Device as a Service: The Hows and Whys of Flat-Rate Billing

From phone service to how we consume entertainment, device-as-a-service (DaaS) has become part of our vocabulary in many areas. For the last couple years, it’s also been a point of discussion in the imaging industry.

Nexera started down this path over two years ago. Backed by our exclusive Worldstats database, we began to develop a tool that would allow us to accurately predict a flat monthly cost at a preset margin.

We started in the same way as many dealers, taking the current retail CPC and multiplying by a page count to come up with the monthly rate. Seems simple enough. But as an industry, we’ve had the luxury of healthy margins that cover up the fact that most of us price on averages. When you look at the actual cost of machines in specific volume environments, you get a completely different story. Because while toner consumption is linear to volume, parts and labor are not.

Example: This is data on segment 4 black-and-white A3 product. Note that the CPC in the first volume environment without toner is significantly higher than in its optimum volume environment of 41,000 to 57,000 per month. If you used average pricing, those machines in the first volume tier would lose money. In fact, they probably are now, but the high margins elsewhere cover it up.

The advantage of our imaging DaaS (iDaaS) tool is that it promotes right-sizing machines because rather than averaging the cost, it actually looks at how that model performs in a specified volume environment. It also considers how effectively your service department deals with that product, and compares that to others servicing the same model.

We believe customers will start demanding a service that provides them the desired outcome—in most cases, a printed page. The machine that does that will become less and less relevant. In the past, if a customer needed 2,500 pages per month, the goal was to sell them the machine that produces 2,500 pages most profitably while satisfying the customer’s requirements.

But that’s no longer the case. Fully 42% of all units installed are averaging fewer than 2,000 pages per month. In fact, 39% of all 60 PPM A3 products average only 1,533 pages per month. Switching to a device-as-a-service billing model is more than just CPP multiplied by pages; we must be more precise to become more profitable and more competitive.

Less talked about are the potential increases in profit and decreases in expense by switching to an iDaaS model. Print volumes are declining, so the sooner you switch to a flat-rate model, the more money you will make based on lower consumption of toner, parts and labor. Additionally, the simplified billing process means fewer rebills, credits and customer conversations about meter reconciliation. Both of these items will improve your bottom line.

There is very little downside to changing the billing method. The resistance comes primarily from people who want to keep the status quo, along with the fear that customers will abuse this method and change their print behavior. The latter has been proven false by those dealers progressive enough to make the change.

Let’s address some of the other most-common concerns:

Customers will increase their print volumes because they are not paying per page.

The vast majority of end users don’t know how they are being billed to print. Our data shows that print volumes are going down, so we believe it’s erroneous to think customers will print more because you’ve changed the billing method. That’s not to say that there won’t be customers who abuse this program, but data suggests it won’t be enough to impact profitability.

Customers will print more color.

Most customers print only what they need, regardless of how they are billed. Programs like FMAudit, PaperCut, etc. all do amazing jobs of monitoring this behavior, and simple clauses in the contract will allow you to make adjustments if this change occurs.

Dealing with escalations.

Remember, this is a billing method change. For many dealers, escalations are there to help sales. Through incremental increases in the per-page rates, we can show customers how to save by replacing the current machine with a new one. Many of the dealers doing iDaaS are simply factoring in their usual rate increases and adding them at the front of the iDaaS agreement. In doing so, the customer’s rate stays the same, decreasing the number of times you have to talk with them about billing issues. If you want to increase the rate annually, it’s quite simple because the iDaaS billing amount can be treated as the “base rate.”

If you’d like to discuss this any of these topics or concerns with me in person, feel free to contact me at wes.mcartor@nexera.net.