In the face of the biggest economic challenge since the Great Recession of 2007-2008, businesses can ill-afford to leave any unnecessary lights on, so to speak. COVID-19 has turned the nation into change-counters, and with businesses facing reduced net-new business and a sometimes-stagnating client ledger, ensuring dollars do not become lost is priority one.
As a complement to this month’s State of the Industry report on margin erosion, we’ve asked OEMs, suppliers and other members of the product-and-service-sourcing community to weigh in on how their reseller partners can recognize profit-eroding hot spots.
Brother
While we don’t have all the answers, we’ve managed to accumulate a lion’s share for your consideration. We’ve assembled an esteemed panel featuring Dan Waldinger, senior director, B2B marketing for Brother International; Jim Coriddi, vice president, dealer division, Ricoh USA; Mason Olds, senior vice president and general manager, Canon U.S.A.; Larry White, chief operating officer, Toshiba America Business Solutions; Monte White, senior vice president, product marketing, Supplies Network; Key Kain, vice president, sales, office equipment group, GreatAmerica Financial Services; Laura Blackmer, senior vice president, dealer sales, Konica Minolta Business Solutions U.S.A.; and Ron Petrucci, vice president and general manager of North America, Katun Corp. They’ll provide their insight into ways the dealer/reseller community can keep a more watchful eye on profit margins.
Considering dealers/resellers, what are some of the more-subtle missteps that can wear down profitability and erode margins? Similarly, what are the strategic mistakes dealers make that have a deleterious impact on margins (e.g., service pricing, MPS miscalculations)?
Waldinger: At a high level, not seeing the “big picture” of market changes—such as the reality of declining print volumes, larger enterprise trends like the increasing popularity of remote work, and evolving needs in security and mobility—are the ultimate danger to profitability. If a solutions provider is not focused on aligning with a client’s strategic initiatives and continuously improving sales and support methodology, then this opens the door for the competition, and you can lose the account in total.
If dealers do not monitor and measure, they cannot maintain long-term profitability in the account.
– Dan Waldinger, Brother
More granularly, a major dealer misstep that erodes margins is not putting into place monitoring and measuring protocols when deploying a managed print services contract. Dealers need to fully understand metrics like total document volume, the breakdown between color and black-and-white prints, true paper sizes (A3 versus A4) and simplex/duplex usage, and then ensure that policies are deployed at the account that support the customer’s goals and service-level agreement. These include metrics like cost savings, uptime, workflow improvements and so on. If dealers do not monitor and measure, they cannot maintain long-term profitability in the account.
Lastly, and as a consequence of the above, dealers’ business models must continue to evolve. For example, Brother’s A4 laser printer offerings are conducive to flat-fee and subscription programs. While these models may not yield immediate profitability improvement, recurring revenue will be realized over the longer term. Relatedly, I would note that the pandemic may accelerate the direction of many customers’ buying models from CapEx to OpEx. Dealers must consider a mix of different business models and evolve to maintain healthy profit levels.
Monte White: There are a couple of areas we’ve observed. The first is not recognizing the margin impact based on actual dollars associated with price compression. When prices compress and partners sell at the same percentage, the margin impact in total dollars may be an unrecognized profit impact. The second area results from manufacturer program changes, especially back-end rebates, which are often margin enhancers for resellers. When these programs are cut, it’s not often accounted for in the end-user sell price and is a big hit to overall profitability. In some cases, the reseller may be limited in ways to make adjustments to compensate, but should look for opportunity to do so where possible.
Coriddi: One subtle misstep that can make all the difference in profitability is continuing to rely purely on hardware. It’s a focus on PPM and price, rather than volume and value. The most successful dealers provide more value.
It’s important to approach things from your customer’s point of view: what problem do they need solved? The need for an A3 MFP is not what keeps line-of-business leads up at night. Instead, it’s accurately capturing information, efficiently routing it, working to keep it secure while still making it accessible to workers when, where and how they need to access it. This can include looking at the MFP as a vehicle for the software and services that address these concerns.
