1. Jack Duncan
Jack Duncan Consulting Inc.
www.jackduncanconsulting.com
The Negative Impact of Poor Machine Placement

2. Contract Profitability
When I do a contract profitability analysis at dealerships that I work with, one of the things that I routinely find is equipment in volume bands that do not provide enough Revenue Stream to support the size of the equipment
Too many times I find Segment 5 or 6 machines with all the whistles & bells running volumes that would only support Segment 2 or 3 machines in terms of Cost of Operation
Often these big machines are placed with no minimum volume requirements, therefore they do not have a guaranteed revenue stream
This lack of a Guaranteed Revenue Stream makes profitability on these contracts virtually impossible

3. Cost of Operation
Isnt Cost Per Print the same on a given model?
The answer is a resounding NO!
As volumes go down on a given model, the MTBV, or Mean Time Between Visits does not drop at the level you might expect it to
Think of it like this, the more accessories and features we put on a machine, the more OTSUs it has built in
OTSUs are Opportunities To Screw Up!
The number of service calls required to maintain the machines do not drop off as dramatically as you would expect

4. Fewer PMs?
Good question
Correct Answer Sort of.
Many items that are part of a Preventative Maintenance call have Time OR Copy counts
Things such as drums, developer, blades etc do fail from getting old as well as from the number of copies run
PMs may be need to be completed due to time when copy quality issues arise due to the age of drums, developers, charge wires and other items

5. Emergency Calls
When you have Segment 5 or higher machines in low volumes you will still have calls for such things as:
Cant Print
Wont staple
Jamming
The LCT allows us to load a 2 month supply of paper!
I dont know how to ..

6. Real World Experience
After working with many dealerships in recent months, we have found that the models that represent the most potential savings if their cost of operation could be improved..
Could not be improved!
The volume was too low for the size of the machine
If this occurs often enough, the profit goal of 52% Gross Profit in Service can not be achieved
In some cases, you couldnt make a profit on a 45 PPM Multifunctional machine if you could sell it for 7 Cents per Page!

7. What we found
What we found when we did an analysis of the same model in various volume bands was that when the machine was running at its Sweet Spot volume as indicated by the manufacturer, it was running right at expected Cost per Copy levels
This tells us that their technicians did have the ability to make the machines run properly in the right environment
Both labor and parts CPC was right where it should have been

8. So whats the Problem?!
Considering that the average total cost to maintain the equipment on a monthly basis does not decrease at the same rate when the volume decreases.
The problem is that the Monthly Expenses or Cost of Service remains fairly constant, the lower the volume we have, the fewer pages we have to spread the expenses over
The result is that the CPC (Cost per Copy) or CPP (Cost per Print) Increases dramatically as the Volume Decreases!

9. But my Customer wants the Speed!
We all have situations where customer demands or competition dictates that we place a higher volume (Faster) piece of equipment in a Low Volume situation
We will need to do a careful job of explaining to that customer that when they want a Cadillac machine with all the whistles & Bells, they will have to pay to maintain a Cadillac
We must price maintenance with a minimum volume or revenue stream in order to make the contract profitable
Sales needs to make a profit once when they sell it
Service needs to make a profit on it for the next 36 to 60 months!

10. What about Color?
I have also found far too many cases where a customer has purchased a B to C machine for occasional color use
It costs as much as $1,000 (or more) just to Fill the Tank on these machines with color developer and toner
If there is no commitment from the customer in either Volume or Revenue, that account is sure to loose money for as much as 36 months
You just became The Bank for that customer
Also, bear in mind that it costs more per page to run a black copy on a B to C machine than on a true Black
Especially if Black is Processed Black!

11. Special Needs customers
We all have the major accounts where the Big Dog wants all the speed, features etc that he can get because, after all Hes Special He signs the Deal!
We do expect a certain amount of these, but when the special needs become the rule instead of the exception, we do not have a prayer of making the margins that our business models dictate
The more of these special, big or color machines we place, the more our margins will erode because of the high cost of maintenance on low volumes

12. Problem vs. Solution
In some cases, I actually think we pit Sales and Service against each other
Sales reps are typically commissioned on Gross Profit on the sale
The bigger the box they put out, the bigger the check
Service has to make a profit where there is not enough revenue to do it
The solution may well be what others have suggested already
De-emphasize the commission on the machine itself and provide a commission for aftermarket revenue based on clicks

13. Thanks!
Jack Duncan
www.jackduncanconsulting.com
jack@jackduncanconsulting.com
Discussion / Comments?