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 [email protected]
Discussion / Comments?