The Severe Drawback to a Lease Rollover
If you are in the market, looking for a copier, because your current copier is breaking all the time, one of the common strategies employed by copier companies is to do a lease rollover (wrapping some of the existing payments into the next lease). Generally, the copier rep will come to your business about 6 months before the current lease expires and offer to “upgrade you for free.” There are a lot of reasons why the upgrade certainly is not free at all.
What is happening with a copier lease upgrade?
Say your copier’s initial cost was $15,000. This is about $300 per month on a 5 year lease (without supplies or maintenance yet.) Say your supplies and maintenance adds up to another $200 a month. So there are 60 payments at $300 – approx $18,000 total paid over the 5 years. 6 months early means there is $1800 remaining on the copier balance and the service plan – say it is $200 a month – this leaves about $1,200 in future maintenance charges.
If the copier company is doing the maintenance, they can drop the $200 a month charge. If they are self financing they can drop the $1800 remaining. Why would they though, most new copiers don’t even make that much in profit. You are generally lucky to make $800 to $1000. This would be giving away $1000 for no real reason.
So why do it? The answer is they don’t do a free upgrade, they just wrap the $1800 into the next copier and choose to give a smaller discount. Say the retail price on a shirt was $50 – but everyone sold it for $35. You still owed $15 to the department store on a previous bill. They give you the good news they’ll forgive the old bill of $15 – and the shirt is $50. Sorry, it’s not on sale like normal. In essence, this is what is happening. Are they lying? Technically no, because they don’t have to give a discount, they choose to generally to get business. But if they don’t have to, why would they? Who gives away profit if they don’t have to?
“I’ll just buy the copier cheaper then, and decline the upgrade”
You can certainly do that, but you will be paying the stream of payments, the $300 per month PLUS the $200 per month for service – So that doesn’t really work. If you want to purchase the copier from a competitor, they have to deal with the $200 a month for 6 months, because it is not their contract and they can’t forgive that. So they start off with a $1200 disadvantage.
The problem with taking the early upgrade is you fundamentally ensure there is no real competition in the deal because the new companies are at a severe financial disadvantage from the beginning because there is the existing contract – both equipment and maintenance to deal with. The current company only has to deal with the equipment.
The best thing to do is to wait out the lease and get competitive quotes!
If you wait your 6 months (don’t forget to give notice of your intent not to renew or you’ll be stuck with the copier even longer… ) then when you are ready, everyone is on a level playing field so you can negotiate the best pricing. You aren’t financing a financed amount. Overall it is just a lot better because you can get 3 quotes where all three have a real chance to offer their best prices without having to subsidize 6 months remaining on an old lease.
If you just paid out the 6 months and said you were going to leave it on site, but you want to make sure you are getting the best deal where people can quote on a level playing field, you would find your current supplier’s pricing would suddenly become much more aggressive.