It demonstrates a customer-centric attitude, as well as an understanding of industry-, market- and customer-specific needs. It also provides a scalable model with reliable annuities, so customers can grow solutions with their evolving businesses, and dealers can maintain a close relationship, continually leveraging that knowledge to devise ways they can help those customers improve. Especially now, when many businesses are still adapting to the new world of work and looking for ways to empower remote workers, enhance productivity and reduce manual touchpoints—all of which contribute to the three main business concerns coming out of the current moment: remote working, cash flow and employee health and safety.
Beyond good software, dealers should look to offer services and support, which amplify your value to the customer while strengthening the relationship over time via continued contact.
Petrucci: Dealers can sometimes fall into autopilot mode on a day-to-day basis, and, in some cases, they’re not looking at key areas where they can maximize profits. A broad brush doesn’t work for a dealer; for example, when they say, “We’re OEM-centric.” They really need to take a look at their MIF and opportunities within it in order to utilize aftermarket and maximize their profits. We’re seeing that trend on the copier side. They may look at areas that might have MIF that’s over 36 months old. I think there’s a lot of analysis work that the dealers could be doing in getting much more pinpointed in their approach versus taking a broad-brush approach.
On the printer side of the business, are they using what we call exact MPS, which measures days to empty precisely? Many organizations are probably burning between 7% and 20% waste because they’re sending the cartridges out too early and the end-user is changing them out prematurely. You can save money using an application for days-to-empty, which is going to provide an accurate just-in-time shipping schedule.
I think there’s a lot of analysis work that the dealers could be doing in getting much more pinpointed in their approach versus taking a broad-brush approach.
– Ron Petrucci, Katun
Sometimes, the simplest things get overlooked. We have dealers who aren’t using jumbos in their MPS, and others who are using them, but haven’t looked at the marketplace. Not all jumbos are created equal. I would recommend dealers take a hard look at what the actual yields are, because they vary between companies. You can maximize profits by using the top yields available in the marketplace.
Olds: As businesses have been forced to close due to safety regulations, these past few months have presented many challenges for our dealers. Our authorized dealers require two-way communication, and Canon U.S.A. continues ongoing communication to help meet market demands. In order for dealers to remain profitable and efficient, it is important that they listen to their customers, offer solutions that can help meet their needs, and shift their business to coincide with current market and industry trends and demands. Those who are slow to adapt and diversify their offerings could have an impact on margins.
Larry White: From the manufacturer’s perspective, missteps include not taking advantage of the prompt payment discounts the manufacturers offer. Those extra points can make a huge difference to a dealer’s bottom line. From an operational perspective, this could include service contracts with no minimums as well as non-bundled leases. In today’s environment, no minimum contracts can be devastating.
Dealers today are very sophisticated, and you just don’t see them making very many crucial mistakes. The one area which could create a major misstep would be in the acquisition area. Although there is a tremendous amount of dealer acquisition activity in the market, which is probably going to heat up more, a bad acquisition can take months, if not years, to overcome.
Although there is a tremendous amount of dealer acquisition activity in the market, which is probably going to heat up more, a bad acquisition can take months, if not years, to overcome.
– Larry White, Toshiba
Kain: A couple of things come to mind here. First, dealers who do not bundle in service in their agreements can erode margins and reduce cash flow. Selling a contract that bundles pass-through service and supplies with a base maintenance payment has made a great difference in preserving cash flow and margins for many office technology providers, especially during the pandemic. Giving lessees access to their equipment even when print is down allows them to continue to use supplies and get service for their equipment while in use. In comparison, any profitability the technology provider expected to pick up due to overages is washed away when using a base-minimum contract (or cost-per-copy-type agreement) and employees are working from home or furloughed.
When salespeople believe in the product they are selling, or are confident in the value that they and their solution bring to the sale, they avoid competing on price.
– Key Kain, GreatAmerica
A second factor that can lead to increased profitability is something I’ve heard technology business leaders refer to lately as “strong selling.” When salespeople believe in the product they are selling, or are confident in the value that they and their solution bring to the sale, they avoid competing on price. I frequently hear stories of customers unwilling to pay $5-$10 more per month or who are delaying their decision to move forward. Companies that have a strong sales team that believes in itself will overcome these minor objections, win new customers at higher margins and hit its profitability targets.
