I got an e-mail the other day from a client of mine who was approached by his Canon colour mfp sales rep offering to upgrade his current unit for $56 a month savings. He wondered if this was a good idea and asked me what I thought.
This client is a very knowledgable business person who really knows his numbers but he felt he was out of his depth to analyse the situation. He shared that his current lease had about 15 months to go and was a similar speed machine to the one being proposed. Of course when offered the potential of a new machine and $2,688 in savings over a 48 month lease it seemed like a good deal.
This is the type of offer that is made every day to hundreds of mfp users in North America. Should be simple right? Not so!
Let me show you the math. The current monthly cost of the client's unit was $695 per month, (lease and operating costs on about 5500 images per month 10% in colour). The new proposal was for 48 months at a total of $639 per month, same volumes.
I quickly realized that this was a proposal for an early roll which could cost the client thousands of dollars. Why? I priced up an equivalent model of device and the lease with operating costs would be $256 per month on this replacement device. The difference, $383 is covering the re-financing of the client's current lease balance and additional profit the sales rep will get due to lack of competition at the time of the renewal. Over 48 months this is $18,384 of potential additional cost the client would cover.
Of course if the client does not upgrade at this time they still must pay out the current lease at the higher $695 per month...so how do they save by not changing now. If continue on the current unit (even at a higher cost per month for the balance of 15 months) then replace the device at the then current rate, the potential savings are still in excess of $9,000. In talking to the admin staff at my client's office they had not experienced any difficulty with the current machine and were not seeking an upgrade at this point.
Why do businesses get caught on these kinds of upgrades...early in a lease without realizing the impacts of the rolls? (Successive rolls can easily have many thousands of dollars from previous leases being carried ongoing in future leases.)
It is obvious why the vendor tries this tactic. They get a new deal without competition and can grab a higher margin on the deal. The risk is they get caught and could loose a client because of the tactic employed. Unfortunately, in busy times not every company will take the effort or time to understand fully what is being proposed. As is shown in this case the impact can be substantial increases in cost to the client.
So what did my client do? He politely advised his current sales rep that he was not interested in upgrading at this point and would continue to use his current machine to the end of the lease or until its performance warranted a change. He is not going to get caught in the automatic roll process this time.
Oh, and one final point. This practice of early rolling of rentals and leases is very prevalent in the mailing machine field as well. If your unit is working fine then you do not need to sign a new agreement until close to the end of the current deal. You have much more flexibility at that time than you do in mid term.
Have you had an office machine lease rolled? Have you figured out what it cost you to do this? What are the reasons why an early roll might be worthwhile? Your feedback and experience is welcomed in the comments below.