Diversification Darlings: The Power of Ancillary Offerings in Addressing the Entire Office

Give the dealer community a lot of credit. When diversifying into different aspects of the typical office environment, there are no limits as to where they might wander next. Sure, MFP and managed services still reign supreme as the chief cash cows, but if one was to peruse the dropdown menu atop any dealer’s homepage, they’d be bound to find an eyebrow-raiser or two—a little something out of the ordinary.

In that vein, we’ve decided to give MFPs and managed services the month off. They can go enjoy a movie or whatever they do in their spare time. The April State of the Industry report is visiting those areas where some dealers dare not tread due to their proximity from mainstream office equipment or perceived lack of profit potential. We would argue otherwise—the intent of being an office provider is to address as many of the elements of a traditional office as possible, because if you’re not providing a given service, someone else will.

We’ve assembled a half-dozen dealers who shared their experiences and rationales behind adding a given offering to their menu, as well as insight into the degree of difficulty in becoming proficient in these areas. Don’t let the term “ancillary” throw you; for many dealers, these offerings are baked into monthly payments (which make it easier for the client) and have dedicated sales departments, which represents an inroad to cross-selling. And just maybe, one or more of these offerings may resonate with your own client base.

Keep it Clean

Expanding the share within any given client has long been the mission for Eakes Office Solutions of Grand Island, Nebraska. Its business falls into three category buckets: copiers, office supplies and contract furniture. These distinct units operate independently but freely share leads among their respective divisions. Eight years ago, at the urging of clients within the copier and office supplies divisions, Eakes embarked on janitorial/sanitation (jan/san) products, according to Nate Schaf, director of marketing.

The ramping-up process was relatively easy, as the dealer’s existing infrastructure paved the way to scale, with the help of an acquisition and the addition of salespeople to the ranks. “Our strategic vision was for the jan/san division to rival our other divisions in revenue,” Schaf noted. “While we’re not there yet, it’s grown faster than projected every year and is on pace to achieve our goal.”

The beauty of the offering for Eakes is that it checks off all the desirable attributes of an ancillary offering: solid profit margin, recurring revenue and an inroad to higher revenue offerings. Jan/san has niche product offerings within its category, from warewashing to laundry and cleaning equipment, as well as service opportunities. It also entails product dispensers for paper goods, chemicals, air care and hand care—all significant recurring revenue pieces. It’s also triggered business within the other segments Eakes serves.

The initial expense associated with staffing this group up before revenue caught up was difficult but necessary to create the expected customer experience.

– Nate Schaf, Eakes Office Solutions

According to Schaf, it became apparent early on that Eakes would need specialized account managers and service technicians to help grow the jan/san offering. As is the case with technology solutions, the dealer wanted its reps to be industry-proficient and also serve a consultative role with clients. The ramping up investment was onerous, but it quickly paid dividends.

“We invest in our sales reps and their product knowledge through vendor training to sell our solutions,” Schaf noted. “I would attribute much of our sales success to this approach. We’ve also become a reasonably large distributor of janitorial equipment such as scrubbers, sweepers and extractors. We’ve found that our traditional copier/technology technicians just didn’t ‘take’ to servicing these types of machines. So, we’ve built out a standalone, specialized service department to address these service needs. The initial expense associated with staffing this group up before revenue caught up was difficult but necessary to create the expected customer experience.”

Identifying a Need

Technology is a funny thing. Just ask Tim Renegar, president of Kelly Office Solutions in Winston-Salem, North Carolina. His dealership delved into a number of different ancillary products, but as is the case with the industry’s flagship offering, the MFP, there’s no telling how the technology could evolve 10 or 15 years down the road. But one thing’s for certain—today, tomorrow and 100 years from now, clients will need a drink of water, not to mention gallons upon gallons of coffee (not all at once…you get the point). Unlike some technologies, refreshments will never go away.

It was about seven years ago that Kelly Office Solutions embarked on a platform of pure water, pure air and pure ice, along with coffee products and supplies. The dealer doesn’t view it as a downstream offering; it’s one of three divisions (including print/copy and MNS) within the firm, falling under the direction of Brice Renegar, director of the pure water technology division. What started as a technician offering to sell water has evolved into a full-blown department with a dedicated sales staff that’s constantly adding new accounts.

Kelly Office Solutions offers a pair of lines on the water end, Wellsys and Flowater, and has provided Aerus for pure air, though Renegar notes his company is currently investigating alternatives. It relies on several providers for the coffee machines and supplies/accessories. Fitting a business with a solution for any of these offerings is like an MFP proposition—a full analysis is made of the end-user to determine the properly sized solution for their needs. Water, for example, is calculated on a by-seat basis that takes into account the client’s population. Air is factored through square footage and the height of the ceilings.

“People are health-conscious, and our system purifies the water that comes into the building,” Brice Renegar noted. “The system puts minerals into the water that the body needs; it’s not just reverse osmosis. Once we take clients through the process and explain the benefits a system such as ours provides, it becomes a pretty logical sale.”

