enx magazine

So you are thinking of getting into facilities management (FM) or you have been forced into FM by one of your larger customers and you want to know what to expect if you add more resources to this business. The first thing I would look at is your current copier market share. If you have low single digit market share, I recommend you keep your resources—both financial and management—focused on gaining additional market share in your core business. If you have good market share in your core business, then FM may be a viable adjacent business.

Equipment revenue will represent slightly over 20% of your FM revenue stream. Margins on this equipment will be a few points lower than you are accustomed to but will be acceptable. This is not to say that FM business is not highly competitive but most OEMs provide special pricing for equipment purchased for an FM contract. You will experience the legendary long selling cycles; whether you are displacing an incumbent FM provider or you are working to convince the prospect that outsourcing their non-core functions is the best approach, you will be changing the culture, and probably the processes, within the prospect’s office, and that requires a great deal of trust—equal to the high risk—as well as multiple levels of approval.

You want to get the equipment portion of the FM agreement on a lease. All FM contracts will have service level agreements (SLAs) with cancellation clauses. Many times if you are involved in an RFP for an FM, the prospect will want a cancellation for convenience clause, particularly in more mature FM segments such as legal. You need to work to separate the cancellation request so that your services are cancellable but the equipment is not cancellable. Failure to negotiate this will more than likely require you to carry the equipment as a rental asset and will increase your investment to launch an FM program. I wish I could tell you that this was an easy negotiation but it is not since there are many companies in the FM space who will provide cancellation for convenience.

The services portion of the revenue stream will return north of 25%. The margin will be influenced by the ratio of full time equivalents (FTE) to other services in the account. Accounts with a high ratio of the revenue driven by personnel (FTE) over output clicks, scanning or other non-personnel driven revenue will have a lower return. FM contracts average two FTEs. These on-site FTEs are supplemented by a pool of floaters, meaning that they move from account to account to cover absences. You will need to maintain a ratio of 10% floaters to contracted FTEs to ensure adequate coverage. This is a cost you need to take into consideration when pricing an FM contract.

You will find prospects who want to outsource but who also want you to retain their current employees. Frequently, these employees will be paid above market wages or will be marginal performers. With the latter, you frequently find that the prospect simply does not want to be associated with an employee termination. Both of these situations can be addressed if you have a large enough portfolio of FM accounts. Simply promote that strong yet overpaid employee to a larger site or to a multi-site supervisory position where the responsibility matches their compensation. Negotiate that as part of your contract. You

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