Creating a successful managed print services (MPS) practice involves some diligence and a series of logical elements that involve market research, vendor selection and sales strategy. But even the most finely-crafted MPS offering requires one additional step: setting the price.
Like any managed service, MPS pricing depends largely on the solution provider’s business model and can range from a la carte pricing and monitoring-only prices to more complex and customizable tiered plans and so-called “value pricing.”
Getting the recipe right
The exact recipe for successful IT services pricing depends largely on the partner and their approach to the market. With managed print, however, there are some universal elements solution providers should consider before putting a price tag on their shiny new MPS solutions.
At the heart of managed print services pricing is the concept of per-page pricing that takes into account all of a client’s printing needs, their typical use for both color and black and white output, an estimate of consumables use and the expected maintenance costs over the life of the contract. Extremely complex mathematical equations have been created to arrive at such estimates that factor in the partner’s risk exposure and attempt to smooth out any lumpiness in the contract that might affect the service provider’s margins.
Keeping it simple
The ultimate goal is fairly elegant in its simplicity: arrive at a recurring monthly MPS figure that helps the client better manage printing costs while providing a profitable recurring revenue stream for the partner. The best MPS agreements strike a balance with the numerous variables that affect the service provider’s profitability and the need to account for those variables in a way that doesn’t scare off the customer with onerous and confusing contract language.
Four considerations for successful pricing
The services scope
IT services providers often come at managed print with two distinct offerings:
- The lower-tier service amounts to a print supplies management program that offers discounted consumables and some basic level of software-enabled print management and reporting. Managed services providers will often offer this level of service free of charge as it boosts consumables sales and serves as a valuable tool for upselling to more robust MPS.
- The comprehensive, higher-tier print service includes device monitoring and management, consumables replenishment and on-site maintenance services typically bundled and billed at a per-page rate.
The consumables coverage model
Part of the calculus in managed print pricing involves estimating the consumables that will be covered in the fixed monthly fee agreement. That gives the service provider a significant opportunity to assess the client’s printing habits and construct a price that benefits both the customer and the partner. But there are risks.
You’ll need to consider a truism inherent in MPS transitions: Relieving the client of the burden of toner and ink purchases as a part of the comprehensive effort to reduce their costs can also incent them to print more than they did during your initial assessment. Also, the addition of more modern color printers and multifunction imaging devices often means complicated print jobs that were contracted to third parties now become part of the client’s “new normal” and are done in house.
Ignoring potential fluctuations in consumables use is the quickest way for a partner to go from new contract to unprofitable engagement. You need to make sure your estimates and the contracted coverage amounts for consumables take these risky variables into account.
The supply chain ownership
Many fledgling managed print providers leave themselves vulnerable to profit-sapping changes in client behavior by allowing the end user to manage the ordering of print supplies and consumables.
While that might seem to take some of the total materials management burden off of the service provider, the results can be tragic. Since there’s no financial incentive for them not to do so, clients will often accelerate ordering of toner, ink and paper and stockpile in their office with the idea that they are readying their organization for an unforeseen wave of printing that may – or more likely will never – arise.
Giving the client the keys to the printer supply ordering system is a bad idea; one that can suck most of the profit out of a managed print relationship. Partners need to spell out, explicitly, in their contracts that the monthly price is contingent on the partner making the call when new supplies are needed.
Similar considerations affect the need for MPS providers to stock and store sufficient inventory of repair parts close enough to the client to be readily available via overnight shipping in the event of equipment failures. This capital outlay for contingency parts can have a profound impact on the partner’s profitability and needs to be accounted for as an expense across the life of the program when pricing the service.
The language requires some finesse, particularly in the early part of the sales cycle, but the outcome from the service provider’s perspective is well worth the firm stance against client hoarding and waste of expensive supplies and their need for replacement parts on a tight schedule.
Assess the entire fleet
Providing services across a fleet of aging printing devices often made up of units from a variety of manufacturers adds another wrinkle to the pricing game. It can be difficult to assess the exact risk to the partner when it comes to servicing these heterogeneous environments if they haven’t been accounted for in the MPS contract.
Before the engagement begins, the service provider should negotiate all aspects of the client’s print infrastructure to determine what resources are needed – from spare parts to technician certifications – to service everything that’s subject to the contract. In some cases, it may make financial sense to provide certified support for older systems, while in other cases, moving the client to more modern MFP devices can help mitigate future risk.
In either scenario, the estimated cost of the approach must be accounted for in the set monthly price. Working with print vendors that offer services along with their products can help push some of this burden up the stack, but the need to account for the risk in mixed-vendor printing environments remains.
Walking the tightrope
Pricing your managed print services effectively can be a bit of a tightrope walk. Partners need to account for a host of hidden elements to ensure the recurring monthly fee remains sufficiently profitable to justify the engagement.
By the same token, you don’t want to appear to be nickel-and-dime-ing the customer on a service that is supposed to make their printing and imaging more efficient and cost effective.
Understanding the underlying forces at work in a typical and complete print services engagement allows solution provider to build these costs in at the assessment phase and ensure a successful MPS relationship for both the client and the partner.
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(This article was first published on IT:Connect & Expand, a 2112 Strategy Group blog presented by Xerox for managed service providers.)
