In our podcast series “Convergence Radio” we have an episode titled “When Worlds Collide” which features startling conversations between an OED (Office Equipment Dealer) and an MSP (Managed Services Provider) on the topic of channel convergence. Our guests; Preston Woolfolk of DOCUmation and Taylor Toce of Velo IT Group; talked about why they have crossed into each other’s channels and what it’s going to mean for the future of both our spaces. This interview convinced me more than ever that channel convergence is happening and the pace is accelerating.
Today I’d like to talk about the math behind why this should keep you up at night with excitement. A lot of OEDs have no idea what the revenue opportunity for convergence looks like. Understanding the math, the business opportunities that convergence could bring, is really important. This is where the decision to change or do more of the same happens!
First let’s profile each channel player. These are gross generalizations but will get us started:
- Annual Revenues: $2M (low-end) to $150M (high-end)
- Offerings: Print-enabled hardware, related consumables, and physical equipment service.
- Strengths: Strong sales culture, 30+ years experience, midsize to large customer base, strong business plans.
- Weaknesses: Low technology acumen, resistance to change, low revenue per/user ($14 to $24/user)
- Annual Revenues: $100K (low-end) to $10M (high-end)
- Offerings: RMM, Network Security, VOIP, Cloud, and other “Stack” items
- Strengths: Strong technical acumen, deep customer relationships, high revenue/user ($90 to $150/user).
- Weaknesses: Weak sales culture, customer base is the “S” in “SMB”, predominantly “lifestyle” businesses.
Business Case for OEDs Offering Managed Services:
If the amount of revenue an OED makes per/user is $14 to $24 user, imagine adding another $90 to $150 per user. Of course an OED is not going to entice every single customer, but even if that was a meager 10% of the base an OED could grow its current $10M a year dealership to $16,249,600 a year!
The broad-strokes opportunity math:
- 10% of $10,000,000 in existing revenue = $1,000,000
- $1,000,000/12 = $83,333/month
- $83,333/$24 per user/month = 3,472 users
- 3,472 users x $150/month = $520,800/month
- $520,800/month = $6,249,600/year in new revenue
There is an adjacent offering to print that will be easier to sell and deliver than a managed services stack: document management. As this is related to print; just digital documents not paper; this could be an easier place to start. Using the same assumptions listed above, add document management revenues which can garner you another $35/user/month:
- 3,472 x $35/month = $121,520/month
- $121,520/month x 12 months = $1,458,240/year in new revenue
A full stack of managed services combined with document management is an opportunity to increase your revenue from $10,000,000/year to $17,707,840. And this math is based on only 10% of your base for managed services and 30% of your base for document management. Achievable? Certainly. That’s nothing to turn your nose up at. Add to that the fact that you already have a warm existing-customer base and the potential becomes that much more realistic.
Do you think the math is too aggressive? Do it again at 5% of your base. Darn, it’s only $3,885,392, who would want that chump change? Do you think that the per/user amount should be $90 for your managed services offering to be conservative? Do you feel that you could actually convert 30% of your customers to document management? I’m not telling you the final math you should go with, but really understanding the revenue opportunities per user and a realistic conversion rate are important ingredients to whatever cake you decide to bake. Only by quantifying the business opportunity can we make a decision on direction.
“Convergence Is Too Difficult.”
Have you tried and failed to offer managed services and document management already? Progressive dealers don’t let that stop them. They figure out WHY they failed, tweak the model, and move forward. There was a time when copier dealers didn’t offer managed print. There was a time when dealers didn’t do scanning and routing. The “Copier Dealer” became the “OED” but most people don’t remember the hard work of that transformative period. But it happened and we succeeded after lots of stops and starts. So, looking at effectively selling and delivering managed services and document management, how are we going to do that? We need to ask questions like:
- Do I need to have a separate P&L for my OED and MSP practices?
- Is it better to build my new practices from the ground up or to work with a partner like Collabrance or Continuum?
- Does an offering like PlacePoint sold by the seat make document management easier to sell to the masses?
5 years from now the terms “Copier Dealer” and “Office Equipment Dealer” will start to sound like “Typewriter Dealer” and “Fax Dealer.” The market is becoming a pure services market, whether we like it or not. All that’s left for us to do is understand the business case and do the work of becoming more. Our customers are not going to accept anything less.
Are you an OED that has successfully migrated to managed services and document management? We’d love to hear your thoughts and wisdom. Are you an OED that believes this is just a distraction and that what we need to do is hunker down and be the best at managed print and MFD sales? We’d love to hear from you too! Leave your comments and join what could be the most important conversation in the last decade.