Unlimited printing without meter readings. Is the mere thought of using this billing method enough to suck the air right out of the room?
Perhaps it is to some, although there is a growing belief that it is much ado about nothing. After all, virtually every prognosticator and industry analyst is in agreement that print volume is, and continues to be, trending downward. In fact, some dealers see flat-rate billing as an opportunity to gain a competitive edge over contemporaries who remain faithful to the decades-old cost-per-page (CPP) platform.
As an adjunct to this month’s state of the industry report on selling everything as a service (XaaS) and the movement toward subscription-based billing, we are presenting this case study on St. Cloud, Minnesota-based Marco. At $408 million in annual revenue, it’s one of the industry’s largest players and illustrates one company’s movement toward device-as-a-service (DaaS) and seat-based billing for not only managed IT/managed network services, but managed print as well (excluding production print and wide-format machines). Providing perspective are Trevor Akervik, vice president of managed services at Marco, and Dan Larkin, the company’s director of managed print services.
During a 2018 interview with ENX Magazine, Akervik and Steve Gau, president of the copier division, revealed the company began testing the concept of billing on a device/seat basis. As of February, the company has a total of 410 contracts billed, primarily using a per-device method. Marco develops the per-device deals for incumbent customers based on trailing 12-month volume usage data; for newer clients, the company likes to have at least six months of data to analyze, but prefers a year’s worth.
It’s the industry’s answer to budget billing, and an extraordinary rollout for Marco. Larkin notes the transition to an unlimited print model has been adopted in pockets from a sales perspective; newer account representatives have been faster to perpetuate the model than the legacy salespeople. Given that Marco, like many dealers, billed exclusively on a CPP basis for decades, the transformation can be a slow one.
“The common denominator is the adoption of the unlimited print model, eliminating the need for meter readings,” Akervik said. “In our industry, there still is a fairly high percentage of non-connected devices. We’ve always been of the mindset that we want every device that prints a page under a contract, and the unconnected ones are the ones that pose a challenge.”
Variety of Opportunities
The client base is a healthy mix of enterprise and SMB accounts across a number of vertical segments. Health care, which has an abundance of examination rooms with printers that are locally connected, was one of the first segments targeted. The appeal of not having to collect meter readings, avoiding fluctuating monthly payments and escaping usage escalators makes DaaS a good fit, as clients can enjoy more cost certainty.
Akervik feels DaaS has been an easier initial step away from the per-print model, and while it is mostly geared toward the larger client, it can nonetheless be applied across the SMB space. The seat-based billing method is viewed as more appropriate on the managed IT/MNS side of the house, where the dealer already has the active directory count through delivering MNS and offering subscriptions such as Microsoft Office 365.
One of the criticisms encountered in the unlimited printing approach is what might be indelicately termed the “open bar” theory that, absent CPP restraints, usage can skyrocket and have a deleterious domino effect on toner, service and supplies. But it has been Marco’s experience that this has not been an issue.
“The end-user behavior really hasn’t changed,” Larkin said. “The folks who pay the bills appreciate it more than anybody else. The end user really doesn’t notice; the services and the deliverables are the same. We’re just changing the structure of the bill. It benefits the dealer and benefits the folks on the customer side who manage the contract.”
While Marco developed its own formula for determining a flat monthly rate for customers, the dealer has shared notes and feedback with Wes McArtor of NEXERA, who created a tool for determining a DaaS fixed rate (see McArtor’s story on page 36). The nuances between the two are less important than providing the same outcome. Both tools enable a dealer to enjoy a protected margin while providing the aforementioned benefits to customers.
Due Diligence
Larkin notes that it behooves dealers to have increased oversight as their reps put deals together, because for the term of the contract, the dealer is committed to servicing accounts without escalations and meter readings. “While we have seen the positives, we are aware of the risks,” he said. “It does require a little more up-front due diligence to make sure that we’re putting together a deal responsibly.”
Herein lies the resistance to change for many dealers—overcoming the loyalty to the CPP method and a lack of willingness to push reps into offering DaaS. But as more and more clients and prospects grow accustomed to flat-rate billing in all aspects of their business relationships, those holdout dealers will eventually find themselves on the losing end of competitive scenarios. And “eventually” may come sooner that they think.
“When we know we’re in a competitive situation, DaaS is a strategic advantage for us because we have the understanding, the ability to execute and have our contract agreement language already in such a place that it allows us to change the dynamics of the competitive situation,” Akervik stated.
Added Larkin: “It allows us to pivot. I know how long it took us to develop the (contract) language and get it approved with our legal department and our financing partners. It gives us a leg up and provides the customers with more options. It can change the dialogue between us and the customer quickly, while eliminating some players.”
Targeting SBB
Seat-based billing will see some added emphasis for Marco moving forward, as the company made it a focal point of its corporate initiative. Using the DaaS pricing model, the per-seat (user) formula will be applied for MNS customers (since Marco already has the active directory) to establish a flat fee for their printing environments. The goal is to execute 200 seat-based billing contracts for the year, according to Akervik.
Most importantly, whether it’s dividing to come up with a number based on the device or the seat, the math produces the same result. Profitability is maintained, and the client is thrilled with the cost certainty that avoids meter readings and overage escalators.
“We’ll be able to assess both sets of contract performance against each other,” Akervik noted. “We do see a strong desire from the top of our leadership structure to continue this change and migration in our business from per-page to DaaS or SBB. But we do acknowledge that both probably have a place, depending on the unique attributes of a client.”
So, is this the future of contracting for our industry? Larkin believes as much; a simple reading of the industry’s “tea leaves” will help develop a clearer picture in the minds of those who are still skeptical. It all begins with support from the top of a dealer’s organization—which Marco has in spades, as CEO Jeff Gau was a driver of the initiative. The dealer followed through on the edict, and came up with its blueprint in less than six months.
Moreover, Larkin feels dealers should take a hard look at what their competitors are doing to avoid being scooped by contemporaries who also viewed it as a sound strategy. “Understand where the industry is going and as dealers adopt this, the noise is going to increase and those who don’t adapt and evolve will suffer,” he said. “The bottom line is financially, this is a good thing for those dealers, and from a logistics and operational standpoint, not as complicated as they originally thought.”
