Service Agreements and "Free" Copies

Well.....

A) It depends on what they are charing for the overages, not making $25 in profit by getting 1,000 additional color clicks per month could represent a profit of $50 per month for every thousand pages times this by 10 new colors units per month, we then have $500 every month, second month is $1,000, third month is $1,500, fourth month is $2,000, by the end of the 12th month with selling 10 units per month and each one doing only 1,500 color pages a month would represent a profit of $6,000 per month! This can be very lucrative by giving away 500 each and every month, the mindset will be to make color copiers and color prints because the first 500 is FREE.

B) Most Customer Care Agreements, Cost Per Copy Agreements from the Big Boys, Global, Xerox, Ikon and Danka have cost per copy clauses in them, they are in small print and usually on the back of the document. Basically what they state is that if they decide you are using too much toner they will assess an additional charge to the end user, and that they have the right to do this at any point within the lease or agreement. THIS IS BIG! That's how most of them are getting around it!

I think you have to get a hold of a few of these "contracts" and keep them in your "pitch book" and then use them when needed, ot as the saying goes "If you can't beat em, join em", talk to your higher ups and sell them on the idea. I know after writing this I am making a p\hone call to the owner.

Art:

A) I understand about the pump priming method, however it seems like this is assuming the customer was not going to print any color if we didn't give it away to begin with. That is a HUGE assumption.

I don't completely get your math. It seems like you're saying a 1500 volume would yield a big profit. If you look at the table below, assuming that color costs 5 cents to make and the customer pays 9.5 cents for the overages, you only make $20 a unit in profit at 1500 per month. If you charged only 8 cents for these clicks, you would make an extra $100 profit. So, by giving away 500 free copies, it looks like you're actually losing $100 per month. Do this for 10 units, you're losing $1000 a month in profit.


# color Cost Revenue Profit
0 0 0 0
250 12.5 0 -12.5
500 25 0 -25
750 37.5 23.75 -13.75
1000 50 47.5 -2.5
1250 62.5 71.25 8.75
1500 75 95 20
2000 100 142.5 42.5
2500 125 190 65
3000 150 237.5 87.5


assumptions
1) cost is $.05 for a color copy
2) overages are billed at $.095 for color


B) I haven't heard of any of the Big Boys ever exercising any of these clauses. But, I think if they start giving it away they're going to have to.

I think you're right, I need to get my hand on some of these deals with "free" copies in them and find out just how "free" they are.

Here's my thinking and I should have elaborated a little more and should have been more detailed.

1000 pages per month @ .05 profit per page = $50, minus cost of giving away 500 @ .05 = $25, net profit (based on .10) is $25 per month, per machine. Yeah, I goofed!

However, I also though of this. With monthly billing or quarterly billing to add a monthly service charge of $25 (for processing paperwork, meter reads etc,), if this can be done you are back up to $50 per unit.

The whole idea is to use the 500 free copies as a closing tool. Mr Customer if we could give you $500 free color copies per month, would you do the deal today! Having it hanging out there allows anyone to pick it apart. We are going to institute something like this in a few weeks, can't give you all of the detail due to RBS competitors that are reading this. However send me a PM and I will send the details.

In reference to the contracts, I am not sure if they are excersing the t&c's, however if you point these extras out, I'm sure they will think twice about entering an agreement like that.

Sorry for the math mistake, my mind was going either slower or faster than the fingers!

Art:

No need to apologize for the math mistake. I wasn't trying to beat you up, just trying to find out how this thing works and how to beat it.

When I get some time, I may send you a PM to find out what kind of ideas you have for instituting something like this.

Thanks!

Frankly I'd charge a lower color click rate and say to the customer "we trust YOU to manage your color output, why waste those FREE color copies if you don't use them". Of course, I get nothing for clicks or MA's as a sales rep, give me the profit on the box and I'm happy.