by Tom O'Neill
My last post took us to the edge of the volcano and looked into the business model that has been used in our industry for decades. I questioned whether the more-than-40-year-old business model for our industry — hardware sales/leases and click billing arrangements — is sustainable. I believe many would agree that it’s not.
Lower priced A4 MFPs combined with overall page volume decreases have many dealers resigned to living with lower hardware revenue and increasingly lower service revenue streams. But, the fundamentals of the business model still make sense: Sell an item and set up a recurring revenue stream. That model still works if what’s sold and what makes up the recurring revenue are redefined.
Dealers have added production or wide format printers and some have moved to “solution selling” by including print management, document management, OCR or workflow software with hardware sales hoping to regain lost revenue and profit. Yet these still rely on the current definitions of the business model.
A minority have changed to use an MPS/MDS approach. Still, while this was once thought as a new way to approach and manage print, the model too easily slips into just another way to sell hardware (via replacement or right sizing) and click pricing. If the model is based on hardware placements and clicks, whatever you name it it’s still the same old business model.
Various dealers have added professional, consulting, and managed IT services into their portfolio. Most often services agreements are sold and billed on a recurring basis. This concept of selling and billing for services is driving a new definition of the print business model into “print as a service” discussions. This model treats the hardware and clicks not as items to sell to customers, but as tools that help a dealer deliver the print services and other high-value services agreed to.
However, maximizing print, software and services sales in an account can add complexity through multiple methods of delivery and use, multiple invoices and varying agreement expiration dates. These can cause problems ranging from increased dealer administrative costs to customer confusion and dissatisfaction. What is needed is a way to consolidate these services billing into one manageable billing method.
Seat-based billing (SBB) has emerged in the last few years as a possible way to deliver and bill for this new model.
SBB is a flat-fee-based billing that is calculated upon the number of users that actually use the services that the dealer provides. It provides many benefits to both customers and dealers:
- Single flat fee per month makes it an easy planned-for expense for customers and makes invoicing simple for the dealer.
- It removes reconciliation disputes over the number of pages actually printed.
- It can allow an easy way to add additional services that will benefit the customer or even reduce dealer costs.
- It is similar to how IT services are sold and billed — think Office 365, Box, SalesForce.com — therefore it’s familiar to many customers and dealers who have sold these type of services.
- It can make the deployment or reduction of print hardware a decision of the dealer as long as service level agreements (SLAs) are met.
- In theory, it can increase margins on print services as print usage declines and other methods (services from the dealer) are used to handle document processes.
- It eliminates the commodity aspect of sales and billing — hardware price and click price — and makes it extremely difficult or impossible for competitors to substitute and replace systems.
The SBB model may not be for everyone. There are some important things to take into consideration. Here are a few:
- Trying to use SBB for only print management will not work. Customers won’t pay more for print than they are paying now so added services that are relevant, with demonstrable value to a customer, must be part of the SBB agreement.
- SBB requires the elements that traditional MPS/MDS engagements call for — a full understanding of print volume used by the customer and by user; average print coverage; remote monitoring; automated supplies shipment; implementation of printing rules; change management of users; etc.
- SBB agreements may require different SLAs than what a dealer has met in the past and may need “fair play” language to allow for renegotiation of SLAs and/or pricing if needed.
- Selling SBB (services) will require a review of the sales force and their sales process along with how sales payouts are calculated. Moving from a hardware-based sales payout to services based payout will require some changes.
- A strong financial situation, or a financial partner, is needed, capable of financing the hardware and software pieces of the services, especially in terms of flexibility for upgrades, downgrades, or deletions that may occur over the term of the agreement.
- A billing system that can integrate the various billings of services, software, hardware and expiration dates to create a single invoice will be critical.
Redefining this industry’s business model from a hardware-installation model to services will not be easy. However, in the 21st-century services economy, change is a must if a dealer expects to survive into the future. To carry out that change using SBB is one of the tools to consider and use.
Thomas O’Neill is a 35+ year marketing and product strategy professional in the enterprise imaging and print industry. Beginning with positions in sales and training management, for the past 24 years he’s held director and manager positions at Canon, Océ, Lexmark and Minolta. He has extensive experience in hardware and software product marketing, strategic product planning and sourcing, solution sales, marketing content creation and strategies, branding strategy and vertical marketing strategies.