You describe a Cost Per Copy agreement as an industry trick to increase profit. How
is it that a Cost Per Copy agreement is so bad?
Actually cost per copy agreement are not just bad, they are the worst thing a vendor
can do for you. There are three very important reasons for that:
Almost all cost per copy agreements include a minimum number of copies that need
to be made a month. Typically this number is higher than your actual usage. This
means that even though your vendor says that they will charge you $.025 per impression
for 50,000 impressions, they are actually charging you $.03125 because you actually
only use 40,000 of the 50,000 copies they charge you for.
Cost per Copy agreements are actually based on some complex formulas that make it
impossible to determine whether you are getting a good price or not. Because of the
complexity of the cost per copy formulas (page coverage, lease factors, and service
costing factors) it is impossible for the client to derive the purchase price for
the copier or printer. Thus it is not unheard of to see profits of 40% - 60% Gross
Profit. A perfect example of this is a law firm client we had some time ago (and
who’s name is withheld to protect the innocent). They had received 3 copiers under
a Cost per Copy agreement from a client. They were paying approximately $4,000 per
month for the copiers and 55,000 copies per month. Only problem was that they easily
could have gotten a traditional lease plus service and supplies agreement for around
$1,500 an month. Additionally, they were not actually running 55,000 copies per month
but 40,000 copies a month. Their end result was an agreement that was costing somewhere
around $0.10 a copy!
Cost per Copy agreements are notoriously hard to get out of. On a traditional lease
you can get out of the agreement for the principal balance. On a Cost per Copy agreement
you need to buyout the principal, the interest, the full contract service value and
the full contract supplies value even though you will not be using the last two!
If you read these agreements carefully, there is no cancellation clause, no buyout
clause and so the buyout is the full stream of payments left including service and
supplies. I prefer to call these the mob contracts. Want to get out early? Tough
pay me. Want to go into Chapter 11 to reorganize? Tough pay me. Building burnt down?
Tough pay me. You get the idea.
We could go on for quite some time on this practice but these three points hit the
highlights. This is not to say that there are not circumstances that require this
type of agreement but these types of agreements need to be entered into very carefully.