Page Coverage is Risky Business
For the past few weeks, there has been a heated discussion in the LinkedIn Managed Print Services group about page coverage: what are the industry averages, can you trust the coverage percentages that the devices report, how do you estimate the coverage for a single customer, and how do you make sure you don't sustain massive losses from unexpectedly high coverage rates?
There seemed to be some consensus in that coverage rates tend to be below the 5 percent (for monochrome) that cartridge yields are most often evaluated against. Sure, there would be a benefit in having access to industry-wide and vertical-specific averages for coverage rates, which would allow you to easily put together an offer for "typical" customers. For established dealers, an average coverage rate is obtainable internally by analyzing the number of pages billed versus the number of cartridges shipped. Knowing the actual yield a customer is getting out of a type of cartridge is the same, or better, than knowing coverage—we refer to "coverage" only because the metric can be used the same across all devices. Calculating coverage based on pages billed and cartridges shipped will also take into account toner lost during early cartridge swaps, and if desired, cartridges that go mysteriously missing at the client site.
Analyzing the actual amount of toner, ink, etc. printed on paper seems pointless to me, as far as per page charges and contracts are concerned, so the question of trusting coverage rates that are generated by OEM or other software becomes a moot point.
I didn't mean for this blog to argue the usefulness of coverage. Obviously, if one or more clients are putting a lot more toner on paper than expected, and you are charging a flat per-page rate, this could severely damage your bottom line. So the real question becomes, how do you mitigate this risk? Here a few options:
- Allow the profits from most clients to cover the losses from a few. For the majority of a dealer's customer base, this should work fine, provided you have done your research with regards to your historical coverage rates and base your contracts on that. The only problem here is large clients—you don't want to risk having a loss here, but at the same time you may need to be price-competitive.
- Do a thorough analysis of the coverage rates of every client, or major client, prior to signing a contract. I don't think this solution is very reasonable, even if only done for major clients. For one, how do you accurately measure this over a short period of time? Even if you have software that will do the heavy work, who's to say that the period of time you're analyzing is representative of how the client prints all year? What if 50 percent of their annual printing is done in one month, when they print all their marketing materials for the upcoming year? If you take this approach, it may work as a good base, but you should still not expect to see the coverage numbers stay the same all year round.
- Insert contract provisions to mitigate risk. I think the solution to most, if not all, of the issues surrounding coverage can be solved by using smart contract provisions. A dealership shouldn't be viewed as unreasonable for wanting to protect itself from losses. It's like any equal billing contract: I get my utility bill every month, and for six months it's the same rate—if I use more or less than they expected, then my rate changes for the next six months. Clients shouldn't be opposed to this type of deal. The provision could be included in a number of ways: their rate could increase proportionately to their increase in coverage, or they could pay directly for the additional cartridges they use while their rate stays the same (although it would make more sense for a rate increase if the coverage was consistently higher than anticipated). To be fair, their rate would have to decrease if they used significantly less coverage than anticipated, and I understand that this could take away an easy addition to the margin for a dealer.
By combining the above three methods, you should be able to diminish any major risk you are taking by offering a per-page rate. One benefit of MPS is that it allows clients to budget for their printing expenses—this does not become a false statement if the invoice changes moderately over several months. Nobody expects to receive a service for less than it costs the provider, and coverage for individual customers is one thing that will always be better evaluated in hindsight.
A lot of good ideas came out of the LinkedIn discussion, and it's probably not done yet. I still believe it would be useful to have industry-wide and vertical-specific average coverage rates available, if for nothing more than to generate a baseline for contracts and stop (slow?) the debate on the topic. Any interest? Maybe this is something we can undertake at The Imaging Channel.
Posted by Emily Offshack on 08/04/2010