By Tom Callinan, as seen in ENX Magazine, July 2016
I was at the Lexmark dealer meeting in Fort Lauderdale in May and saw a great presentation from David Ramos of InfoTrends. In his presentation, Ramos highlighted historical and forecasted revenue for equipment, supplies and service (which are decreasing), unit placements for A4 and A3 devices (which are also decreasing), and US page volumes. It was all interesting information.
Ramos also highlighted what occurred to page volumes in a recession. He showed a timeline from 1989 through today—with an expected drop-off, should a recession reoccur in the next year or so.
Since we’re in an extremely long economic cycle, the probability of another recession is fairly high.
The one thing I don’t believe is that a technological disruption is incorporated into this projection. For instance, I’d guess that landlines per person in the US have dramatically decreased since the proliferation of the cell phone. I know my three adult daughters did not get landlines when they moved out. It’s clear that PC sales have been decreasing substantially every year—since the introduction of mobile devices, cell phones, and tablets. And I’d have to say that cable TV put the manufactures of TV antennas out of business. And now Hulu, Amazon, and Netflix might be doing the same to cable. I can clearly see a movement toward digitizing paper processes, and that’s going to have a chilling effect on the use of paper, as well as the required number of print devices in the workplace. But I have yet to see these technological changes incorporated into anybody’s forecasts.
To me, the best part of Ramos’ presentation was the section titled, “Untapped Potential: It’s Right in Front of You.” In this section InfoTrends states that there are 30,170,141 A4 units installed in the US, which produce 628 billion images (almost 200 billion of which in color). In his presentation, Ramos broke out the Miami-Fort Lauderdale Core Based Statistical Areas (CBSA), which showed:
- 546,556 total A3 and A4 devices are producing 14 billion images per year.
- 492,594 of those devices are A4 (about 90% of the placements).
- And those A4 devices produce 11 billion prints per year (about 80% of the images).
When I started consulting in Managed Printed Services (MPS) 11 years ago, I used to say in my presentation that the revenue coming off of printers was six times the revenue from copiers.
Assuming an image charge of 1.5X that of a copier image and 4:1 on prints I guess I was low: It’s actually 8X the revenue! So I have one simple litmus test for you to determine how effective you’ve been with MPS: Is your MPS aftermarket revenue (which could be 8X your copier aftermarket revenue) at least equal to your copier aftermarket revenue? If not, you’re clearly missing a significant revenue opportunity—when your core business market is shrinking.
I know many dealers threw in the towel in on MPS. I hear many reasons for that, including that they couldn’t make money in the space—or that their sales teams didn’t want to sell it. Some even said they don’t believe MPS is real. Did you know that the greatest scientific minds “proved” that man could never fly—not too long before the Wright Brothers’ successful flight? I’m not suggesting that MPS is an achievement worthy of being compared to the conquest of the air; I’m simply making a point that maybe these folks are wrong with the first and last “reason.” I can point to companies like FlexPrint, FloTech, Marco and Impact Networking as solid examples of companies with robust MPS practices, so they validate that MPS is real. I’m confident that if you speak to the principals of these companies, they’d tell you that MPS is wildly profitable.
That doesn’t mean that the companies that said they couldn’t make money in MPS are wrong. I’ve seen many critical mistakes made by companies trying to get into the space. I started to list them, but the list got so long that it was going to consume the article. So I decided against it. Let me simply state that done correctly, MPS is a 55% margin business. That’s revenue less cost of goods. So in your territory, you have 8X the aftermarket revenue on A4 devices than you do on A3 (so if you have $10M in A3, you have $80M in A4), at a margin that is slightly higher than the margin on the A3 devices. Does that sound real enough to you?
Let’s say you haven’t done a great job with MPS so far. Your A4 revenue is nowhere close to being equal to your A3 revenue, and/or your margins aren’t anywhere near 55%. What can you do?
None of what I am going to say is new; I said it 10, 8, 6 years ago but it was correct then and it is correct now.
- The figures from InfoTrends provide you with two points of data, which should drive your business planning:
a. A3 device placements are declining.
b. A4 devices produce approximately 80% of the images produced by businesses.
- Your experience should support that images produced on A4 devices create 1.5X – 2.5X the aftermarket revenue of the same image that’s produced on A3 devices.
- The data point about the placement reduction of A3 devices should lead you to this conclusion: If you want sustainable growth, you need to find other revenue streams.
- The data points on the A4 market should unequivocally tell you that A4 can be a significant revenue opportunity for somebody
- You now know that you have a highly attractive new business, so you need to put together a business plan and get into the space with full understanding and commitment.
That full understanding and commitment are what I have seen as missing for most companies that feel like they were burned by or failed at MPS.