Does your franking machine represent the best value for money for you company? Are you fully aware of all costs associated with running the machine? And when do you need to change the machine? When the suppliers say you should or when you want to?
There are sound commercial reasons to use Royal Mail. The cost of sending a franked Second Class letter under 100 grams is 30% less expensive than using postage stamps and there is a further significant discount for using the relatively unknown Mailmark channel. There are also other intangible benefits to franking – such as speeding through the mailing system and the professional impression made by a (sometimes bespoke) franked image versus ordinary postage stamps.
However, there are only four manufacturers in the market, with the top two supplying in excess of 70% of all machines purchased in the UK, therefore controlling price and supply.
This market sector’s sales practices have often been called into question, starting sometime ago with an investigation by the Office of Fair Trading.
The major criticisms have centred on a number of areas such as questionable sales tactics, the high cost of leasing, the “discouragement” to purchase, the high cost of maintenance with additional hidden charges like the costs of recharging the meter per top-up, and the cost of inks and labels.
Industry figures indicate that the working life of a franking machine is in the region of ten years. This should be expected of such relatively technically simple machines that work, unless used in a mailing centre for only a few hours a day.
The industry standard term for a lease/rental agreement is either 60 or 72 months dependent on the supplier. However, it is estimated that a machine financed in such a way will be upgraded by the supplier within three and a half years from the time of initial installation. The balance attributable to the old contract is then settled and rolled into the new contract, generally at a higher quarterly cost. This ‘rolled over’ figure can sometimes account for up to 50% of the total payments being made.
It is estimated that purchasing outright represents approximately only 19% of machines licensed by Royal Mail. This figure is low when compared to other market sectors and can possibly be attributed to the influence from the two market leaders.
All franking machines licensed in the UK are required to have a service contract in place and have to be inspected annually, as ‘one-off call-outs’ are generally not available. They also need to be maintained by Royal Mail approved technicians and the level of service differs very considerably.
For example, if your machine breaks down will it be replaced, repaired on the spot or taken away to base? Will you have to pay for parts? Does it include telephone support? Quite often it is not clear whether the service contract includes the cost of postal updates. Sometimes, the Royal Mail updates their prices and services, which means your machine might need updating too.
Service contracts typically range from 10% to 16% of the price of the machine per annum and the levels of cover being offered can be confusing.
As with computer printers, the running cost of the equipment can look very modest at first but, when calculating the total cost of ownership including the cost of the relatively expensive consumable items such inks and labels, the whole financial picture can change. Confusion can arise if it is incorrectly assumed that they are included for the full working life of the machine when they are not.
Despite stern warnings from the supplier not to use compatible goods (which tend to be around 40% less expensive) you may find they work just as well.
The advice is clear. As the contracts for the supply and maintenance of franking machines are not as straight forward as they seem, a careful comparison of alternative options available is essential, with close attention to the terms and conditions being offered.
A final word of caution: as with all contractual agreements make sure you fully understand what is being offered and always ensure that all negotiations are recorded in writing.