Are Managed Print Services the future?

The 80/20 rule applies to printer sales just as much as it applies to any other aspect of business and 80 percent of the printers out there are being sold by just 20 percent of the resellers. Which side of the divide do you want your business to be on?

If 80 percent of the resellers out there are not paying much attention to printer sales it’s hardly surprising. The big growth area in the early part of this decade was in inkjet printers and much of that business went the way of the retailers. If you are not an Officeworks, Dick Smith or K-Mart, then selling a lot of low-end printers is probably going to cause you more trouble than it’s worth.

The low margin position of these products make them perfect for volume distribution and volume retail and selling to Mums and Dads, or even small business. A low-end inkjet is not going to do much more than pay for a few beers after work on Friday night.
“You would be mad to try playing in the retail space,” confessed Graham Harman, general manager at printer vendor Oki Printing Solutions. “It is a very, very congested and price driven market. The retailers are enticed to buy significant amounts of product by vendors who take turns at trying to buy market share. There is always somebody trying to buy that business,” he said.

“We have been there and found it a very expensive business to be in. The buyers are not huge consumable users and the money in it is so low that a reseller can’t afford to give any advice or deal with any problems that might arise later,” he warns.

As the decade progressed however, the impetus moved to multi-function devices and colour lasers where the SMB and corporate markets still held some margin for resellers. Harman points to the opportunities for colour in the SME and enterprise space suggesting that end-users have tried colour inkjets and now they want more. Colour inkjet printers have introduced office workers to colour at home and now they want colour in the office. They also want better colour, “dramatically better colour” he says playing to Oki’s strengths, but even colour margins have eventually begun to erode due to
the market entry of cheaper models in this space, according to Belinda Marsh, marketing manager, Kyocera Mita Australia.

Really, the useful margin from laser printer sales disappeared years ago and compression has become something of a cliché, points out Rishi Ghai, program manager ANZ for Hardcopy Peripheral Research at IDC Australia. Despite that, vendors still argue there is money to be made by savvy resellers willing to work to the market conditions.

“There are two ways of making money out of printers,” said Tom Lewis, marketing manager at Fuji Xerox. At one extreme is the low-cost, high volume model such as the retailers. Often the strategy is to use the printer as a value add on another sale such as with a PC. The printer is another element of the bundle. At the other end of the scale are Managed Print Services (MPS) or fleet management and servicing, he says. These specialists have a higher cost model, but enjoy an annuity income from the services they provide and offer a better margin to boot.

Both Harman and Lewis agree that if selling printer hardware is your strategy, then you are leaving money on the table if you are not working to maximise your connection rate on the consumables. Lewis estimates there’s only about a 25-30 percent connection rate between the consumables sale and the people who sell the printer, while Harman tells of one Brisbane-based reseller who is pro-actively trying to sell consumables into his installed base and still only gets about 50 percent of the business.

Even that can be a significant amount over the life of a printer where the consumables spend is likely to be anywhere between five and ten times the up-front cost of the printer. Much of this goes to regular office stationers because resellers – who sell the bulk of the printer hardware - are not doing enough to secure this business.

And the stationer’s are booming as a result. Harman said that as much as 45-50 percent of their revenues are in high margin IT consumables. “Most of them have never put a piece of hardware on any desk in Australia, they didn’t recommend it, they didn’t supply it, they didn’t install it and they don’t fix it,” he said. “Resellers are doing the hard yards getting the box out there with tight margins, but the easy consumables business is going to the stationer.”

Much has been written and said about this disconnect, but resellers are still hesitant to take action by pro-actively selling consumables. So to help the channel make money out of printers, they are increasingly turning to the second method – Managed Print Services.

There’s no doubt that getting a cut of the profit every time somebody presses the print button is attractive, but providing print services can be more difficult than it first appears. Before a deal can be structured the reseller has to work out what it will cost them to service the solution. That involves not only working out a cost-per-copy – which is problematic enough – but an audit of an organisation’s existing printer fleet is likely to uncover a vast un-managed group of disparate machines including everything from inkjets to colour laser MFDs from a variety of vendors.