Toner Control and Service Profitability

When a copier dealer replaces a competitor’s machine they usually also pick up a supply of surplus toner that is stored at the customer’s site. These supplies in many cases get discarded, or sold wholesale. While this is good for the dealer installing the new equipment, it is an unnecessary expense for the previous vendor.

When examining why service profitability is suffering, problems with supply expenses may not surface. This can result in pressure on technicians for more productivity and to reduce parts costs.

Why it Matters

Toner control affects two issues. One is the need for capital, and the other is dealer profitability. From the capital perspective, if the average toner costs the dealer $30, and they have 10,000 units in the field, and the average unit has two extra cartridges, that is tying up $600,000 of capital.

From a profitability standpoint, that same $600,000 has been written off and would show up as an unneeded expense. This could have an impact on a dealer’s credit line or available credit. You only have to look on eBay to see the number of individuals selling supplies to know that misappropriation is a concern as well.

Why a Service Concern

In many dealers, the cost for toner is allocated to the service department. When supplies are shipped to the client, the cost shows up against the service department. When the toner is properly controlled the revenue for service contract covers the cost of the supplies and consumables.

If the supplies are not properly managed the end result is the service department is not as profitable as it should be. When examining why service profitability is suffering, problems with supply expenses may not surface. This can result in pressure on technicians for more productivity and to reduce parts costs.

This problem will probably show up when the client’s service contract is being evaluated for profitability, and may cause unwarranted increases in contract pricing and potentially open the door for a competitor to upgrade the equipment.

What Can Go Wrong

There are several factors that affect the toner shipped and also the toner consumed by a client:

  • They request it. How many times do you have a client call up and order toner and request an extra just in case they need it? Or perhaps there are multiple machines of the same type, and each user orders their own toner. Now not only do we have a little extra toner, we can wind up with several extra toners per machine.
  • We ship too much at installation. When a customer buys new equipment, most dealers automatically ship a set of spare toners. In many cases, especially with low volume units, they may not use any extra toner, or if they do, it may be a year or more down the line.
  • We sell a color device to a mono client. This is another area where toner is used unnecessarily. A color device will automatically perform color calibration on a regular basis. If the client only makes B/W copies, then toner and other consumables are being used with no revenue to cover the cost.
  • Clients underestimate color coverage. While this is not an over shipping issue, it is another area that can significantly impact the dealer’s bottom line. A sales rep visits the client and they show him a sample color document that has a little spot color. The contract gets priced and sold based on this coverage, then client brings back in house all of their full color work that was being outsourced. Instead of averaging 6 percent coverage, they are now averaging 30 percent coverage. This issue needs to be handled both by monitoring and by language in the contract limiting the amount of toner provided.

How to Fix the Issue

We will discuss two ways to deal with this issue.

One is preventative in nature, and the other is corrective.

Preventing the problem

To prevent the problem, the dealer needs to implement policies that address the root cause. One of the key pieces of information that must be considered is the customer’s probable volume. This is information that the company should have.

By using the customer’s projected volume, you can determine the approximate life of the toner installed in the machine at set up. If the customer will use a set of toners every year, you would not need to ship the second set of toner for 10 to 11 months. If it is a low volume device, you may never have to ship a second set.

Make sure that the correct equipment is placed. It should be a company policy that customers who only generate monochrome output only get monochrome devices. This would preclude unnecessary color supply consumption.

Monitor the customer’s toner usage. There are a variety of automated tools, both from the manufacturers as well as third party applications, which serve this purpose. If you do not have access to an automated tool, then the individual that ships supplies would need to review the customer’s volume and order history.

Recovering excess inventory

I strongly recommend that if you are not already doing so, you have all of your employees trained to look for and recover excess toner when they are at customer site. They can explain to the client that they are doing this to make sure the customer has fresh supplies when they need them and that internally you are monitoring the usage and will ship them when they need them.

As you do this, if possible, the supplies need to be credited back to the machine they were ordered against. This improves the accuracy of service contract profitability. If that is not a possibility due to software limitations, at the very least, they should be credited back to the service department, to accurately reflect department profitability.

One way to increase the enthusiasm for your employees is to reward them for participating in the recovery effort. The reward can take many different forms such as a contest or a per cartridge bonus.

An Ongoing Process

The one thing to remember about toner control is that it is an ongoing process. Someone needs to constantly monitor the relationship between a copier’s volume and toner shipments. Customer’s will need to be reminded that you only ship toner when it is actually necessary, and the staff will need to remain vigilant when they are in a customer’s office to look for excess toner inventory.

Ken Edmonds
About the Author
KEN EDMONDS is the owner and founder of 22nd Century Management, which helps managers in the service industries learn the skills they need to successfully lead their teams, exceed expectations and provide outstanding customer service. An Air Force veteran whose background includes owning a copier dealership and working as a service manager for other companies, Edmonds also spent 18 years working for manufacturers as a district service manager. He’s helped dozens of service managers incorporate cornerstone methods to enhance their success.