Blackmer: Right now, everyone is going through the challenges of maintaining profitability and protecting margins—especially in today’s economic climate—and in some cases, are just trying to survive through this pandemic. If it’s a question of “do you chase pricing down, and how low do you go before you say no?” I don’t think that’s the right question. Our dealers are working diligently to try and manage not only what the business climate has looked like the last 90 days, but more importantly, what it will look like in the future. Two of the biggest areas all of us are looking at are preserving cash and managing expenses, specifically, headcount. Service calls in particular are off as much as 50%-60% from prior levels. And while some areas are rebounding, this is the traditional slow period for schools, so it’s mixed and unpredictable.
Since the pandemic hit, a lot of dealers have had customers asking to renegotiate their service contracts. With everyone working from home, there is little to no office environment. Dealers are faced with the difficult decision of adjusting the contract, which will have a negative impact on their revenue and their business.
At Konica Minolta, we have been working with numerous dealers across the country on how to design and develop a flat-rate model. A flat-rate contract allows dealers to calculate a price for the service-and-supply portion of a contract and build that into the lease payment a customer is paying for the next 36, 48 or 60 months. The program helps stabilize and manage the business, as well as protect margins going forward. The dealer will also see more predictable aftermarket revenue as opposed to a CPC or maintenance contract bundled with a set number of copies. In addition, customers appreciate the “same bill every month” model with no meter reads or fluctuation in their monthly invoice. They find it predictable, simple and much easier to manage their monthly business expense.
A lease/flat-rate program that bundles everything together reduces customer requests to renegotiate their contract because it is one payment inclusive of all charges and does not specify a copy/print allowance. Dealers that have been using a flat-rate program have had less than 2% of their flat-rate customers call to have their contract renegotiated.
An additional benefit a dealer will recognize is the amount of time they spend managing contracts. Administrative teams no longer have to call for meter readings and no longer have to enter the meter in their ERP, which can lead to billing errors and customer dissatisfaction. Under a flat-rate contract, the contract is touched once at the time of sale, with no other human interaction until the lease is up for renewal. This will have an impact on a dealer’s SG&A expense and the potential for significant savings.
Cloud-based services and technology can also help support dealers adapt to new work styles as they offer flexible implementation, support and usage.
– Mason Olds, Canon
We are seeing more and more dealers looking to convert their businesses to the flat-rate model. This type of program will become more popular, and within three to four years we believe this will be the norm. In the near future, we expect to see even more services bundled into this contract, giving dealers more predictable revenue and margin as they go deeper in their customer base.
Can you offer some suggestions that address blind spots/leaky margin faucets, or provide examples of best practices that have enabled your resellers to enjoy benchmark margins?
Olds: In conversations with our dealers, they have mentioned that managing inventory levels during the past three months in an effort to best manage cash flow, as well as exploring new areas of their businesses to provide customers with more diversified offerings, have helped them remain efficient despite these challenging times. These practices could also be beneficial to other dealers as they look to expand and grow their businesses.
“Similar to other businesses, we’ve had to shift our focus in order to expand our business offerings during these challenging times,” said Ryan Jones, general manager, American Business Machines. “Specifically, American Business Machines has been working to develop a mobile thermal product which can detect a person’s temperature from as far as 20 feet. We hope this solution can help businesses and venues as they begin to reopen to the larger public.”
Cloud-based services and technology can also help support dealers adapt to new work styles as they offer flexible implementation, support and usage. Implementing cloud content and email management solutions such as some Canon offerings (Therefore Online, Box or mxHero) can help businesses streamline processes and maintain productivity across teams in multiple locations. Plus, many offer built-in security features, such as Box’s detailed activity reports, that track the content being accessed by users.
A flat-rate contract gives stability—it’s as much a benefit for dealers as it is for customers.
– Laura Blackmer, Konica Minolta
Vain: The biggest area for margin improvement I can see is in the area of administrative expense. Technology and automation have improved significantly. Today, some industry partners are able to integrate, bill and collect on the dealer’s behalf, communicate electronically with the dealer’s software of choice and provide a better customer experience. Many companies have invested in these software solutions, but aren’t focused on getting the most out of their investments. Whether you are going from $2 million in revenue to $5 million or from $10 million to $50 million, adding sales resources without incurring administrative expense can drive results to the company’s bottom line. Having a leadership team that embraces technology and automation and seeks to get the full benefit can be the difference between single digit and high double-digit margins.
