Go On, Threaten Me
They say you can lead a horse to water, but you can’t make it drink.
Work through this scenario in your head: It’s the beginning of 2011. You’ve been successful in MPS; you’ve won a few headline accounts. Let’s say that, similar to 40-60 percent of the market, these accounts include a lot of HP models, such as P3005, 4250, P4015, etc. You did your analysis, and based upon all the input costs, you threw in the pot; you decided to charge 2 cents a page. (I know — does anyone really charge that much for monochrome printing in MPS anymore?)
Business is good. You discovered the secret sauce for MPS a couple of years ago, and since then you’ve been banking stellar page profits. What was that secret sauce again? Oh, yeah: It was to use remanufactured toner instead of OEM.
Times are good. This MPS thing is awesome. You get to save customers from being ripped off by the OEMs and still make a tidy profit.
And then in December 2011, something changed and screwed up your model, and you didn’t even know it happened. HP discontinued the most popular business printer – the P4015 series – and introduced the M602 series.
You find out the new series is $200 cheaper than the P4015 series, which sounds like a great thing. But when you look at the price of OEM toner, things start to blur. The toner is $294, but that’s for the 24,000-page-yield version. That’s a good value, right?
Hang on a minute. The mainstream jumbo remans you’ve been buying for the P4015 series from distribution run about $150 or less. That’s half the price of the OEMs’. But the remans for the M602s probably won’t be available for another 12 months.
So for the next 12-18 months, there isn’t much you can do to service this series with reman supplies. And when those aftermarket cartridges finally do come out, guess what economic forces are in play – supply and demand. So there’s a limited supply of the remanufactured toner (prices remain high), and there’s way more demand (prices remain really high).
So what does this mean to you? Clue: It’s like a train wreck. It’s coming slowly, relentlessly. Sit down, because this news isn’t pretty.
A CE390X toner cartridge costs $294 at Staples. But you get a really good deal from HP, so you get about 10 points off that, right? So for $262, you get 24,000 pages at 5 percent coverage. That’s a cost per page of 1.1 cents. You make nine-tenths of a cent per page gross margin to cover service costs and all your overhead. Good thing the average monochrome coverage is 5 percent and not more, or else you wouldn’t get all those 24,000 pages, and your gross margin would be even less. Yikes! Somebody get me those PrintFleet coverage reports now!
So how did we get here? Didn’t someone realize how much this OEM toner stuff costs? How much was the toner for the old printer we just replaced?
Let’s say it was a LaserJet 4250 – which uses a 42X toner cartridge – that the M602 replaced. Depending on where you buy your toner, the CPP is between 0.3 and 0.6 cents per page. That’s a gross margin of 1.4 to 1.7 cents per page.
You still with me?
The old printer toner CPP was on average three-tenths of a cent per page. The new printer toner CPP is 1.1 cents per page. Yes, new printers are really that bad. Now pick up the phone and call your sales team in. Stop them from selling new printers.
What’s the solution?
You’ll have to read my next blog: “We’re at A in AIDA.” Warning: I’m afraid the bad news regarding new printers and supplies is even worse than what you just read.
Posted by Christian Pepper on May 21, 2012