The Money Pit

ISO’s looking for equitable and competitive rates.

By Raymond Cote

One thing is for sure: Volatility in pricing of goods and services is here to stay and it doesn’t really matter where your business is located, or who your competition is. As I have discovered, pricing structures in the repair business can vary from the very reasonable to the outrageous. As information was collected from the field, I noticed that there were no rock solid rules for pricing of services or goods. In all reality, many ISO’s have bench marked what Xerox® Charges for “Time and Materials” or for their “Full Service Maintenance Agreements” (FSMA’s) and made adjustments with that pricing structure to suit their particular needs. If that works for you then don’t change it, but if you find that your business is stagnated because it may be overpriced, or under-priced for that matter, then you will have to re-evaluate your pricing structure.

Time and Material rates is by far the most popular with all the ISO’s and probably the best to police as far as collecting is concerned. All too often, we discover that one of the reasons our new customer left their last service provider was primarily because of financial reasons. It is strongly recommended that the “Time and Material” approach be used in all transactions. For your own peace of mind, always get paid before you leave the customers’ location. If they tell you the bookkeeper is out to lunch and we will send the check to you, tell them you will have lunch as well and will return in one hour. Be prepared with a quick response.    As time goes by and you do business with various firms, you will discover that they will, at times, ask you for a grace period on invoices for service. Not wanting to lose a customer, we are sometimes sucked into a sense of false security when the customer tells you that everything is ok and they will pay you at the end of the month.   Hey, if that happens once or twice that’s no big deal, we all run into financial humps from time to time and our customers are no different. The question here is two-fold: How long should we wait for our money and how much credit should we give them for a “Time and Material” service call?  First off, for all of us that are bankers and lending institutions that actually know how to deal with revolving interest rates and delinquent customers, there is no problem.  But for the rest of us ISO’s, that are not bankers or lending institutions, it should always remain “cash and carry” at all times.  If however you decide to play with fire and want to let the invoice slide for a few days, set a limit of $ 500.00. This way, when you get stiffed, you will not be out more than you can safely afford. The best thing I can equate it to was when I was baby-sitting my grand daughter and she wanted a glass of milk. I asked my son how high I should fill the glass, and his response was: “It depends on how much you are willing to clean up when she spills it on the floor”. So, it was about one quarter of a glass at a time until she was satisfied. Waiting for a delinquent customer to pay what he owes is similar in a way—it depends on how much you are willing to lose.  Most of the ISO’s that I spoke to would not grant any credit over $ 500.00 for customers that they have been doing business with for less than three years. Many of my customers who have been prompt in paying their bill for the initial first several months have a tendency to slack off a little once they get to know you.  It seems they are always trying to test the waters with you just to see how far they can away with postponing the fees. And they are always trying to test the waters to see how far they can go. When the customer asks if they can pay the invoice at the end of the month, I usually try to play ball with them and let them slide with a post dated check. When they balk at the prospect of issuing a post dated check then it’s time to wake up and smell the coffee. When that happens to me, I will not usually respond to any service activity until the first invoice is paid in full.  Remember that a post-dated check is better than just leaving them an invoice. The customer could ignore the invoice and every time you call, somehow Mr. X is always out to lunch, in the rest room, at a meeting or plain unavailable and you get his voice mail. However, the post-dated check is a different story. If it should bounce, you still have a better chance to collect. Passing bad paper is still a crime in most states.  In my opinion, “Time and Material” service strategy is the only way to go.     

Several ISO organizations have shared information about an alternative credit card strategy that seems to make sense. For a small ISO it may be to your advantage to have the ability to charge customers for services and materials using credit cards. Case in point:  when you arrive at a new account, we all have a tendency to “size up” the joint (so to speak). If you notice that paint is peeling from the ceiling, and one of the interior doors doesn’t close properly, then you get the impression that they are kinda lax on maintenance. Are they cutting corners to save money?   Without trying to make it obvious, you also notice a few other things that sort of disturb you but you continue to walk to the machine site.  When you arrive at the machine location, that’s when you should remind the customer about your billing charges and ask them point-blank how they intend to pay you today. Will it be cash, check or credit card?  Do not be afraid to talk business first, and then repair the copier device second. If you even think the customer might balk at paying you after the repair, then get a credit card up front and call it in for an approval.  You can mention to the customer that this is standard company procedure with all customers because you do not have an accounting or credit department.  If the customer insists that he /she will pay by check, then tell them the credit card information will not be used when the check clears your bank. It’s sort of like insurance against bouncing rubber checks.  If I seem a little cynical here, it’s because I really am.  I have encountered my share of dead beats in my travels.  And if you think that you can outsmart them, forget about it— they have you sized up before you even started to work on the copier. There are some really bad people out there and they know that you will not go out of your way to hire a lawyer to collect what they owe you. This is especially true if the bill is under $ 500.00.

