Managed Print Services Corner: The Business Model... Do You Have What It Takes? Why Managed Print Services?  Today, Managed Print Services (MPS) is all the rage. Every 'expert', conference, and blog in the industry has a discussion about MPS. Many firms are even beginning to use the term "hybrid dealer", coined by the Photizo Group in a 2008 research report, which described a new type of dealer. This new dealer is a cross between an IT VAR and a copier dealer. This hybrid dealer integrates the best of both worlds to create a service-centric MPS services vendor who is capable of not only supporting multivendor fleets, but also delivering high value professional services including business process optimization and document management services. Why this 'rush' to embrace MPS? First, traditional margins are declining as customers see less and less differentiation between very mature multifunction, printer and copier products. They really don't care if it is five pages a minute faster, or has better finishing. Frankly, in many cases, the technology is already good enough and surpasses the customer's requirement. Margin pressure is forcing resellers to look for new sources of profitability. Second, manufacturers are pushing the MPS model as a way to capture fleets and lock in revenue and customer loyalty. According to the Photizo Group's groundbreaking MPS Decision Maker Study, over 90% of all MPS engagements stay with the first vendor who wins the agreement. Think of MPS as the ultimate customer loyalty tool. Third, and perhaps most importantly, it's defensive. In the past, you could happily sell copiers or multifunction devices into accounts, which were loaded (by a factor of ten to one or more) with single function printers. IT purchased printers, and the facilities, office manager, or purchase department purchased multifunction devices/copiers. Everybody had a 'piece of the pie' and everyone was happy. Now, everything has changed. MPS contracts typically cover all devices in a fleet (2009 MPS Decision Maker Tracking Study™) making it a zero sum game. So, you either win the fleet, or someone else does (putting your installs at risk). Is Managed Print Services Profitable? Okay, so you see the need for managed print services (and besides - everyone is telling you that you must go there), but is it really profitable? The short answer is, yes, very much so. As background, according to industry research, outsourcing contracts typically generate gross margins (after labor) of at least 40 percent. When is the last time you saw a true 40 percent hardware margin deal? We have interviewed many hybrid dealers and have seen several consistent aspects of the business model. •   They are very profitable. The firms consistently drive high gross margins of over 40 percent.  •   They produce strong cash flow. Once the businesses are established and initial investments have been made in infrastructure, hybrid dealers typically generate very strong cash flow. In fact, most of the major hybrid dealers we have seen are self-funded due to their strong cash flow generation. So yes, MPS is profitable. However, there is an investment cycle that firms go through, and often, during the initial phase of the investment cycle margins will actually decrease as the firm makes investments in infrastructure technology, people, and training to transition to the new model. In fact, many firms become 'stuck' in this transition phase where they are still dependent upon the 'traditional' dealer model to fund the business because they have not reached critical mass with the new business model. What Does It Take To Become A Hybrid Dealer? Unfortunately, the answer to this is beyond the scope of a brief article. The bottom line is that it involves moving to a new business model, and as with all business model changes, this requires a complete overhaul of the business. It involves building the skills, capabilities, and resources to deliver complete outsourcing and professional services. You will have to change the organizational structure, sales force compensation, and your marketing. In short, it's a business makeover and like all business makeovers, it's not easy, or simple. However, there are a couple of things you can do to move down the path: Owner Commitment: The bottom line is that the owners of the business have to be convinced of the need for change and committed to making the change. My litmus test - if you aren't willing to invest $15,000 or $20,000 to help you transition the business over several years, then you probably aren't committed to change. (By the way, this is a fraction of what I have seen dealers spend on demo rooms or demo equipment under the old model. So I don't believe it's not affordable.) Cortez burned his ships to force his troops to conquer the new world. Are you willing to burn your ships? Education: This is a big change. You absolutely should not embark on this change without understanding what it will entail. The Managed Print Services Association ( www.yourmpsa.org ) is a great place to start with many free resources available to members. Another is the 2010 Managed Print Services Conference in San Antonio Texas, the only conference in North America dedicated to the topic of managed print services. Check out the pre-conference 'how to' workshop to gain some very good insight into MPS. Subscribe to the MPS Insights Journal ( http://www.managed-print-services.com ) in order to learn best practices and hear from dealers who have made the transition. Read industry leading blogs like Ken Stewart's http://www.changeforge.com  or Greg Walter's http://www.deathofthecopier.blogpost.com . Patience and Perseverance: Rome was not built in a day. And your dealership will not be remade in a day. If anyone tells you that there is a 'quick fix' one-day seminar or simple technique for making the transition, they're lying. The reality is that it takes time--typically two years or more. So engage for the long haul and realize that, like most good things, it takes time to make the change. I truly believe services are the future of the dealer industry. Those dealers who transition to a services-centric model have a bright and promising future. Those who don't simply won't survive, at least in the long term. So now is the time to commit and dive in. It doesn't become any easier tomorrow. Mr. Crowley is the founder of the Photizo Group. Prior to starting this firm, Mr. Crowley spent over 20 years working for major imaging firms such as QMS, DataProducts, and most recently, Lexmark International. Mr. Crowley is also a professor of business at Midway College. He speaks globally on the topic of MPS adoption, market trends, and user requirements.  The Photizo Group is the leading firm providing market intelligence for the Managed Print Services market. The firm sponsors the annual MPS North America and Western Europe MPS conferences      ( www.mpsconference.com ), For more information visit the firm's website at www.managed-print-services.com.