The Death of the 48, 60 and 66 Month Lease

I am not a fan of the government deciding which contract I should and should not enter into.  I believe that business owners and decision makers are smart enough to determine which contract is best for their business needs. 

 

From the leasing company perspective, the average term of a mfp leases in most leasing companies entire portfolio range from 45-49 months.   This means that you have a mix of lease terms and the longer terms are the majority of the leases being written.

 

From a user of mfp's on a daily basis (leasing/banking is very paper intensive), many of our machines work just fine even though they are older than 3 years.  During my tenure at this company, our machines are kept from 3-7 years depending on the needs of the users.

 

From a dealership perspective - I have sat in on many training sessions and the industry experts have shown dealers that the most profitable term for the company (not the sales rep) is the 60 month lease.

A mandate like that would drastically increase the monthly budget of non-profits and other cost-conscious organizations.  The right lease term for a client isn't up to us as salespeople; it's up to the client.  Meeting their needs (not setting yourself up to churn your base) should be the priority when discussing lease term options with a client.  Some companies want the latest & greatest technology and are fine paying more over a shorter term to have that luxury.  Others don't care about that so much & would rather minimize their monthly operating expenses allocated to imaging equipment & services.  Other customers want to purchase their equipment outright & either replace the asset when it is fully-depreciated or run it til it dies.  In the long-run, that's least expensive option (due to high lease rates & padding by dealers), even if it requires getting a loan from their bank.  Once you've been in the industry growing and managing your customer base for long enough, the term becomes irrelevant to you, because you always have leases coming up for renewal. Some years you won't have as much which means you just have to work harder to gain new business to get to your numbers.

Our industry is in bad enough shape without such a mandate.  I rarely do 60-month terms and when I do its because its what the customer wants or its what they've already had.

 

I would also add that the equipment is having no problem making it to the end of term.  If anything, the problem I am facing is the equipment is running so well that the customers take the buyout at the end of the lease and keep the equipment for years beyond the original lease term.

fisher:

 

I have some of the same issues with customers deciding to pay the FMV cost and then keep the system for as long as they can.  When I had my own dealership, we had a policy that after 7 years we would only offer a labor only contract (no parts) and after 10 years we would not offer any agreement.

 

We do a large mix of 36, 48, and 60 month leases. I am seeing more and more people doing 60 month leases now because they know this equipment may be outdated in a couple years from a technology standpoint but they also know the machines last longer than most lease terms we can offer. We do cut contracts off at 7 years completely - Either they purchase/lease a new machine or we raise their service rates about 3 times what they are. We have actually had some people recently pay 3-4 times higher rates instead of purchasing a new system. That is rare but it has happened recently.

 

I believe we quoted one customer like .07-.09 for b/w and around .25-.30 for color and they decided that was better than buying a new system

On the topic of servicing aged equipment, the manufacturers have to guarantee availability for 7 years after a model has been discontinued, you end up with machines that are 9-10 years old.  If the volume is moderate, & you have been getting annual service increases, these can become very profitable machines, especially if you use some aftermarket parts from Katun and like.  As our industry becomes more focused on recurring revenue & machines continue to become more reliable, older machines can be a cash cow.  We need to do a better of providing reps with incentive to grow recurring revenue.  A machine running 10k per month that generates $200 in revenue each month at 60% margin is much more valuable than a new one sold with little hardware margin & $90/month in recurring revenue at 40% margin.

txeagle:

 

I agree with that!  Problem is the company I work for scrapped all commission for recurring MA. We used to get 4 0r 5 percent I think. When we launched managed services the recurring MA commission was scrapped.

Your dealership is shooting itself in the ass, as is mine and most others who do not pay monthly recurring revenue commissions.  It doesn't matter whether it comes from a traditional service agreement, an MPS (does just mean printers) agreement or Managed IT Services agreement. It should all be paid a residual.  That aligns how our clients pay us, what ownership says their focus is and how we are compensated.  A lot of owners are afraid that reps will grow recurring commissions to the point where they stop working, but if you have a rep that's around that long, he's made you a lot of money, so who cares?  Most of us got into sales, because we control our income based our production, & there's no such thing enough money for the good ones. And, we get really bored if we aren't working on something big.  Another classic example of our industry being stuck in the dark ages.

Again. I agree!  When there is a maintenance agreement question with any of my accounts now, I hand it off to our client care team.  I could get involved, but won't because I'm not seeing any revenue on it. In fact, there have been many deals where I just recommend the basic warranty.  Not that I want that, however in some cases it's easier to get the order, than fight pricing on maintenance after you've won the battle with the copier.

 

I was at a point where I was getting about 500 per month on residuals, now I get a whopping $47 because of one MNS deal.  I'm finding MNS is just taking too much time, and much longer to close and manage.

 

And they aren't giving anyone any real incentive to sell MNS.  It's where we need be living, but if I can't make decent money it, & our company isn't excelling at it, I am better off selling our past than what should be our future.

My company is actually excelling in it with technology, staff, and programs available. With me, I have a high revenue quota each month, MNS does not count towards revenue and bonus. Hardware and IT Block time counts, so what's a salesperson suppose to do?  I'm finding it hard to balance both and close deals for both.

I'm in the same boat as far as how to balance it. My quota is almost six figures, & an IT deal does nothing to help with that.  I also know that my client list and prospect list are larger than my company could handle for MNS, so I'm not even sure who to call on for IT and don't have time to figure that out while doing what's necessary to hit that quota.