As far as your service rates are concerned, you will have to do your homework on this because it varies from area to area. When I started my ISO business, I must have made about 50 calls to competitive service companies and asked what their rates were for my broken laser copier.  It seemed that the hourly range was from $ 65.00 to $ 150.00 per hour depending on several factors: What products they are servicing and what their expertise level was (and what their overhead was).  The ISO’s in large cities seemed to do well, and this was especially true of the ones that charged $ 95.00 per hour for service. Where they made their money was on parts: the average mark-up on parts was somewhere between 100% to 200%.   If you are really good at repairing copiers or laser printers, then it pays to charge less for service if you can get volume. Several ISO’s had a “per call charge” rather than an hourly rate. From a customer’s point of view, the per call charge is preferred because they realize if there is an electrical problem and it takes the technician a long time to resolve the issue they will still only pay the per call charge.  Besides, the inner cities business owners are always looking for the cheapest repairperson they can find. They have no allegiance to any one or any company whether it’s the manufacturer or a distributor that is providing the service. The bottom line is always “How cheap can I get it for”?

Usually when a customer is somewhat satisfied with their present service provider, and you knock on his / her door soliciting for repair work, they will usually tell you that they have someone and everything is fine.  As they start to close the virtual door on your sales pitch, I will put my foot in the closing door and offer them a free service call so that I can demonstrate how well I work and what my expertise level is on their equipment. More often than not, I suspect that one of the customer’s main concerns is trying to guess what your level of expertise is on their office equipment, and quite honestly, I can understand that concern as well. No one wants to take a chance with a new service provider unless they knew you or someone they knew recommended you.  Usually this tactic works, and they call you the next time they have a mechanical issue with their equipment figuring that the service call is free and if it needs parts that would be billed separately. Offering a new customer free labor on the first service call is a smart way to get into the shop.   

In addition to the hourly rate or flat rate service call charge, there is something called “Travel Time”.  Many ISO’s add a charge for travel time if the customer is really out of range or there is a high cost to do business in the area where the customer is located. For example, there is an industrial park nearby that actually charges transients to enter and park their cars there, regardless of whether they are customers or vendors. Tolls and other expenses have to be passed on to the customer.  Travel time charges could be anything between flat fees to one or more hours of your billable time. Lets face it, if you have to travel a great distance from your office; you deserve to be compensated for dead time behind the wheel.  Many ISO’s charge a flat fee somewhere between $ 10.00 to $ 50.00 per service call for any service activity that is more than 20 to 50 miles from the main office. In situations where the customer is located in an urban environment where mass transit facilities are available, then travel time expenses could be safely eliminated or reduced to the actual amount expended.

Full Service Maintenance Agreements (FSMA’s) should always be avoided like the plague. The only one that benefits from a FSMA is the customer. It gives the customer the security of knowing approximately how much the invoice is going to be before you send it. It also gives the customer plenty of time to ignore your repeated calls for payment month after month.  Unless you have a lawyer in your closet, then I would never recommend a FSMA. The logic with most ISO’s is that with a FSMA contract and with this customer, they could always count on a steady income. Wrong! If this customer you are thinking about (for a FSMA) was so good, then why is he / she still not on a contract with the distributor or the manufacturer?  On the other hand, if the customer is willing to post a bond for (say) $ 10,000.00 then you might consider the contract. This way when they fail to pay the FSMA contract, you can cash in the bond. Don’t hold your breath, it will never happen but at least you gave them the opportunity to put their mouth where their money is.  So far I have not encountered one ISO that has never had a problem with a FSMA with his / her customers. Instead I was clobbered with several really hard luck stories about the “Ideal Customer on the FSMA”.  The cost to recover money from broken contracts is prohibitive and unless you have a rather large distributorship with plenty of disposable cash and can absorb losses like this, I would avoid them at all costs. More often than not, the only people making money here are the attorneys.

If you are so determined about doing a Full Service Maintenance Agreement (FSMA), consider the following rates as a guideline.

It’s customary for distributors and manufacturers to offer free copies with the monthly base charge. The free (or included) copies can range from 100,000 to 200,000 copies and can be dependent on the customer’s volume.  For example: 200,000 (free) copies can be included with the monthly base charge for the Xerox® Docutech printer if the customer promises to deliver 400,000 or more copies per month.  The $ 750.00 Base Monthly Charge includes 200,000 free copies and the customer knows they will have to manufacturer 400,000 minimum copies per month.  Contracts can be quite detailed and involved. Always work with an attorney when drafting a Full Service Maintenance Agreement (FSMA). This way you stand a slightly better chance of getting an even break in the deal.   Full service (labor only) agreements is probably a good way to go for many ISO’s that I have spoken to because it allows the customer to shop around for the best prices for parts and supplies. This way they can be sure that they are getting the best bang for their bucks and best of all, you don’t have to lay out your money for inventory.