By Terrill Klett
Inflation is a fact of life. Though costs of everything are continually rising, the cost per copy we quote daily has not changed in years. Mysteriously, it seems to be getting even lower. With technological sophistication, dealers have incurred the rising cost of technicians and costs of employing network specialists, yet the cost-per-copy ratio has not changed accordingly.
How can this be? Why is it that we continue to operate on a cost-per-copy ratio of many years past? How does this affect the profitability of this industry? It used to be that service and supplies were the backbone of the office products industry. These days, they seem to be breaking our backs.
"Toner fill," or the amount of toner needed to print or copy on a letter-size sheet of paper, has been the yardstick of measurement for copy costs for decades. These tiny black particles can also be referred to as "area coverage" or "print image area." One hundred percent would result in a completely black page.
Toner fill is measured (or calculated for cost) by fill rate percents of 4, 5 and 6 percent, respectively, for facsimile, printers and copiers. Imagine only a small section of the typical document being black — say 4 to 6 percent of the entire page. While this amount is unrealistic for today's documents, that is what we are faced with in our daily CPC quotation to a prospective user.
What is the basis for the copier and facsimile machines fill rate percentages? Years ago, when a typewriter was the mainstay of office equipment, the average document consisted of approximately 2,000 characters. When copying the document, a fill percentage would result in about 6 percent of the page being filled by toner. Similarly, in 1967, when the U.S. Congress approved the use of the PSTN (Public Switched Telephone Network) lines for facsimile machines, most likely the document was a short handwritten note, for which today's 4 (actually 4.1) percent fill guideline would have been accurate.
Printers are a different story. "HP set the 5 percent mark in the mid-1980s with the introduction of their LaserJet series printers," says Terry Wirth, director of Industry Analysts Inc.'s Technical Services Division and vice chairman of the American Society for Testing and Materials (ASTM) Committee on Business Imaging Products. "There was no correlation between copiers and faxes; it was just an original design they thought would be typical for the first text and graphics-capable marking engine."
The problem with these fill rates, of course, is the fact that a document from today's technologically advanced world is far different from those that were considered when the standards were initially set. The differences in a final document from yesteryear and today are dramatic. Because of the frequent printing of Internet pages, PowerPoint presentations, photographs and spreadsheet programs with charts and graphs, along with a host of other toner-eating images, toner consumption has skyrocketed. I've inquired everywhere I've gone within the past 90 days as to the average amount of toner on a typical document today. The collective response averages from 8 to 18 percent.
I am passionate about this industry and want those involved, from the dealer owner to the sales force to the employees residing in between, to be successful and profitable. I guess that I was foolish to think that the revolutionary idea of changing to a cost per copy based on the standard of 8 percent coverage would be an easy solution. After researching this issue further, what seemed so simplistic actually gave me a splitting headache.
Jeff Smith, president of Pro Buyers (an office equipment consulting firm), states: "This is an extremely complex issue." Lou Slawetsky, president of Industry Analysts Inc., says the subject is a "pet peeve" of his. To top it off, Wirth simply states: "It's never going to change!"
Smith claims it is to the manufacturers' advantage to lowball toner yields. This makes their yields look higher relative to the competition. To make matters worse, each manufacturer does its own testing and establishes its individual standard. There is no independent group in existence to establish toner yields for the entire industry.
Measuring toner fill has become so complex that even the manufacturers cannot do it accurately, says Slawetsky. "They may have a number for 6 percent, but when you ask for another percent it isn't simply extrapolated using a mathematical formula," he says. (For example, 10,000 copies at 6 percent does not simply translate into 5,000 copies at 12 percent.) "There are a lot of variables, such as humidity, paper, dots per inch, image enhancement and the condition of the equipment, that vary the results."
As Slawetsky notes, dots per inch is among the variables. Did you know that printing at 300 dpi uses more toner than 600, because it results in larger dots?
HP justifies the printer's 5 percent as an "average" toner yield, partly because of the e-mails that are printed. Slawetsky has tested this theory on a limited basis and found it to be close to the truth — for printers. However, the problem for the copier dealer is that people do not run to the copier to make 50 copies of their e-mails. They run to the device to make copies of brochures, PowerPoint and other toner-eating documents.
Printer resellers do not get the "copier headache" because a lot of their sales are directed through the SOHO (Small Office and Home Office) market. The market does a lot of low-volume printing and does not even know or care what the area coverage or CPC is. Meanwhile, copier dealers have an ongoing daily battle for every tenth of a percent of their margins.
The Slerexe letter (CCITT Test Chart #1) is used worldwide as the test chart for the facsimile machine. It has a 4.1 percent toner fill. how does it compare to the typical documents customers currently fax, copy, or print?
Ironically, the winner of the coverage game thus far has been the end user, if they reside under a "cost-per-copy" program. Dealers still quote cost per copy based on manufacturer yields, and that ends up hurting the dealers' financial statements. I've seen numerous deals lately with a cost per copy of 0.008 cents (sorry, that's segment 3, not 4). Let's say the dealer cost for service and supplies (including toner) is 0.005 cents, which leaves a profit of 0.003 cents. This equates to a somewhat acceptable 37.5 percent profit margin. If toner cost was factored in at 0.002 cents (using the standard manufacturer's 6 percent coverage), but the toner fill turned out to be 12 percent, the dealer is stuck with the cost of 0.004 cents for toner, to bring the total cost to 0.007 cents. Now the profit margin has shrunk to 12.5 percent. Hopefully the equipment is more than reliable, because an extra service call or two will wash away even the modest profit.
Dealers look to the manufacturer to lower toner cost when all fingers should be pointing to the end users. The end users should be charged according to the documents they copy, print and fax. Cost per copy should not be across the board, but should be considered, then quoted, on a case-by-case basis. The dealer needs to have sample documents (which your manufacturer should be able to provide) that show the percent of toner on a document. Use this to educate the end user and more importantly, figure out a realistic and profitable CPC quote. There is also software available to measure the amount of toner per page. Finally, make sure in your terms and conditions you state that you can charge for toner over a 10 percent suggested manufacturer's yield.
Slawetsky summed it up with a simple statement: "Dealers are getting killed; they don't know what the coverage is and they end up giving the store away."
This will continue until the dealer realizes that any profit could be lost because of the large amount of toner the prospect is using. My vision is to never receive another call stating: "The 'add toner' light is on and I've only done 18,575 copies." Unfortunately, this will probably never be realized because I'm now convinced the quoted percents will not change in my lifetime. I never thought I would see the day when a penny a copy is a bad deal. So much for the old sales adage: "Under promise and over deliver!"