by Ken Edmonds
In the last post, we discussed some of the differences between seat based billing (SBB) and managed print services (MPS). In this post, we will look at how the differences affect the profitability of service, and why SBB can be more profitable and makes it harder for the competition to undercut your pricing.
While it may seem that this program is designed to solely benefit the dealer, I will be discussing in depth in my next post how it can be a program that benefits the client as well. When crafting a proposal, share some of the cost reduction with the client, resulting in a win-win situation.
Truly managing print improves profit
In the conventional MPS program, truly managing the print output will reduce the client’s cost. It does this by moving volume to less expensive devices and controlling what is printed in color. The resultant savings are good for the customer but reduce the revenue and thus the profit generated for the service department. Because of this factor, most dealers don’t really want the client to manage their printing and prefer that the client print as much as possible.
Under a SBB contract, if the dealer helps the client manage their printing, then what happens is that the profit on the agreement goes up since there is no relationship between output pages and pricing. In addition, if the agreement is properly constructed, the dealer should have the option to replace high page cost devices with lower page cost devices which will improve the profitability of the contract as well.
I recommend that dealers also bundle in network connectivity coverage into the contract. In many cases, it is difficult to separate out what is covered for connectivity and what is not, resulting in lost revenue and profit.
Seat-based billing proposals are opaque
One of the biggest challenges with MPS programs is the fact that in many cases the customer shops the proposal to several vendors. This results in a race to the bottom, hurting the successful vendor’s profitability.
By proposing a SBB program, the dealer can hide the details of exactly what they are proposing and how the program is structured. While the proposal will have to state the pertinent information, the competition will not be able to see what devices are covered or what the pages costs are. The result will be reluctance on the competitors’ part to try and undercut the pricing.
SBB tied to the lease secures the customer
One thing I do recommend for a dealer is to tie SBB to a lease for equipment. I also think the best option is for a dealer to acquire all of the client’s existing devices and bundle that cost into the proposal. If the dealer owns all of the equipment, then it becomes much easier to replace high page cost devices with lower page cost devices.
Including all of the services in the seat license tied to a lease will ensure that the revenue stream will be constant for the term of the lease. If the client wants to change service providers, your revenue and profits are secure. This will allow you to book the revenue for the term of the lease. Doing this will positively impact the value of your company in case of a sale or if you need capital.
One strong caveat I have in this regard is not prefunding any of the service and support components. If you do that, you jeopardize the value of your company and lose much of the flexibility that this program will provide.
Another reason this is helpful is it reduces the frequency of equipment upgrades, allowing the sales team to focus more on new placements rather than churning the base. Also, when you decide to add equipment for the client or upgrade that equipment, if you extend the lease term, you extend your control of the client.
Additional services can be included
To the extent possible, a dealer will want to look for additional services that can be bundled into the proposal, whether it is document management, managed network services, water filtration, it doesn’t really matter. Including more of what your company already offers in the proposal makes it more difficult for the competition to understand how to undercut your proposal. This increased opacity further improves your prospect of securing the business and the client.
In the next post, I will review the factors in SBB that make it a win for the customer as well. For you to succeed with SBB, it is vital that it becomes a win-win relationship.