Service And Support: The Gifts That Keep Giving

By linking MFP sales to cost-per-page services contracts, solution providers create “annuities” that lock in revenues and stop margin freefalls


Solution providers that find comfort in moving high volumes of deeply discounted printers may soon find their world turned upside down. Ever-shrinking margins and aggressive price-cutting competition are quickly spelling the end of transaction-based business models, solution providers and industry veterans say.

“Many solution providers continue to have a view that the printer market is in fact a commodity space, and that’s a slippery slope,” says Gary Gillam, vice president of channel operations for Xerox’s North American Reseller Organization

Fortunately, profitable alternatives exist for solution providers that want to grow their printing business or add this technology segment to their existing portfolio. A growing number of companies are transforming their businesses from an over-reliance on hardware sales and break/fix operations to an “annuity” model that collects ongoing service revenues from multi-year contracts.

Done right, combining these cost-per-page contracts with sales or leases of new multifunction products (MFP) can solidify ongoing profits for solution providers already in the printing space. The opportunities are enough to make even those who currently don’t ply the printing space to take a second look at adding this market to managed-services programs for networking, storage, and security technologies.

“Solution providers have no choice but to transform their businesses as it relates to this space,” Gillam says. “Otherwise, they are going to quickly realize that printers are becoming commodities and their very business model is going to be at risk.”

Survival Skills

Others agree. LaserComp (http://www.laserspecial.com/) built its business selling printers, providing repair services, and responding to consumables orders on an ad-hoc basis. But owner Dale Fulkerson realized earlier this decade that an informal approach to post-sales services wasn’t a guarantee for future success, especially in the competitive and volatile greater Detroit market.

So on 2002 he began transforming his business by accepting lower margins on hardware sales but pushing for three-year service and supplies contracts based on each customer’s cost-per-page volume. He estimates that today about 80 percent of LaserComp’s printer and MFP sales are under contract, which has kept the business growing as some hardware-oriented competitors had to close shop. “If we didn’t make this change we wouldn’t be here today,” Fulkerson says. (For a detailed look at Laser Comp’s strategy see the case study “Business Transformation Delivers Long-Term Growth.”)

The benefits of teaming MFPs and long-term contracts can be significant. For example, typical industry-wide printer margins today rarely rise above mid single digits. By contrast, typical bundled service and support contracts based on cost-per-page usage can yield margins of 20 percent or more, Gillam says.

But that’s only part of the equation. “In addition to going from zero to 20 percent with an annuity contract, you are going to retain more customers and create new opportunities for the bundling technologies like security and storage sales,” he says. “That creates an economic ecosystem that just simply doesn’t exist when you are in a transaction relationship with customers.”

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