Larry White: I am a huge believer in the different groups (such as CDA and SDG) that allow dealers to share financial information and best practices. They allow dealers to get ahead of the curve in catching problems before they become big problems.
Petrucci: The most-successful dealers are the ones who put their technicians on a profit plan. That way, the corporate goals and the tech goals align. When it’s based on profitability, it helps to eliminate changing parts out for the sake of changing parts. Plus, they’re more receptive to using aftermarket products, which provides a huge savings.
Another key is direction and communication with their purchasing organization to ensure they are effectively staying abreast with technology. It doesn’t automatically mean going with the lowest quote, but rather strategically exploring quality and yields, and performing a more complete analysis. That type of communication doesn’t always take place, which creates problems. If you’re buying something because it’s the lowest price, and then you end up having to do a service call because of substandard quality—or worse yet, you lose a customer over it—that little bit of savings has obviously evaporated.
Blackmer: It’s not a secret that the competitive landscape is even more challenging. “Who is going to lower their price? How low am I willing to go?” As business has dropped off these past few months, dealers sometimes find themselves between a rock and a hard place as they try to keep their existing bases and win new customers. With a flat-rate program, the price is what it is, built on an analysis of your business and the margins that you need. The program also eliminates having to negotiate every contract and deal that comes your way. A flat-rate contract gives stability—it’s as much a benefit for dealers as it is for customers.
Waldinger: Leaky dealer margins may develop from a variety of issues, but one common source is an improper device mix deployed at the customer. Brother lives and breathes what we call “balanced deployment,” which is the optimal deployment of devices that acutely meet the customer’s current needs. We impress upon our partners that it’s crucial to maintaining profitability. Consider, for instance, the cost of continually deploying service technicians to fix older A3 and A4 devices that aren’t the best fit for the needs of the day—that is a clear profit sink. Brother has many dealer assistance programs to help in the interim, such as our Value Print Program, whereby Brother extends the warranty and can become a reseller’s “Level I” service arm, and provide next-day exchange service. Also, the reseller can still charge for this. Now that’s profitable.
Monte White: At times, there seems to be a lack of transparency in some reseller organizations. Being transparent with their sales organizations and other stakeholders involved in the sales process helps a reseller understand how changes like those outlined impact the health of the organization. It’s critical to have everyone rowing in the same direction.
Being transparent with their sales organizations and other stakeholders involved in the sales process helps a reseller understand how changes like those outlined impact the health of the organization.
– Monte White, Supplies Network
Coriddi: This also ties back into understanding your customers and their needs. Needless to say, those needs may have likely shifted drastically in the past couple of months. Having conversations about how those needs have changed and how they will continue to change is a great place to start. Understanding their current pain points is essential. Based on our research, many organizations right now have three primary concerns: remote working, cash flow and employee health and safety. We have provided the Ricoh Family Group dealer partners with the Business Continuity Playbook to enable them to help their customers address their existing business challenges.
We have provided the Ricoh Family Group dealer partners with the Business Continuity Playbook to enable them to help their customers address their existing business challenges.
– Jim Coriddi, Ricoh
Businesses are very eager to facilitate and improve the work-from-home experience. Business continuity offerings, process automation and remote-work-enablement solutions are all in high demand. Now is the perfect time to take a holistic view of these needs, and then design and implement holistic solutions. A customer may know they want to buy a cloud connector, but with your expert guidance, they can get set up to scan directly to cloud storage with the appropriate indexing in a single step. Maybe that indexing can help automatically flag a new invoice for the customer’s accounting department, which you can also set up. Maybe the file needs to be segmented into specific sizes for regulatory reasons, or it needs Bates labeling, or countless other next-step workflows you can work on together. By understanding the customer’s business, you anticipate those needs and how they fit into the sales conversation.
Case studies and use cases are extremely helpful. Customers want to know you understand what it takes for them to keep business coming in, so being able to point to successes in similar situations is a major asset.
