Managed Print Services Models Part I: Lease vs Buy?
In a world where everything seems to be moving to ‘digital’, many people may assume printing is going the way of the dodo. And yet, managed print programs and the costs associated with copiers, printers, and maintenance of these devices are still quite common - and even necessary - for many organizations. While this may be driven by specific industry needs or be the result of an organization’s comfort level with printing, managed print services (MPS) are evolving and continue to be an area of opportunity for procurement to review and help optimize.
Whether your organization is just now making the move to MPS, looking to consolidate your MPS supply base, or trying to better manage your current MPS supplier(s), there are two main cost drivers to focus on within the category: 1. obtaining the device and the associated financing model and 2. The cost per click (CPC) (or the maintenance/service component). [As a side note, the maintenance component goes by a variety of names (cost per page, cost per copy, service cost, maintenance cost, click rate, etc.) and may have slight variations depending on what is actually included in your service agreement. I will refer to all of the above examples as ‘CPC’ throughout this post for simplicity’s sake.]
Lease vs. Buy: Over the past few years, the clients I have worked with on MPS initiatives have been split roughly 50/50 in terms of those that lease vs. buy their copier fleets. Many companies have a marginal mix of the two models. Stakeholders may default to finance or accounting when reviewing these options or simply continue what has been done in the past, but when it comes to lease vs. buy, there are some key areas to consider outside of traditional finance/accounting decisions:
Replacement rate: How often are devices being replaced? If your organization is looking to upgrade models on a consistent basis, take advantage of new technology, and move away from legacy models as manufacturers retire/replace them, leasing may make more sense. You will gain the flexibility to change out devices based on shorter lease terms or even to buyout leases early (if desired) without incurring the upfront investment on the device. Conversely, if your company tends to keep devices well beyond the standard ‘would be’ lease term (3-5 years) and leans towards keeping devices until they can no longer be repaired, purchasing devices outright and depreciating them is likely to align more closely with your organization’s goals.
Financing Rates (aka ‘lease factor’) & Purchase Price: The cost/total cost of ownership may be one obvious decision factor, but you must also drill into what goes into the purchase price and total lease value when evaluating the different cost models:
- Price of the device: Ensure the pricing driving the basis of the lease is competitive, e.g. whatever purchase price would be available to you should be reflected as the purchase price of the device (or be lower than the presumed purchase price).
- Additional fees: In addition to the purchase price, ensure any additional costs such as installation, origination, and pick-up fees are spelled out. You will need to determine if those should be charged separately/paid outright or if they should be rolled into the total cost of the lease.
- Purchase options: Look at the options for when the lease ends and how any residual value of the equipment will be derived if you do decide to own at the end of the lease. Fair Market Value (FMV) is commonly used here, but other models may place a defined value.
- Lease factor: The lease factor is applied to the purchase price to define the monthly lease cost; the lower the lease factor, the lower the monthly cost.
Inventory management/value-adds: Finally, consider the level of fleet management capabilities your organization has in-house to track devices, the size of your current fleet, and the current state of your fleet from a standardization and financing model perspective. Leasing providers often have portals and tools for tracking leases, term dates, renewals, etc. When purchasing devices outright, and if not relying on a MPS supplier to provide inventory management support, you will need to be prepared to maintain the fleet inventory as well as proactively manage disparate leasing providers if you have existing leases in place.
In Part II of this series, we’ll look at the service component structures and discuss key considerations for opting for billing based on actual volumes or defining an allowance and overage-based structure.