With 2020 finally behind us, we can now begin making 2021 a better year. There were many firsts over the last 12 months, and there are still many unknowns to come. No one could have predicted the impact this pandemic would have, but with every obstacle, there is also opportunity. Let’s begin with what happened specifically to the imaging industry and use that as a jumping off point for what needs to happen now.
First, our bread and butter: page volume. For our customer base in 2020, the peak month produced a little over 12 billion pages. That page volume bottomed out in July at approximately 6 billion pages. While many of our customers were impacted by the decline in volume, some were affected more than others. Those that had minimum page volumes were able to bill that minimum, even though many of their customers were shut down. However, those without minimums were only able to bill for the lease payment.
On the other side of this was a substantial reduction in service activity and toner consumption. From over 700,000 calls per month prior to the pandemic, the peak of the lockdowns saw that number drop to approximately 260,000 calls. Parts consumption dropped from roughly $36 million per month to a low of $14 million. For those that accessed the PPP funds, this created a better bottom line.
The million-dollar question: what happens now? The pandemic has accelerated a trend that already existed; page volume per unit has been declining, and print has become less and less important in the workflow of businesses.
Home Alone
In addition, we’ve yet to see the long-term effects of the untethered workforce. While it’s obvious there will be an increase in the work-from-home movement, the ramifications of this are still unknown. Many believe, as I do, that while there are benefits for both the employee and employer to working from home, there are also many negatives, social isolation being among the most serious. Also, many of us do not have home environments that are beneficial to productivity and emotional health. So, while this experiment continues, in the end there will still be value to the office-based worker.
The print business has been rapidly evolving, and as a result of the pandemic, this evolution has been sped up by five years or more. The need for diversification outside of print is more critical now than ever before. Rather than beat the dead horse of where dealers should be adding product, let’s discuss what dealers should be doing to maximize their current print deliverable.
As I’ve said many times before, we as an industry need to focus on becoming more efficient, wringing as much profit from print as we can, while looking for other potential revenue streams. There are numerous parts to this puzzle. The most unpopular is that we expect technicians to be competent on far too many product models. This is driven by a model that encourages selling the highest- revenue-producing machine, rather than the one that generates the most profit.
By the Numbers
In NEXERA’s proprietary database, 43% of all placements are in the first of 12 volume tiers, with an overall average of only 1,200 pages per month. Take out the A4 products and 33% of all A3s are in this first tier, averaging only 2,200 pages per month. This happens because we are all doing the same thing—talking the same talk and convincing customers they need the features and benefits of these larger machines while their volume and usage would say otherwise. While it’s true there are specific customer requirements that dictate the need for a specific model, the vast majority will never use all the feature sets available.
One possible solution would be to mimic Southwest Airlines’ model of operation. Reduce the overall number of products you sell and focus on those that create the greatest potential profit. When NEXERA does financial forensics for dealers, we often find many accounts that are unprofitable or so marginally profitable that you can cut revenue and increase profit simply by eliminating these accounts and the expense required to maintain them.
Service Efficiency
Also consider doing a deep dive into what your customers are doing with the devices you sell. What opportunities exist to consolidate your offering to focus on those needs? Would providing your MPS offering on a smaller number of models improve your technician’s efficiency as well as the throughput on inventory?
Another opportunity is improving administration and the use of your ERP. For many small-to-midsize dealers, it’s very hard to justify the expense of dedicated HR and admin management. As such, it’s highly likely that your ERP isn’t providing the best possible information for you to make these major decisions. This is through no fault of your people; it’s incredibly difficult to fully understand the complexities of your ERP and HR policies.
Have you ever considered outsourcing some of these roles? Outsourcing has many benefits, especially after the havoc this pandemic has caused. First is the accountability you would have over the service provided. You can fire an underperforming vendor more easily than an employee. Nexera has the capability to assist your company in every aspect of admin roles. In addition, we know your ERP and can provide the expertise to not only administer it properly, but ensure the data you feed it is accurate. Engaging NEXERA in outsourced ERP, HR and admin services is more cost effective, thus increasing your potential profit.
Finally, there’s the often-discussed need for improved service efficiency. For the average dealer, almost 60% of calls aren’t created by customer complaints. They’re inefficiencies caused by lack of parts, required courtesy calls and the inevitable call back, plus a few others. This means the average dealer is approximately 20 to 30% overstaffed. On top of that, you have capital tied up in obsolete and excess parts inventory driven by purchase incentives, quotas and lack of proper analytical inventory planning. While solving these issues can be complex, Nexera has the tools to address them, plus many more.
The question is, when will our industry as a whole take these issues seriously? We’ve been highlighting the need to improve for 24 years. But the reality is that the available margins we create have been so good that there hasn’t been enough motivation to focus on solving the underlying issues. Everyone loves to talk about the “model.” I’d challenge you to focus more on what is possible. Most of our customers are achieving the “model,” but I’d argue that 100% of them are leaving profit on the table precisely for that reason.
2021 is the year to get focused on extracting every penny of profit from your existing revenue streams while it’s still possible. Your business and your livelihood may very well depend on the choices you make starting this new year. Let us help you make 2021 the best year ever. After all, 2020 is now behind us and looking ahead is much more productive.
