It is a great time for the independent dealer

But just what are you doing to “Shine” in this recession? Here are some tips to help you exit this economic downturn in a better position than when you entered.

Your customers are in a different situation, so offer them new solutions:

For years the copier industry has thrived with a combination of low and consistent lease rates, decreasing aftermarket costs, and equipment with more features for the same price. These three variables have produced an environment where the industry could offer “bigger, better, faster” for basically the same monthly investment. Today, these variables are changing as lease rates increase and the Japanese manufacturers pass on their FX challenges, at the same time that your customers are looking to downsize, and possibly reduce the quantity of printing assets and reduce their equipment expense.

Become the solution provider for your customers. The definition of solution is a resolution to a problem, and the clear problem today for many companies is lower revenue and profit; so help them reduce their cost of printing. This may include recommending A4 products to replace A3, reducing the number of overall assets, or finding ways to move outside printing to internal assets. All of these solutions require a change of attitude and additional training for your sales reps. This 30,000 foot assessment doesn’t provide you with the details you need to really change so spend some time with your senior team to put together a plan on how you will help your customers survive the economic downturn: If you do, you will have long term loyalty.

Don’t be too quick to cut prices:

Let’s assume you are at the Strategy Development Financial Model of 36% gross profit on your equipment. We’ll further assume that you produce $5,000,000 in annual equipment revenue, generating $1,800,000 in GP. You decide to become “more aggressive” to grow your market share and lower your prices by 5%. This year, in a recession, you generate $5,200,000 in revenue at 31% gross profit. You have lowered your gross profit from $1,800,000 to $1,612,000; is that what you expected? You would actually have to increase your equipment revenue by 16% to generate the same gross profit—and that probably won’t happen.
There are growth strategies that will work in today’s environment, but cutting price is probably not one of them. Maintain your gross profit even if it means a slight decrease in revenue.

Evaluate your compensation:

In the sales arena nothing drives behavior more than compensation. If you truly want to achieve the first two goals make certain your compensation matches the goals and training. If your goal is to help companies reduce their overall spend on print assets while adding profitable aftermarket revenue and your compensation plan pays strictly on equipment placement you will not get what you desire.

Watch your capital:

For years anybody could get a loan for virtually any amount. This has led many companies to leverage up to the point where one bad month could cause a catastrophe. In today’s economic environment that bad month is inevitable. It is key to manage your company for capital efficiency: Monitor your return on capital. You should also understand you debt agreements, including all covenants. Expect the unexpected and develop options should your lender have a sudden change of direction.

You should also focus on large uses of cash such as inventory:

Monitor your inventory turns and ensure they are at or above the Strategy Development Financial Model.

Evaluate your people:

When business is thriving most employees look like geniuses: Companies don’t employee a robust employee evaluation process. In today’s economy it is quite possible that you will be put in a position where you have to lay off employees. Nothing will help you make the correct decision like a good evaluation process. The other side of this coin is that you will know which employees to reward during the downturn. It is critical that your star employees are recognized and rewarded.

Believe it or not, this is also a great time to be recruiting stars from other companies. Many companies will lack the planning to make good decisions; they will treat all of their employees as equal, both performers and under performers, and alienate the stars. This will create opportunities to add quality to your team.

Cut your expenses for the long term:

Don’t panic, but the current economic environment is the perfect stimulus for you to look at reducing your expenses over the next one to five years. Want one key to reducing expenses: Drive productivity. The Strategy Development Financial Scorecard focuses on productivity and you should certainly have these metrics at the top of your company’s scorecard. Some quick looks are revenue per employee, equipment revenue per sales rep, CPP revenue per print management rep, revenue per administrative employee, and service revenue per service employee.

Think about acquisitions:

It is ironic that most acquisitions are completed when the prices are the highest. This isn’t an imaging company phenomena but rather business as usual. Just like companies seem to always conduct share repurchases at the peak of the market. Many of the industry acquirers have shut-down or significantly curtailed acquisitions. Yet there are principals out there that probably were thinking of retiring before the economic meltdown and are now in a situation where they do not want to fight through the current economic downturn. These companies can be bought at bargain prices relative to just two years back. Look to grow your market share with a strategic acquisition.