Ask Andi: We have to find an opportunity to increase our service agreements business. Is it good business? Up to now, we’ve just taken what comes in the door. How important is it?
Service agreements are important to the success of many businesses. It factors into sale value. It indicates the business’ services are healthy and well-received by customers. If priced right, it can generate reliable revenue and profits year in and year out. Getting more is a sales and customer service game, pure and simple.
Service agreements add overall value
Many businesses have a significant opportunity to pick up ongoing revenue by focusing on selling and properly handling service agreements. Companies with regular demand for their services can offer agreements. Service agreements provide recurring service in exchange for a fee. Either paid upfront or paid in quarterly or annual installments.
Boost the eventual sale value of the business. Show a significant base of service contracts. Banks will often take note of service contract revenue. This is different from service revenue. Service revenue is an indicator of a stable, continuing, trusting relationship. It’s a steady stream of revenue that the company can count on.
Clients agree to service agreements on more than an as-need basis. The advantage to clients is often a discount on additional services. This is known as a preferred customer rate. Priority with scheduling, and/or advance notice of upcoming opportunities.
Add recurring revenue and value
The advantage to the company offering the service agreement is that it locks up customers for periods of time – typically a year or more. It can focus on customers who have already bought into the value it provides. And the company can use a standard service agreement contract as a way to sell to more clients by shifting from emergency-based calls to steady, planned service calls. Reducing emergencies can free up the cue of calls a company has to handle at the last minute – which is often the most expensive to provide.
Properly pricing service agreements is essential. The contract typically will contain a standard set of services that are provided, and for which the company clearly understands its costs. Additional repair services and parts are usually on an as need basis, not factored into the service agreement.
Increase the value of your business
Many companies will offer to fix the cost of service labor for a period of time – since they have the most control over that. Fixing parts is a dangerous way to go, as prices from vendors may suddenly escalate. If you want to offer an advantage related to prices or services you acquire from vendors, either ask the vendor for a fixed price contract or offer the client a preferred rate subject to availability.
Getting more service contracts is a sales and customer service job. Figure out who are your best customers, and start with them. Make calls and send letters offering them a service contract. Define the advantages they will receive. If you’re not sure what advantages to promote, talk to a few of your best customers to ask them what they value the most about service availability and price.
Once your best customers are on board, use them as references to pull in more of the general customer base. Offer service contracts to your entire population, including a way to sign up online, by phone, or by snail-mail (yes, some people still use it). Once sign-ups slow down, print out a list of all customers, figure out which customers don’t have service agreements, and focus on getting them on board. Finally, put a standard service agreement in every new sale package, and try to get the agreement signed upfront.
Not sure how to price a service agreement? Or how to offer one to the marketplace? What to offer, and what to steer clear of? Ask for help. There’s gold in that opportunity!
