providers who are getting into this space because it’s adjacent to the managed services they’re selling. They realize they’re not experts at this as are some of the BTA/office products/IT supply [dealers]. They’ve been less protective of building up their own operational infrastructure and more willing to partner with companies like ours and others to get that done so they can focus on the customer. The thing that every retailer has is that customer relationship. Our message to both of those camps is to let us do that dirty work behind the scenes; it’s hard and complicated, and is the difference between netting 10 points and losing 10 points. You go grab those fleets and get them under management and focus on what got you in the business 20 or 30 years ago—those great customer relationships.”
“The most common hurdles dealers need to overcome with MPS are in pricing deals with confidence, training and implementing a consistent sales process, and managing the operational requirements of program delivery,” says Ray Loisel, Senior Vice President of MPS for West Point Products. “West Point has been consistently responding to our customers’ needs by providing additional MPS solutions via our Axess Program. In the past two years we have developed the industry’s most accurate TCO pricing tool, which is powered by industry data from BEI Services; comprehensive sales training; and Axess Express, a full-service, turn-key program for dealers seeking to partner for MPS program fulfillment.”
West Point often sees an opportunity with dealers who have had bad experiences selling MPS in the past.
“When we are working with a dealer who has had a prior bad experience either selling or managing an MPS contract, we view this as an opportunity to assist the dealer in being more successful moving forward,” states Sarah Henderson, Director of MPS Operations for West Point Products. “Sometimes the solution is simply being able to utilize the Axess TCO for pricing calculations, training and implementing a consistent sales process or even outsourcing contract management. One size does not fit all, which is why our team looks to provide flexible and comprehensive solutions for each dealer’s unique needs. Moving forward with MPS after a past failure can be difficult from a psychological point of view, but we find that in many cases the solutions we provide give dealers the confidence they need to move forward and be successful.”
Ken Stewart with Photizo Group references how the Photizo channel research (Hybrid Provider Index and POWRR Assessments) continues to reveal the same success barriers to MPS over and over again. Those encompass commitment from ownership as well as the willingness for management to take ownership of the MPS program. Stewart notes that many dealers still don’t understand the amount of time it takes to start and grow an MPS practice as well as the lengthy sales-lead times.
A go-to-market strategy (packaging and pricing) is another area where dealers consistently stumble and fall. Stewart suggests bringing in the right expertise and figuring out a compensation plan as well as some sort of financial alignment to measure progress.
“Ensure the ball isn’t dropped after it’s sold,” states Stewart. “You need to install key processes in the sales, implementation, and management aspects of the process. Have your management team walk through closing a deal and taking care of the customer.”
Finally, it comes down to execution and that requires aggressive marketing. “Each line manager should understand key performance metrics and the entire team should be talking the same language,” notes Stewart. “The tough thing about this kind of transition is that there are more hurdles to overcome than just getting your monthly sales numbers on the board. The operational aspect of executing profitably often eludes most resellers until they are well into the program, feeling like they’ve made all the investments. Then they look around and don’t understand why things aren’t working the way they are supposed to.”
Stewart emphasizes the need to measure progress while plugging Photizo’s MPS Provider Scorecard. “This gives dealers a quick, cost-effective way to measure themselves against our MPS Leaders’ Index,” says Stewart. “We’ve also found that offering stronger financial analysis is important as well. The key issue I continue to see in resellers around the globe is that they are doing all this hard work, but not seeing the benefit they could be realizing by tuning up their business.”
