Have you heard of these? If not pay close attention. Recently I have read a few industry articles from the VAR (Value Added Reseller) side of the business.
The latest buzz word are these "Utility Models", these are printers both color and black that will be given away to the end user in lieu of the end user purchasing supplies from either manufacturer or the dealer that gave them the equipment!
Whoa! was my first thought, my second was how do I make money if this takes hold in the industry.
I'd like to cover the point of taking hold in the industry first. I was fortunate enough to win a trip a few years from Ricoh to visit one of the factories in Japan; here they assembled duplicators, printers and high-speed digital models, at that time they were the 55 and 70 cpm systems.
While in Japan I was able to talk to marketing people and hear the Japanese philosophy on equipment. We’re all here to move boxes, the more boxes the better, the more sales outlets the better. It all translates into TONER! More boxes, more toner, more sales outlets, more boxes and even more toner. TONER is where the dough is for the manufacturers. Service, parts and support are all secondary when it comes to TONER.
Now factor in that color printers and copiers are selling very well and the demand for these products will increase three fold in the next five years. Well, that's right toner consumption is exploding! Profits from Ricoh, Canon, Xerox and the others will also explode as long as they get the boxes in the field (I'd better start changing my portfolio now)!
Utility Printer Models, who will be the first? It's already happened with freeprinters.com, http://www.freeprinters.com, they are giving away to approved customers color printers and color MFP's. Here is a statement from their web site in reference to the C2424DP Multi-Function Color.
Your only obligation once approved in the program is to purchase a monthly supply of ink at a cost of $199 that includes 2 Cyan, 2 Magenta, 2 Yellow, and 4 black ink sticks. (Will provide approximately 1,200 - 2,800 color prints depending on what you are printing) At the end of 36 months the printer is yours to keep without further obligation.
Taking a better look at the numbers, the suggested yield has a large range from low to high. I want to start with middle ground for the volume. So, I will use 2,000 pages as the average yield, and the cost per month is $200. Easy math tells us that every print is .10 cents each, if your volume is average. If you're on the low end your cost is .16 cents each.
They have other models from OKI to HP, I do not want to get into one certain model, but to address what happens when manufactures start going direct to end users.
Can we afford to give away a CL7200 for the supply business? (Assumption will be based on a 36-month FREE contract with labor and parts). Lets just look at the wholesale cpp compared to the retail cpp for the CL7200D is .0767 for retail, now since I am not an owner I have to guess on supply margins. I'm going to use a 50% margin. Our wholesale cost is .03835, thus leaving .03835 profit per print. Keep in mind that the user is paying for the supplies, we are only concerned with our profit. If they do not get the volumes, we sell more and make more.
Lets take a look at a client where the volume is 10,000 color pages a month our profit is $383.50 per month. The 36-month return is $13,806. Cost to install @ dealer cost with delivery is about $2,500. Thus the net profit is $11,306! Well, what about service, would I be way out of whack with two calls per year? Lets figure four just to play it safe. Cost for your service? In the NE I will assume $70 per hour, @ 4 per year, we need to cover $280 and then three years for $840. Now our net is $10,466. How about parts, parts are covered for the first year from Ricoh, so we need to cover two years, again I am guessing, but will anti up with another $1,000 for parts over two years. So, our end 36-month profit should be $9,466 for one color placement for FREE! Of course we have to consider options, what can we do with them, well we could have the customer pay for the options, they are getting the printer for FREE!
Of course this seems to work with 10,000 pages, 5,000 pages would result in a gross profit of $4,733 for the 36 months, 2,500 pages would yield $2,366, and then for the lower monthly volumes we could add a little back for the service calls and the maintenance.
So, how do we the sales people make money if it comes to this? Is a penny per click to muck to ask? Lets see @ 10,000 a month for 36 months the total clicks are 360,000 times .01 = $3,600. The dealers net lower to $5,866. That's $5,866 profit per unit.
Every 10 units in the field will generate $58,666 in profit. Each system will generate $162.00 per month. If you gave away 10 printers per month for one year, I do not want to elaborate further on the numbers, however my point is can we afford to do this?
Am I crazy, are the manufacturers crazy, I don't think so.
I think it would be nice to make a per click charge for commission. For every 10 printers in the field doing 10K a month I could earn $1,000 a month, and take the hassle out of trying to sell these. I could then concentrate with other items that would generate higher commissions.
Hey, these are my thoughts; if other would like to add, feel free! That’s why we're here.
Art
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