The process entails showing clients just how unclean the traditional water dispenser can be; removing the jug from the base reveals dirt, algae and other contaminants inside the unit. Unless the client performs the monthly 45-minute cle­aning (which end-users are usually loathe to do), those contaminants are being ingested by users. That, combined with a demonstration of how the client can enjoy pure water without the need for maintenance, can generally trigger a sale.

These systems can provide hot and cold water, ambient water, ice and even carbonated water in certain models. With the air, the systems eliminate 99.7% of all impurities, which Renegar’s team can demonstrate. Typical purification systems only work when the HVAC system is activated, but the Aerus operates constantly. Those systems also act as a gateway to providing coffee machines and supplies—all included in a single contract for Kelly clients, who need only make a single call to one source regardless of the application (including print and MNS).

Once we take clients through the process and explain the benefits a system such as ours provides, it becomes a pretty logical sale.

– Brice Renegar, Kelly Office Solutions

“It’s important to make sure your sales reps know the talk track,” Brice Renegar added. “With water, it’s stressing ‘this is what you’re drinking and this is what you should be drinking.’ We can prove what solids are in their drinking water, and they can see the monster difference between the ‘before’ and purified water. The technology piece isn’t all that difficult, and it doesn’t cost much for dealers to get into it.”

Trust the Process

Wherever a client has a need, there’s an opportunity to deliver in a partnership capacity. That was the role embraced by KDI Office Technology of Aston, Pennsylvania, when it embarked on bringing business process outsourcing (BPO)—accounts payable, document process and mailroom—to its customer accounts. Rick Salcedo, president and CEO of KDI, noted that many clients had struggled in managing their back-office processes and knew his dealership could help them improve operations and increase their overall efficiency.

The road to KDI’s BPO offering was paved by extensive market research to assess the potential demand while also identifying the critical services that would resonate most with clients. It also required KDI to evaluate its internal capabilities to ensure it had the expertise and resources to deliver on the desired level of BPO services.

Thus far, the foray into BPO has been a rousing success for KDI. The dealer captured new clients and deepened its relationship within existing accounts with the expansive service set. Its solid recurring revenue streams have been a boon to the company’s overall profitability.

“Looking forward, we have high expectations for our BPO offering,” Salcedo said. “We believe that it will continue to be a significant driver of growth for our business and will enable us to build long-term relationships with our clients. We’re also exploring opportunities to expand our BPO services into new areas and enhance our existing offerings to better meet the evolving needs of our clients.”

The strong margin and recurring revenue component are gateways to high-value selling opportunities, according to Salcedo. In addition to its role as a conduit to long-term engagements, KDI can grow these accounts through managed IT services, cloud computing and other technology solutions. It’s also a stark differentiator that casts KDI as having a more comprehensive menu that can capture more business and bolster its profitability.

Looking forward, we have high expectations for our BPO offering. We believe that it will continue to be a significant driver of growth for our business and will enable us to build long-term relationships with our clients.

– Rick Salcedo, KDI Office Technology

Attaining BPO proficiency entailed significant investments in staff education and training. As with any new offerings, KDI ushers in subject-matter experts to provide in-depth training on the new products and technologies it’s rolling out. Team members are encouraged to pursue certifications and attend industry conferences/events to stay current on trends and best practices.

“We also recognized the importance of partnering with vendors who are experts in the products and technologies that we’re introducing,” Salcedo added. “By working closely with these vendors, we’ve been able to leverage their expertise and experience to better understand the products and technologies and provide our clients with the highest quality solutions.”

Shredding Success

Not every ancillary initiative results from a meeting of the minds among a dealer’s executive leadership. Often times, it’s an opportunity wrapped nicely around a dealer acquisition. Such was the case for Marco of St. Cloud, Minnesota, and its foray into document destruction.

The genesis traces to 2017, when Marco acquired DNT of Fenton, Missouri. DNT had MFPs among its portables, but the company also boasted a shredding division. Marco decided to take on that business as well, according to Jeff Olson, director of project management, intrigued by the profit potential it offered.

What has provided a plus for Marco is the growth in hard-drive destruction and e-waste recycling. “Proper disposal of old electronics can be a hassle and time consuming if you don’t have the right equipment or connections,” Olson noted. “Marco has invested in that, so it’s convenient and efficient for our customers to let us handle this offering for them as well. Marco can provide serialized tracking on certificates of destruction, helping to satisfy our customer compliance requirements.”

Shredding is a small but growing element of the $435 million dollar dealer’s arsenal. In subsequent years, Marco added document destruction, et al, in Harrisburg, Pennsylvania, as well as the Minnesota cities of Wilmar, St. Cloud and Minneapolis. The Wilmar branch came via the acquisition of West Central Shredding, which enabled the dealer to expand west and south of its Minnesota footprint.

Proper disposal of old electronics can be a hassle and time consuming if you don’t have the right equipment or connections.

– Jeff Olson, Marco

Like print, it offers recurring revenue through monthly agreements. The services also include confidential purge shredding to rid clients of physical documents that no longer need to be kept.

