Recently, I found myself restless in the night. Too much on my mind. There was a big project I needed to make headway on and so finally, at 2:30 AM I just got up and started working on it. It made me wonder—if I’m up at night from time to time, imagine what our dealers, the business owners, the payroll makers’ sleeping habits might be. What’s keeping you up at night?
I imagined the pressure office technology dealers are juggling: leaders who need to grow revenues, protect margins, overcome the competition and keep their employees happy. With all these concerns, are dealers thinking of building enterprise value in their business? After my 20 plus years in this industry, I’m convinced that is what SHOULD be keeping them up at night.
For an office equipment dealer or any company to be valuable, even sellable, one day, there is a lot more to consider than just the bottom line. You need to be asking yourself questions like:
- Can we continue to grow in the future while maintaining margins?
- Am I too dependent on a key employee or key customer?
- Will our competition change?
- Are my future revenues secure?
Whether you tend to keep growing your business, sell it or pass it on to others, it is important to continually strive to increase your enterprise value.
Of course, when determining the value of a company there are several considerations. The diversity of your products and services, margins of each, pricing from the suppliers as well as many other factors. One of the ways you can increase the enterprise value of your business is by focusing on understanding your expected revenues.
According to John Warrillow, founder of The Value Builder System and author of the book Built to Sell, there are six paths to recurring revenue:
- Simple Consumables. One time deals that keep them coming back.
- Sunk-money Consumables. Get them invested at the beginning, so they feel compelled to come back for more. (In the office equipment space, this is like selling a copier and then having the customer order a toner cartridge when they’re out of toner.)
- Subscription Revenue. A sure-fire way to get a fixed amount of payments over time.
- Sunk-money Revenue. Not only did they make initial investment in a platform, they are going to keep buying from that platform. (For us this is like adding a Service contract when selling the hardware.)
- Auto-renewal. As the name suggests, payments will automatically keep coming with or without the customer’s conscious choice.
- Contract Revenue. The ideal place that means you’ve got them solid. They will, under contract, continue buying from you. (Contract Revenue = Bundling! This builds value in a dealer’s business by helping to ensure recurring revenue for years to come).
Clearly, dealers in our space should be striving to have strong predictable contracted, recurring revenue (#6). This is the holy grail of recurring revenue! At this level, you are bundling equipment, service and supplies in a legal renewable agreement. But often, leaders get caught up with making monthly goals and only focusing on the bottom line.
Maybe you’re thinking, “How could bundling help increase the enterprise value of my business?” There are a number of benefits to you and to your customer. Here are a few:
- Increase Enterprise Value: Bundling your products and services into a single payment helps increase your enterprise value by bringing certainty to your revenue streams.
- Sales Rep Retention: Bundling allows for predictable sales cycles. Reps are more likely to stay as contracts are locked in and upgrades are easier and more profitable. Hiring continues to be the #1 challenge for dealers in our industry, so consider bundling as a way to retain your top talent.
- Protect Your Accounts: With a standard service agreement, the customer can cancel or may elect not to review at the end of the service period. Leaving your customer base vulnerable to buyouts. When your bundle the service and supplies into the lease agreement, your future service is protected making the buy-out less likely. A contracted bundled payment also protects profit margins by allowing for annual escalations.
- Productivity: we have found bundling to be both a time saver and a cash flow enhancer, if a dealer implements automation of processes via technology integrations for tasks like invoice/meter retrieval and cash posting.
There are also many benefits to the end user/customer, see the resources section below to learn more.
While I’m sleeping better now with my big project behind me, I’m still thinking about our office equipment dealers and hoping your eyes are wide open to the importance of building enterprise value. Do you feel you have positioned your business to ensure that it is as valuable as possible? Increase your enterprise value and get a better night’s sleep.
Resources: If you're interested in learning more about the benefits of bundling for your business and your customers, download this flyer.
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