Four Keys to Selling MPS In Tough Economic Times

Don’t let recession-weary customers delay adopting the benefits of managed print services

Solution providers struggling to preserve sales, profits and optimism for their future continue to see little encouragement from the predictions of most economists. But savvy VARs know there’s one product that may actually be easier to sell during today’s tough times—managed print services (MPS).

Although the concept of end users tapping outside expertise to manage printing environments in return for a predictable monthly subscription fee has been gaining traction for years, the recession and its dreary outlook may be inducing even more companies to take action. According to MPS research and analysis firm Photizo Group, MPS contracts could grow at a 22 percent compound annual growth rate through 2012. These numbers don’t surprise some observers.

“In the last six to eight months, managed print services has become extremely hot, so much so we are seeing everybody and his cousin get involved,” says Paul Herman, Xerox Director of Services Platforms for the North American Reseller Channel. “That includes distributors, third-party suppliers, software companies and printing vendors.”

That’s good news and bad news for solution providers. Good news because it shows MPS is meeting a business need for cost-conscious end users. It’s bad news because with growing market opportunities come growing competition. The environment can also create confusion in the minds of end users. “The problem, of course, is that a lot of people who provide ‘managed print services’ don’t actually provide all the right services,” Herman says.

End-User Benefits

In reality, MPS “is all about saving the money, and everybody wants to save money in this economy,” Herman says. He cites industry studies that have shown between 80 percent and 90 percent of customers don’t fully understand how much they’re paying each month in printing costs. “They know how much they pay for their IT infrastructure, for desktops and other components. But printers are so distributed, companies can’t easily see their actual costs, which typically amount to 3 [percent] or 4 percent of their revenues,” he explains. “Printing is one of the last untapped opportunities for cost savings.” A well-designed MPS program can save end users between 20 percent and 35 percent in printing-related costs.

For solution providers, MPS contracts offer a number of business benefits, ranging from steady monthly revenue streams that are set for the life of a contract to double-digit profits that are well beyond today’s hardware-only margins.

Key Considerations

What are the keys to selling MPS in a recession? Herman advises solution providers to focus on four critical areas:

• Consumables ordering and fulfillment
• Billing and invoicing
• Leasing and financing
• Branding

Consumables ordering and fulfillment: To fully see the time- and money-saving benefits of MPS, VARs should choose a vendor program, such as Xerox’s PagePack, that’s designed to ease some of the administrative burdens of serving the contracts. A critical consideration is the degree to which a vendor program can mitigate the risk of coverage especially on color printing devices, which can dramatically affect contract profits.

These programs also eliminate inventory carrying costs for consumables by facilitating online supplies ordering and taking over the task of delivering consumables to end users, with overnight shipments that are at no cost to solution providers. Leading programs also offer authorized service providers the choice of servicing printing devices or giving that responsibility to the OEM.

The latter option can ease the transition to MPS by VARs that lack a large enough services operation to support an influx of new contracts. This is especially important for solution providers that are familiar with service contracts in areas outside printing. “These IT VARs who own the desktops, own the network, have the IP addresses, have a chance to make tons of money,” Herman says. “The challenge is to come up to speed on the printer side of the business. They may have a technical sales force that repairs desktops, but they aren’t competent to service printers. So with PagePack they don’t need to be a service provider because Xerox will do it for them. The VARs just mark up the contract rate and take their profit.”

Billing and invoicing: The right invoicing strategies can ensure that solution providers quickly create a stable recurring revenue stream, which along with profits is a prime advantage of MPS contracts. “Resellers need recurring revenues to survive in today’s economy,” Herman says. “They cannot be box-pushers anymore; the margins for that approach just aren’t there.”

Reoccurring revenues do more than establish a consistent monthly cash flow. They result from long-term contracts typically of three years or more, which help build equity into solution provider businesses. Banks evaluating loans will look more favorably on companies with a portfolio of contracts than ones whose receipts vary widely from month to month. In addition, VAR owners with plans to eventually sell their business may see valuations of three or four times higher thanks to signed contracts and recurring revenues, Herman says.

Leasing and financing: Strong leasing relationships help solution providers weather difficult times in two ways. First, they offer a way for end users to upgrade and add equipment as part of the monthly MPS agreement and thus avoid large up-front capital investments that are especially difficult to justify today. Second, because solution providers receive lease revenues from financers, funds typically arrive on due dates, not after 30 or 45 days from customers juggling to balance their accounts payable.

Branding: Herman advises solution providers to look out over the next few years to a time when MPS could be ubiquitous in the IT industry. “Branding will matter because as managed print services become more of a commodity, a VAR’s differentiation will be determined by the brand it represents and the tools behind that brand for managing printer fleets,” he explains.