Originally published on IT Web in November 2012.
Chief Operations Officer of Fat Budgie Cloud PBX solutions, John Woollam, has been in the office automation and PABX industry for over 10 years and has since realised to what extent clients are ‘indoctrinated’ when being told of the merits of PBX and their general offerings. He comments on how sales staff are ‘trained’ to convince clients as to how they would benefit from renting a piece of PABX equipment rather than purchasing one for cash. The reasoning for this is as follows: for one, there was little alternative owing to the high cost of the equipment, and secondly, it was a great way for the copier and PABX sales company to reduce the price shock so typical of grudge purchases like these.
PABX: the risk of long-term rentals
For years, the copier and PABX market has relied on bank rentals to purchase equipment that otherwise would never have been justified as a capex expense. When Woollam initially trained as a copier and PABX sales rep, he was taught the benefits of rentals over cash purchases. Conveniently, the adverse effects on the client of a long-term rental agreement were never explained to him. It was only when he became a business owner that he realised the magnitude of the financial risk with long-term rentals. A working example of this would be the following… A PABX sales rep walks into a client’s office to ‘upgrade’ the existing PABX equipment. In the process, he promises you at least a 20% saving on your current telecoms spend. Simultaneously, there is the offer of upgrading your system to heights of cutting-edge technology. This would appear a good deal to any unsuspecting client. The client then begins their calculations to ascertain if this is wise financial outlay.
Supposed savings on business telephony spend
The company currently has a working PABX system that is costing it R2 000 per month. A five-year rental contract was signed possibly with a 0% rental escalation with the bank. There are 12 months left to pay off the 60-month contract and the business’ Telkom cellular spend amounts to R5 000 per month. With this information, the PABX rep reverts with a ‘deal of a lifetime’. He realises that the business’ current total spend on its telephony is R7 000 and he needs to save the company a monthly total of R1 400 (20%) to close the deal. Resultantly, the new total spend must be no more than R5 600 per month. A settlement needs to be calculated for the existing 12-month contract and the rep needs to build this back into the new deal. As a result, the business still has to see out the existing contract with the outstanding rental fees being built into the new PABX quote. The total outstanding amount is R24 000 and the new top-of-the-range equipment comes in at R30 000, a total capex cost of R54 000.
The hidden costs and charges
In order to work out the new rental, he has been given a bank factor sheet to calculate a 60-month rental with 0% escalation. Without a profit margin, the net deal at this stage with a bank factor is a monthly fee of R1 243. He works out that, by giving the client a LCR (least cost routing) device commonly known as a premi-cell, he can “probably” save you 30% on your current cellular spend even though you will be tied into a two-year cellular contract. He reduces the cost of the new total cellular spend by 30%, which now comes to a total of R4 743 – still significantly cheaper than the original R7 000 spend, but this figure is still without added profit. The rep gets a glint in his eye as he rubs his hands together; he only has to reduce the monthly expense down to R 5 600 per month (20%) and the deal is as good as signed. There is a R857 price discrepancy between this amount and the new total of R4 743. A gross profit of R857 seems very little until the bank factor of 0.02301 is taken into account and you are left with a gross profit of R 37 245 GP, that’s a 124% mark up! Furthermore, that’s without the R 34 770 in finance charges and the R126 000 in equipment rental over a 60-month period. It’s plain to see that although the monthly numbers were seemingly reduced, the ‘new and improved’ rental agreement is by no means a saving.
Cloud PABX solutions for SMEs
Key decision-makers and entrepreneurs have little time to negotiate the double-fine print, nor is there much time left to research the best possible deals available. It thus makes it easy for sales reps to convince companies into thinking they are getting a deal of a lifetime. No serious businessman can afford to throw money into an abyss of finance agreements in the current financial climate.
Since joining Fat Budgie, leaders in cloud PABX solutions, Woollam has championed the merits of scalable and affordable cloud PABX solutions for SMEs. Not only are Fat Budgie’s products tailor-made to suit the size and pocket of a business, but they also provide solutions for companies that have fallen victim to misrepresented PABX offerings. As a cloud telecoms solutions company, Fat Budgie continually looks for ways to improve clients’ telephony systems. Fat Budgie’s key driver is saving clients money and tailoring their solutions to scale to the businesses.