Recently, we asked what options exist for an office products reseller to grow its business. We know the business environment is tough and we know there are no easy options. However, what we have steadfastly maintained, despite the difficulties, is that options do exist. But, they are limited, and they require hard work over a sustained period.
We published an article at the end of May 2017, titled "The Most Important Graphic for Digital Transformation You'll Ever See" and, within the article, asked four questions:
- What's my website traffic volume and my traffic sources?
- What's my customer churn rate?
- What's my customer acquisition cost and lifetime value?
- Can I profitably grow my business in the challenging digital environment?
In looking at the relevancy of these questions with regards to independent office products and equipment resellers, let's segment the remaining resellers into two groups.
- Those with access to capital for the purpose of acquisitions, and;
- Those with no access to capital and no ability to do acquisitions
Of course, it's the minority who fall into the first group so, logically, the majority are unable to acquire other resellers to protect or grow their top line, making their only chance for survival organic growth. Unfortunately, most are poorly positioned to achieve this.
We know it's impossible to increase revenue in a declining market without increasing market share at a rate that's greater than the decline in the overall market. We also know customer churn rates are increasing as more and more buyers researching online are seeking, and finding, alternatives. A shrinking market combined with increasing churn is a frightening combination and, unfortunately, an increasingly likely scenario for many office products resellers.
There is evidence that resellers with access to capital are buying smaller resellers who have little option besides selling up before it's too late. Making acquisitions helps protect the top line but disguises the impact of market shrink and customer churn. Sooner or later, unless the churn and cost of customer acquisition issues are resolved, then the same problems forcing the smaller dealers to sell up, will also eventually catch up with the larger ones.
So, although those with sufficient resources have a window of opportunity to acquire smaller resellers, they must simultaneously take action to reduce their churn and cost of customer acquisition. In accomplishing these objectives they will fundamentally change the shape of their base business as well as increase the rate of return on their acquisition investments.
However, in order to execute this goal, we simply don't see a long term, sustainable alternative to that which may be accomplished through a transformation from analog to digital.
As an office products reseller, ask yourself, what's the difference between an analog and a digital reseller and how far down that path have I traveled?
We wrote about the competitive threats from the National Wholesalers and the OEMs. Challenges resulting from:
- Potential changes to wholesaler service fees, and;
- The possibility OEMs may transition more of their business to their direct model.
Although both these threats could become reality, there are possibilities for resellers to mitigate them through growth.
How can this be?
Well, with growth comes an increase in power - while perhaps not enough to eliminate the threat of increased wholesaler service fees, it provides more leverage for negotiation to control them. Also, with growth, there comes the opportunity to manage a conversion strategy between OEM and aftermarket ink and toner supplies without compromising OEM commitments and risking loss of an authorization.
In the base plan shown in the example, sales of OEM brand cartridges are projected to decrease from around $1.5M to well below $1M, alongside an overall business contraction of more than 10% per year. However, in the Digitol plan, by leveraging the improved value proposition of high quality aftermarket office supplies, the reseller is projected to achieve growth of 10% per year while maintaining sales of OEM brand cartridges at around $1.5M. The key difference is the sales ratio of OEM to aftermarket ink and toner supplies changes from 70/30 in the base plan to 46/54 in the Digitol plan!
Experiment with your numbers, click the button below for access to our interactive calculator!
However, as we've said, it's not likely an office products reseller can achieve growth without a comprehensive digital strategy. Remember the four points above:
- Increased web traffic,
- Reduced customer churn,
- Reduced customer acquisition costs, and;
- Understanding enough about overcoming the challenges, to implement a digital strategy for sustainable growth.
A reseller, with an OEM authorization that's viewed as an asset important for the future of its business, can't rely on this asset to protect the future of its business. Market share cannot be increased by relying primarily on sales of OEM branded ink and toner. It's too competitive and there's insufficient margin so, growth must come from aftermarket products where margins are much higher.
Once the required sales conversion tactics (from OEM brands to aftermarket alternatives) are perfected, they can be strategically used to protect existing accounts currently dominated with OEM brand sales. It's inevitable, sooner or later, these accounts will also come under attack, and resellers need to be prepared with the options and skills to protect them.
At the end of the day, sales growth built around aftermarket office supplies is one of the few weapons that will allow a reseller to continue to meet an OEM sales quota (or other obligations required to sustain an authorization) while simultaneously positioning it for longer term success.
Visit the E&S Solutions suite of business calculators built specifically for office products resellers looking to develop a better understanding of the requirements and components required for a digital business transformation.
