The document discusses the differences between selling digital production equipment to commercial printers versus office customers. It covers topics like buyer motives, solutions, sales approaches, service models, and business models. Specifically, it notes that commercial printer buyers are focused on increasing volume and profits, need reliable mission-critical equipment, and have longer sales cycles. The business model section discusses factors like cost of sales, machine margins around 20-40%, and the variables that impact annuity profit margins, such as environment, color ratio, and toner coverage levels. It includes a sample pro forma P&L projecting revenue, margins, expenses, and operating profit over three years.

1. The Digital
Engine
Carl Joachim
Senior Partner
Caslon and Co.
Opportunity

2. “The Digital Engine Opportunity”
Agenda
• Production vs. Office – What’s Different?
– Buyers Motives
– Solutions
– Sales Approach
– Service
– Solutions Analyst
• Business Model
– Hardware
– Service
– Margins
– Pro-forma P&L

3. Buyer Motives
• What is different?
– How can I increase volume I run through my shop?
– How can I make more money by offering something new and
different?
– I run a mission critical operation
• Equipment reliability and consistency are essential
• Quality and a service organization that has mission-critical capabilities
– I need a safe decision – making the wrong decision could cost me
my job and/or my business
– The more I print the more money I make, so don’t talk about
minimum commitments – I’m going to run as much as possible!
– What substrates?
• Whatever the next job through the door requires
• I need a broad range and an organization that will work with me

4. Solutions – Solving Problems
• What is different?
– Bring me solutions that allow me to grow my business
• 60% of all customers express a desire to consider add-on solutions such as VDP
and Web2Print within 3 months of equipment acquisition
– Teach me how to price and sell digital output (business development)
– Workflow is everything. I need to know at all times where my jobs are and
the current status
– I deal only in mega-sized files. I need the horsepower to process them
efficiently. 90 PPM is worth nothing if I can’t get the job to the printer
– Give me applications that allow me to differentiate from my competitors
– Give me applications and capabilities that allow me to bring
work in-house that is current being sent out (In-plants)
– Give me flexibility!

5. Sales Approach
• What is different?
– There are no short sales cycles. In the current environment expect
an average of 6 months
– Credit approvals can be challenging
• Approval ratios are improving, but still below norms(<70%)
• If you approach as a box replacement you are at an
immediate disadvantage versus the incumbent
• The pain of change is greater than staying the same.
• Need to offer a solution that truly solves customer’s pain points in order
to make the decision compelling
– Pipeline management is critical. It is easy to get defocused
with the longer selling cycles. Weekly reviews are essential.
• Pipeline is big enough
• Cycles are advancing

6. Sales Information
• From experience
– Typical close ratios (from proposal stage)
• Existing office customer: 45-50%
• New business: 25%
• In-plant: 45-55%
• Commercial printer: 25%
• Franchise Printer: <20%
– Minimum pipeline need to support a sales rep
• $300K in 30 day outlook
• $1.2 million in total pipeline at all times

7. Service
• What is different?
– Mission critical
• Few are willing to pay for it (2 hour response, 24x7)
• It may only be needed during certain periods
• Questions get asked and are a test of your savvy and commitment
• Pricing of service
– Understand the environment and applications
– Many variables to consider
– Cannot micro-manage toner usage

8. Solutions Analyst
• What is different?
– The creates immediate credibility
– The SA should be involved in as many steps of the sale as
possible
• Demo
• Site survey
• Statement of Work
• Configuration
– Ideally, SA spends >50% of available time in presales, 30-
35% post-sales
– Key to annuity revenue growth via solutions
– Significant margin can be obtained by selling Professional
Services beyond basic installation and training

9. Solutions Analyst
• Past experience
– Solutions attach rate @ time of sale - 35-
40%
• Some are “mandatory”
– Implement f/u process
• Can grow to 60-70% attach rate within 90 days
post-install with effective sales process
– Average total solution add-on revenue per
color engine $5-15,000
• Gross margin of ~45%

10. The Business Model
• What is different?
– Cost of sales
– Machine margins
– Professional services margins
– Annuity margins

11. Cost of Sales
• Promoting from within vs. hiring from competition
– Competitive hire will cost more, but may gain faster time-to-
revenue
• Past experience:
– An experienced rep expects a base of $65-$75K
– Commission plan that can get them to $125K+
– Quota should be set to ~$1.5M
• Hardware - $1.2M
• Solutions, analyst services, annuity - $0.3M
– If purely an overlay to existing sales team, the price goes
down

12. Cost of Sales
• Solution Analyst talent is hard to find
– Highly technical but with a sales acumen
– Ability to engage a customer in conversation in order to ID
pain points and solutions opportunities
• Past experience:
– Salary of $75-$85K
– Bonus/commission of $15K at target
– Tie compensation to:
• PS and solutions sales
• Success of sales effort
• Overall customer satisfaction

13. Machine Margins
• Expect machine and accessory margins for digital production
color of 20-40%
• Margins will vary based on environment and customer type
– Existing versus new customer
– In-plant versus commercial print
– Certain vertical markets produce higher margins due to the
solutions orientation

14. Annuity Profit Variables
Environ. Color A3 Toner Cov. Toner Cov. Gross Profit
Ratio Ratio Black Color
In Plant 64% 28% 6% 24% 40-45%
Comm’l 60% 73% 6% 36% 15-20%
P4P 63% 71% 8% 45% 15-20%
Direct Mail 76% 68% 7% 34% 20-25%
• Average Color PPP 0.05, and declining
• Average Black PPP 0.01, and declining
• Average monthly volume 70-100k/month
• High A3 with high color coverage needs pricing discipline

15. Pro Forma P&L
Year 1 Year 2 Year 3 Comments
Revenue
HW/Acc 252,500 404,400 606,000 Yr 1 - 5 Units, Yr 2 - 8 Units, Yr 3 - 12 Units
Assumes AM revenue of ~50% due to timing of
Aftermarket 54,138 86,621 129,931 unit placements, and 40k per mo. @ 0.045
Assumes carryover from Prior Yr and receiving
Carryover Aftermarket 0 108,276 281,518 full 12 months of AM Rev
PS & Solutions 62,500 100,000 150,000 12.5 K per system
Total Revenue 369,138 699,297 1,167,449
Margin
HW/Acc 63,000 100,800 151,200
Aftermarket 16,424 26,278 39,417
Carryover Aftermarket 0 32,487 85,403
PS & Solutions 28,125 45,000 67,500
Total Margin 107,549 204,565 343,520
Margin %
HW/Acc 25% 25% 25%
Blended rate assumes 50% Inplant (@40% GP) &
Aftermarket 30% 30% 30% 50% commercial print (@ 20% GP)
Carryover Aftermarket - 30% 30%
PS & Solutions 45% 45% 45%
Total Margin 29% 29% 29%
SG&A
Headcount Costs 140,000 140,000 140,000 1 sales h/c & 1 SE h/c
Commissions 21,164 33,882 50,793 Assumes 5% on HW/Acc/PS and 1st year of AM
Other (ie, Travel/Meals) 20,000 20,000 20,000
Total 181,164 193,882 210,793
Operating Profit (73,615) 10,683 132,727

16. Thank You!