Clients also enlist Marco’s services in holding document destruction days when they invite their customers to dispose of unwanted paper burdens, from old tax returns to medical files. Marco will set up shop in the client’s parking lot for events billed as “spring cleaning” or “client appreciation day.”

Olson credits Jay Bierbaum, shred manager, with providing deft guidance for the entire division and helping streamline operations. “One change that happened in the journey was the best way to invoice,” Olson noted. “All invoicing from shred is now done through the routing software and not through the traditional means. This change has proved to help capture additional revenue versus the previous solution.”

Fluid Situation

For years, businesses have offered their employees water cooler stations, those ubiquitous three- and five-gallon jugs that are loaded into units offering temperature control for hot and cold water dispensing. Disposable cone-shaped cups and the cooler’s role as ground zero for office banter are a part of American workplace lore.

Still, when the Wellsys account manager broached the idea of Stone’s Office Equipment offering bottle-less water systems to clients, Sam and Carson Stone were a bit skeptical. The dealer’s president and the product and solutions specialist, respectively, gradually warmed to the idea; after all, Stone’s Office Equipment boasted a captured audience, and the systems would provide a recurring revenue stream. Thus, last May, Stone’s Office Equipment became a Wellsys dealer, and within six months, the offering had exceeded all expectations for the Richmond, Virginia-based company.

“Most importantly, our clients love the product,” Carson Stone said. “It’s clean, pure water that tastes amazing. Some of the models offer ice, and our customers love that component.”

The convenient piece, from the dealer’s perspective, is that water follows the copier M.O. from a sales and service standpoint, offering monthly rental revenue. While there are dedicated, separate sales teams for copiers and waters, the departments share leads, allowing Stone’s Office Equipment to further penetrate existing accounts and take down new clients.

It helped that one of Stone’s partners, Rebecca Crawford of Pure Water Virginia, had extensive experience selling water, enabling the dealer to surpass its initial expectations. A concerted push into Stone’s Office Equipment’s existing clients also helped the scaling process. Still, despite his initial reluctance, Stone didn’t take a conservative view to its potential as an ancillary offering.

We thought about what we wanted the water company to look like and decided to do it. We treated it like a $10 million company, then set goals to reach that number.

– Carson Stone, Stone’s Office Equipment

Stone conferred with other water providers to gain insight into the nuts and bolts of the offering from a product standpoint. While it mirrors copier sales in some regards, it’s a distinctly different transaction, prompting Stone’s Office Equipment to assemble a dedicated team.

The selling point for the Wellsys systems is its superiority to other water delivery methods such as fountains, bottle fillers and water jugs, according to Carson Stone. The system purifies the customer’s water using reverse osmosis while eliminating waste or the need for delivery charges.

“We set our goals very aggressively in the beginning,” he said. “We thought about what we wanted the water company to look like and decided to do it. We treated it like a $10 million company, then set goals to reach that number. One day, it will grow into our plans. The water sells itself.”

Ottoman Empire

No one has to sell Chip Miceli on the virtues of product diversification. The CEO of Pulse Technology in Schaumburg, Illinois, took the giant step to introduce managed IT services to his client base, representing its biggest foray since embarking on managed print. Complementing the core offerings has always been sound business, and Miceli is constantly evaluating potential dealer acquisitions for their ability to provide the opportunity to cross-sell client bases.

One such opportunity arose in 2017, when Miceli acquired Kramer & Leonard of Chesterton, Indiana, a Sharp dealer that was also an authorized carrier of National (Kimball), HON and Trendway office furniture. Suffice to say, the deal has exceeded all expectations for Miceli.

“We reasoned that furniture and office design would be a good add-on for our IT and MPS customers, and we also saw it as an opportunity to introduce IT and MPS to our Indiana company’s client base,” he said. “I was optimistic that this would be a successful addition, and it definitely has been. In fact, we’ve expanded our offerings somewhat even beyond furniture and design to include break room and other office products.”

There are positives and negatives to offering office furniture. The profit margins are quite attractive, but the obvious down side is that there really isn’t a recurring revenue model inherent with furniture. That can be offset by larger clients who have a taste for a particular manufacturer brand and are frequently ordering to accommodate growth. Office design represents another opportunity to add revenue beyond the furniture. And that doesn’t even factor in the opportunity to offer MFPs and managed service to the new furniture clients, and vice versa.

We reasoned that furniture and office design would be a good add-on for our IT and MPS customers, and we also saw it as an opportunity to introduce IT and MPS to our Indiana company’s client base.

– Chip Miceli, Pulse Technology

Adding expertise through acquisition enabled Pulse Technology to jump right in with the offering, sans the usual requisite learning period. The dealer has a pair of talented designers on staff who tailor solutions to the client’s individual tastes. In fact, the duo took the helm in designing Pulse’s new Merrillville, Indiana, facility as a showcase of sorts to their talents. They’re essential in huddling with the dealer’s dedicated furniture sales workforce.

“For us, we had a head start in proficiency in the furniture market because we entered this specific market through acquisition. We are best served with people dedicated specifically to the furniture industry—both in design and in sales,” Miceli added .