A Look at Volume and Cost per Print Trends

<p><i>By <a href="http://www.buyerslab.com/news/viewarticle.asp?article=68984">George Mikolay</a>, Senior Product Editor, A3/Copier MFPs, September 1, 2010</i></p> <p>When one of our subscribers asked us about how cost per page has changed over the last five years, we decided to do a little digging of our own regarding trends not only in per-page costs, but monthly volumes as well. Here’s what we found out. </p> <p>“Since the recession began, the industry has seen declining volumes in each segment of product over the last few years,” said Thomas Walter, director of aftermarket sales for Toshiba’s Marketing and Operations. Indeed, he observed, it seems the historic volume pattern of a successor model always printing a little more than its predecessor model has now been completely inverted. </p> <p>According to Larry Hunt of Larry Hunt Publications, which conducts a wide range of user surveys on document imaging issues, volume on monochrome models in the 85- to 125-ppm speed range is currently about 168,000 impressions a month, down from an average of 250,000 impressions four to five years ago. While the average monthly volume produced on color models in the 30- to 70-ppm speed range experienced significant growth, now averaging about 38,000 impressions, compared with about 8,000 impressions six to seven years ago, this volume has flattened out in the last year or two. An overall decline in usage and total volume per month since the recession began was confirmed by a number of the independent dealers we spoke with as well.</p> <p>So what’s to blame for the volume decline? One of the key contributors to the decline is the unemployment rate, said Toshiba’s Walter. As employment grows, volumes will too. But with current unemployment levels hovering around 10 percent, and flat hiring projected for the undetermined future, copier vendors and dealers shouldn’t be holding their breath. Adding to the concerns is that the recession hit right when people began migrating to color. Companies are turning color off; people are printing less in general. So it’s not realistic to expect volumes to return to their pre-recession 2007 levels. “We’re not going to sit back and hope volumes come back to 2007 levels,” said Walter. “But if we get 90 percent of 2007 volumes back, we’d consider that a success.”</p> <!--break--> <p>As Walter explained, prior to the recession the color cost per page for service and supplies was seeing an annual drop of about 5 percent, while the monochrome rate was averaging an annual decline of about 10 percent. Walter foresees rates remaining relatively flat, and a decline again when the economy improves and average monthly volume by segment moves back closer to pre-recession levels. Hunt agreed that he does not expect to see any cpp cuts in the near future.</p> <p>Because volumes are coming down, there is increasing pressure to hold the line in terms of cpp for service and supplies so that dealers and vendors remain profitable after covering their costs. Hunt concurred, adding that he is seeing an industry average of about 5 cents a copy for color clicks on 30- to 70-ppm color machines and 1 cent for black-and-white clicks. While down from the 6 to 7 cents per color copy the industry was charging back in 2006, the current rates have been fairly steady over the last four or five years. Monochrome machines in the 85- to 125-ppm speed ranges are coming in around 4 to 4.5 mils, which typically requires a high-volume commitment of 100,000 pages per month. These rates have also been in place for the last three or four years, according to Hunt. </p> <p>Still, the dealers we spoke with all have seen their cpp prices erode in the last year or two. Offering comparable prices in the 85- to 125-ppm monochrome speed range and 30- to 70-ppm color speed range mentioned above, dealers have also seen a decline in monochrome segments 1 to 4. For example, while one dealer was getting about 1 cent for monochrome segment 4 in 2009, current rates are around 7 to 8 mils. For another dealer, current cpp for black segment 1 and 2 is 1.3 cents and 1.2 cents, respectively, down from the 2009 going rates of 1.5 cents and 1.3 cents, respectively.&#160; </p> <p>One dealer is raising his prices, knowing full well that he’ll need to discount, given the current state of the economy. On average the selling price for service and supplies for this dealer is coming out to about 20 percent lower than the initial proposal. Dealers also cited continued undercutting by the vendors’ direct sales operations, who have also been hit hard by the recession. The vendors need to move product, and that has driven the price of equipment and service down. One dealer has seen much more undercutting in the last year and a half than ever before.</p> <p>So how do you generate profit given the current state of the economy? For one, continue to price with profit in mind. According to Ray Belanger, CEO of Rockland, MA-based Bay Copy, some prices naturally come down as product technology improves and they become less service-intensive. But other times, prices are reduced simply because sales are made without profit in mind. “Some environments are totally price driven, so you have to be in a position to walk away because those deals just don’t make sense,” Belanger said, adding that dealers have to be responsible for generating profit.</p> <p>It also comes down to generating more volume out of accounts with <a href="http://www.buyerslab.com/bliq/search_media.asp?MediaID=67543"><b>managed print services</b></a> and more color. All the dealers further expressed a desire to see prices for service and supplies remain steady, especially on color machines. “The current color cost point is reasonable, and most people can afford color now if they want to use it,” said Belanger.</p> <p>Maintaining a strong presence and base in A3 (11&quot; x 17&quot;) devices is also key to profitability. “If every dealer started selling A4 (8.5&quot; x 14&quot;) instead of A3, all of our annual revenues would come way down,” said Mike Arnold, president and CEO of CPO Ltd., based in Santa Clara, CA. Indeed, while dealers <a href="http://www.buyerslab.com/news/viewarticle.asp?article=68970"><b>need to play in both A3 and A4</b></a>, by no means should an A4 device be replacing an A3 machine. As Arnold explained, if dealers started replacing all their A3 machines with lower-priced A4 machines, average prices would come down, leading to lower total revenues.</p> <p>Chip Miceli, president of Illinois-based Des Plaines Office Equipment Company, concurred, adding that while current A4 machines from some vendors offer rated speeds comparable to their A3 counterparts, by no means are they designed for copy volume and do not provide duty cycles to support heavy volumes. “We conduct a very extensive evaluation on the products we put in to customer locations. Based on that, A4 devices are best served replacing single-function printers versus an A3 machine,” said Miceli.</p> <p>All the dealers we spoke with are also charging more for services and supplies on A4 devices than on A3 devices. It’s not that the labor has been extraordinarily high, but to cover the higher cost of the parts, supplies and maintenance kits, the dealers need to price higher to be profitable. According to one dealer, the vendors he works with send him a calculator for each model they come out with to calculate the cost to his dealership. Once estimates on copies and prints are entered, as well as labor rates, all these variables are then calculated to determine the cost per copy. On the A4 machines this dealer sells, the cost per copy is almost double that of an A3 MFP. Other dealers try to be more conservative with the pricing on A4, as dealers are just starting to get a good size sample of the devices and the jury is still out on the true operating costs.</p> <p>This article was originally posted on <a href="http://www.buyerslab.com/news/viewarticle.asp?article=68984">Bertl</a>.</p>