An ancient Latin saying is “caveat emptor,” meaning “let the buyer beware.” Before you buy into the hopes of high volume based on marketing strategies, let’s look at the data (real world numbers) and hopefully this will motivate you to look at your own data and get a better understanding of what your production print deliverable is costing you.
It seems that all the buzz in the office technology dealer channel is the fantastic opportunity in production printing equipment. There’s a lot of talk about the many different opportunities for dealers in the copy/print and IT services industries. However, very few talk about the reality of the most important question of any deliverable. Is it profitable for the reseller to deliver? Where do you get your numbers to prove this? No one seems to share the numbers, especially if the numbers contradict the hype of the perceived value.
Without knowing the facts, how does one improve?
I remember as a copier salesman back in the day, when you would ask a customer how many copies they ran, they would say “massive amounts.” For some, massive amounts translated to one case of paper a month and to others it was a ream. Well, today that applies to production print. Everyone says customers run “lots.” Well, guess what lots is? An average of less than 226,000 black-and-white pages a month are copied/printed on what BEI defines as segments D-7 and D-8 production equipment. As you see, these monthly averages defined as high volume are, in fact, not really that high at all.
Beware the Marketing Plan
Delivering production print must begin with the diligence of a business plan, not the hysteria of a marketing plan. It’s time for dealers to understand the truth. Our industry will not grow based on false hope. However, our industry can capitalize on opportunities, providing it listens to the numbers and reacts appropriately. Too many omit or distort the numbers when they highlight major concerns. However, when major concerns need correcting, listening to the numbers and responding is what defines leadership.
So, first let’s discuss where the numbers come from. BEI Services Worldstats is a SaaS database which monitors 16,000 technicians, nearly 300 dealerships, 30,000 service calls a day on about four million devices. Worldstats is the 30,000-foot view of the industry, and from that vantage point we can drill down to an individual serial number. We know the service cost to deliver. I will discuss the highest production print segments delivered through the BTA network.
Within Worldstats, there are 5,571 segment D-7 and D-8 black-and-white production print units within 137 dealerships. This example is a rolling six-month view for these segments. In this analysis, 5,400 units of the 5,571 total units saw a service technician. So, it’s safe to say we have the facts to filter out the noise.
Crunching the Numbers
Total monthly print volume divided by monthly service expenses equal a dealer average cost per copy. Here’s the math breakdown:
Cost of Labor: $1,756,260. Monthly service calls on D-7 and D-8 are 11,258, or 2.5 per month, per unit. Maintenance time (with travel) averages 2.6 hours per call for a monthly total of 29,271 hours. Figuring an hourly burden at $60 per hour equates to a $1,756,260 monthly repair/travel time cost.
Cost of Parts: $1,588,488. This averages $294.17 per unit serviced monthly, and $141 in parts per service call. However, I believe understanding parts cost by unit serviced makes more sense than parts cost divided by total calls. You can only put parts in a machine, not service calls. Counting part dollars per call misleads and lowers the number. This is another reason why the target numbers created 40 years ago should be updated.
Cost of Supplies: $1,838,207. This cost will vary from organization to organization, so I used a sampling average. D-7 and D-8, using an average supply cost of $0.00165 per copy times a monthly copy/print average volume of 226,000×5,571 units = 1,259,046,000 total pages, which then equates to $1,838,207.00 in supply cost.
Cost per copy, parts, labor, supplies: $5,182,955.00 ÷ 1,259,046,000 pages of monthly output = $0.00412.
So, if your retail average cost per copy on D-7 and D-8 is less than $0.00412, there is a profit problem. Like many of you, I have seen the retail cost per copy on segments D-7 and D-8 as low as $0.003 -$0.0045 and hardly ever over that.
There are also additional costs which consume gross margin such as depreciation cost on equipment in demo rooms for emergency parts and loaners, and many overstock parts based on perception instead of science or data.
Human Capital Effectiveness
Now that we have a factual baseline for discussion, I can say this. Production print, as all deliverables which require onsite service, have a widespread problem: the controlling of human capital effectiveness. Too many are allowing labor ineffectiveness to destroy their margins. As industries transition through declines, it’s crucial to align cost of repair with the declining revenues from what’s being repaired. It’s irrelevant how much your revenue grows organically or through acquisitions. There must be a system to adjust cost downward as output declines, regardless of any segment machine sold.
The easiest thing to fix is first-call effectiveness (FCE). On the 5,571 units in this example the FCE is 42 percent; it needs to be 75-80 percent and calculated correctly. If in this Worldstats example the FCE was 70 percent, that would eliminate another 28 percent of our calls or an average of 3,152 calls a month. This would return to the monthly bottom line $491,750. Here’s the math. 3,152 calls eliminated at 2.6 hours a call = 8,195 hours × $60-hour burden = $491,750. This then lowers your total cost per copy by $0.0003, from $0.00412 to $0.00382, However, FCE must be calculated correctly.
It’s easy to see why building a production print business should never be a marketing strategy without a business plan which details the numbers, then demands managing behaviors to increase poor numbers and maintain good ones.
Here’s my conclusion: This recap involves more than 5,500 units, a large sample base. The information highlights that resellers must increase gross margin and lower service delivery cost, and most of those savings will be from increasing technician’s efficiencies. There simply isn’t enough volume to warrant the current callback problem. The facts are the market has already determined what the market will pay, and too many are buying market share with no diligence to actual cost regardless of service management oversite systems from both individuals and software. Correcting cost overruns is extremely necessary to succeed in the deliverable of production print. The facts are there is not enough volume to make up for any mismanagement.
“All product deliverables must start with the science of a business plan, not the emotions of a marketing plan.”