We’re only halfway through the year, but 2022 has already been filled with major ups and downs. Just as the lockdowns seemed to be ending and life was heading in the right direction, the supply chain chaos hit full force along with inflation and its resulting price increases on goods.
While it’s always hard to prepare for the unexpected, we should consider ways to be ready when the “next big thing” comes our way.
- Move to a flat-rate pricing model. First, I believe print will never recover to pre-pandemic levels. While unit placements, for many, are on par with pre-pandemic levels, page volume per unit is down significantly. For example, our customer base page volume is down about 23% and has been fairly flat for around three months. With this decline in page volume, we need to consider a flat-rate model sooner rather than later.
- Focus on your repair service. The “Great Retirement” will make it even more difficult to find technicians who want to do break/fix. That means you must either pay more to retain your current staff or find products that don’t require as much service, which directly impacts the value proposition of the service contract.
- Diversify. This can be hard, as you could lose money while you gain expertise in new areas, or you’ll need to spend money to buy that expertise. But the ability to offer more services/products increases your marketability.
- Prepare for a significant recession. This seems to be a more realistic possibility in the near future. It will impact company spending and put pressure on your sales organization to make up for that.
I’ve been vocal about the need to cut costs and increase service department profitability through improved discipline. There are several areas where the luxury of good margins has created a culture and expectation that the way things are currently done is good enough. But nothing could be further from the truth. Every organization can be better, but most are simply happy to be aligned with the “model” without considering what is possible.
Additionally, inventories can be a bottomless pit of excess spending and mismanagement. This is most likely because service departments are rarely offered the same level of training and support resources as sales organizations. Also, many companies have the parts department reporting to administration, while service is the department consuming the parts.
There’s a lot of money being left on the table when it comes to service profitability, but I don’t see dealer owners focusing on this opportunity. This money is critical, as it can lead to increased value for dealers looking to exit. It also provides cash for acquisitions or to invest in your diversification strategy. NEXERA can quickly evaluate a dealership’s service organization and accurately predict which improvements would have the greatest impact on the bottom line. If you’re an owner, do not get tricked into thinking that the current way of operating is good enough. I guarantee there are real opportunities you can capitalize on.
All the dealers I’ve spoken to recently are also struggling to find labor resources across the board. This is particularly acute in sales and service, as most of the millennial group is disinterested in troubleshooting and fixing hardware—they want technical software/IT jobs. And this will continue to become a bigger and bigger challenge.
Machines have improved in reliability over the years, but they’re almost famous for needing service—thus the easy justification of the service contract. So, it’s important to look for more reliable forms of print, allowing you to move the value proposition to the security and protection of the device’s network. This is further reason to move to a flat-rate model, bundling it as part of your IT offering.
Alternatively, you’ll have to get creative in attracting people interested in break/fix. Trades are all struggling with finding labor, so be prepared to offer jobs to underqualified people you can develop to fill needed positions. Time off, benefits and a flexible work environment are all big drivers for younger team members.
If you consider starting up a managed IT organization or any divergent offering, one of the common challenges is that it can cost a lot of money, and you’ll lose more while you hone the discipline around that offering. This is why so many dealers have struggled with managed IT—most have applied the same discipline (or lack thereof) to this new offering when they should have become disciplined with their core business first.
You should be 100% focused on extracting every penny of profit possible from your existing core business, then using that profit for your diversification strategy. Whether you want to buy the expertise via an acquisition or through hiring and grow organically, it’s much cheaper to use your core business’s financial health than it is to borrow money.
As inflation continues to impact everyone, the disciplines I’ve suggested above are even more important. To maintain margins, you must cut costs or increase revenue. While reducing your costs could be painful, it’s easier than increasing rates for customers who could be facing similar problems and may hold off on capital purchases to control spending. This is bad for sales but can be good for service as we tend to replace machines prematurely as a function of the sales cycle. For customers, keeping their equipment is easier than buying new, which means you maintain the service revenue and profitability, a positive scenario for both entities.
NEXERA has been in business for almost 30 years, and as an industry, we’ve been through this before. Follow the principles outlined and we’ll all close out 2022 strong and successful.
