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| Service Management by Wes McArtor |
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I’ve been very fortunate to have had the
opportunity to work with many outstanding office
equipment dealers in my career. And I’ve seen the
same common problems in varying degrees in almost
every dealer I’ve consulted with. With this in
mind I would like to highlight these common areas
of concern and offer suggestions on how to solve
the often-complex nature of running service.
First let’s look at one of the biggest influences of cost per page: VOLUME PLACEMENT!!! Our extensive database proves that most dealers do not control the type of machines and the volume bands they’re sold in. Every machine has a “sweet spot” or an average monthly page volume that produces an opportunity for a profitable cost per page. Knowing this “sweet spot” can assist you in placing the right machine for the volume expectation of the customer. This will result in a more reliable machine and lower cost per page. What typically happens is sales will sell the highest cost machine they can convince the customer to buy so they get a larger commission, without regards to the volume being produced. Currently more than 51% of all segment 4 devices are producing volumes that are more appropriate for a segment 1 or 2 size device, often with an excessive cost per copy relative to the retail ceiling placed on this size device.
Second, the tried and true measurement of any dealer’s success has been and continues to be sales revenue. This is a very important number and no dealer can afford not to push this number as high as possible. This number has also been a key indicator for growth or decline. However, manufacturers are only concerned with the dealer’s ability to move product whether the products are good for the dealers or not. Most dealers know that sales revenue is only a portion of what has to grow for a dealer to maintain profitability and growth. The concern I would like to put forward in this article has to do with the disturbing trend of declining overall service revenue despite sustained or growing sales revenue. Every dealer should be aware of what percentages of their sales are being made to existing customers, replacing existing equipment. This percentage should be compared to those sales made to new customers who have never owned equipment of yours before. In many of the established dealers I’ve visited, this percentage is 60% or more of existing business, and 40% or less new business, while in other business models this trend is reversed. The key is understanding the “churn rate” and what this is doing to your bottom line, and then outlining an action plan to correct the issues. Let’s look at the drivers that influence the “churn rate.” More often than not this is determined by the financing or lease terms, and the requirement of sales to make quota, rather than “is the machine profitable or not.” In so many cases the fear is that if we don’t replace this equipment the competition will. While this may be justified in some cases, it isn’t in most. In tough economic times it’s often much easier for the customer and the dealer to renegotiate the terms of the lease or to extend the machine to a CPC rental, than it would be to capitalize all new hardware. That’s assuming of course that the performance of the equipment and the technician is and has been satisfactory. Let’s assume for the sake of argument that you are very successful at maintaining and reselling your current customer base at all segments. Let’s also assume that you annually increase the cost of service where contractually allowed to do so. Over the course of the 3 to 5 year life cycle you will have seen an overall increase in service revenue from these accounts. Now, what happens if you have a sales department that is focused on re-selling this base, and they somehow convince this customer that this older device needs to be replaced by a newer more reliable device? You’ve taken the exact same number of copies and lowered the service rate, thus your revenue. This is done under the often erroneous assumption that the new machine costs less to service than the one it replaced. Although it is fair to say in general that newer is more reliable than older, you must keep in mind that the technicians have experience on these older products that often improves the machines’ overall performance. The new products have more expensive parts and because of the additional bells and whistles, tend to have more operator error calls (learning curve) and incomplete for parts calls created as a result of inventory not having the necessary history to determine proper stocking levels. As a result for the 1st year or so the cost per copy is actually higher. So while you’ve successfully kept this customer in your base, you have not increased their copy volume, but have decreased the revenue they produce for your company. The long term net effect of this example is declining service revenue and/or profitability. You’ve made your vendor happy selling more of the entire product line but I don’t believe you’ve done yourself any favors. Many dealers are providing high quality service to a very disloyal customer base that tends to complain more and generate less profit than your higher end accounts. Which begs the question; why are you selling there in the first place??? To satisfy vendor agreements? Do they have a vested interest in the success of your company, or will they sign another dealer in your area at the drop of a hat? It is my belief that the successful dealer will be very selective about which customers it can provide quality service for, and which customers it wants to have. You must be willing to sell hard but also willing to walk away from deals that will not make or cost you money. This is even more important in the MPS environment. Many dealers are taking MPS deals that cannot and will not be profitable in the long run because they don’t fully understand the costs or the variables involved with acquiring dozens of models and or brands that need to be serviced. Aggravate that with too many machines that cannot be remotely monitored, and you’re in for a management nightmare. That being said, at times you will need to take a loss on some business to get the business, but it needs to be a knowledge-based decision. Vendor major accounts need to be managed closely because the margins there are razor thin and any service problems can wipe out what little profit there is. Believe me when I tell you, most vendors don’t know what the real world cost of servicing a machine will be, so you must! I am not advocating leaving old machines in the field forever. I would suggest that prior to replacing a machine just to sell a new machine because the lease is up, look at what the cause and effect of replacing this box will have on your profitability. See if you can negotiate with the customer to extend service on the same machine. Sales and service need to work together strategically in the best interest of the company, not for the vendor or the largest commission. Mr. McArtor is the president of BEI Services, Inc. that now tracks every service call that occurs on over 3.5 million imaging devices, around the world. If you have any questions please contact BEI Services, (316)772-0234 or Wes@BEIServices.com. |
