A Manufacturer s Guide to Increasing Service Revenue

Transcription

1 A Manufacturer s Guide to Increasing Service Revenue WHITE PAPER Services Made Simple Copyright 2014 by MaintenanceNet, Inc. All Rights Reserved. 1 A Manufacturer s Guide to Increasing Service Revenue

2 Through innovative channel enablement practices and data-driven automation strategies, dramatic service sales growth is attainable for manufacturers in today s increasingly competitive IT economy. The goal is to work smarter and faster, lower the cost of sale and empower Tier 1 and Tier 2 sales ecosystems to reach and exceed their profit and revenue goals year after year. Over the last 20 years, we have experienced widespread changes in the way IT products are bought and sold. In the old days, each IT purchase was a landmark event, but today, extreme commoditization is the new world order. New hardware flows into the enterprise on a regular basis, modularly fitting into existing infrastructure without disruption. Software market shifts are also adding to IT complexity. No longer involving a single transaction every three or more years, software sales now encompass renewable license agreements, maintenance agreements, subscriptions and more. Plus, with the advent of software-as-a-service (SaaS) and cloud, new pricing models and transaction practices have emerged. These changes have wreaked havoc on the management of service contracts. IT departments, once required to manage only a handful of service agreements emanating from only one or two vendors, now must track myriad contracts across a broad spectrum of manufacturers. Thousands of contracts might be due to expire in an end user organization in any given month. And most IT leaders along with the manufacturers they work with simply don t have the time, resources or tools to keep pace. This is significant for end customer organizations because it means that their IT purchases may be more at risk than ever before. It s also important for manufacturers and their Tier 1 and Tier 2 channel partners because it means that a mountain of untapped service contract revenue and other renewal opportunities exists. Yet it also signifies that important customer relationships are potentially in jeopardy. Indeed, every product sold without a maintenance agreement creates a potential liability for manufacturers as well as their customers. Whether sold directly or through an indirect sales channel, low-dollar service renewals are seldom adequately addressed by today s manufacturers. There are several reasons why, including outdated business processes, manual sales processes as well as incomplete or unavailable service contract data. New best practices are emerging for more effective service contract management. Fortunately, new best practices for more effective service contract management are emerging. Many of these new practices are built around automation and cloud-based technologies that provide centralized, on-demand access to reporting, analytical tools and automated systems to deliver complete service contract management for complex supply chain environments. 2 A Manufacturer s Guide to Increasing Service Revenue

3 There are actionable revenue opportunities that currently exist within your data environment that, if properly mined and manage, will greatly increase service revenues. Scott Herron, CEO for MaintenanceNet THE GREAT SERVICE SALES OPPORTUNITY Archaic data management practices and manual sales processes impede service contract sales more than any other factor today. Manufacturers, as well as their channel partners, often rely upon an assortment of ineffective, manual tools some as basic as Excel spreadsheets. These tools, which were not originally designed to address service contract management, fail to take into account the various data sources required to appropriately track service lifecycles. Without knowing which customers have purchased service contracts, when those contracts are up for renewal and which customers possess uncovered assets (products not protected by service agreements), manufacturers don t have a proper handle on the service needs that exist within their customer bases nor can they efficiently deliver that information to the people they rely on to close service sales. As a result, they are leaving substantial service dollars on the table. The data manufacturers need, however, is not easy to obtain. It exists not only within the walls of their own organizations, but within partners organizations as well. In addition, it resides in disparate sales out systems; in point of sales (POS) systems; in Oracle, SAP and Salesforce.com, ERP and CRM platforms; in legacy and customcoded solutions; and even Excel spreadsheets. Even the most successful service contract management programs today extract data from only one or two of these sources, leaving huge gaps in the intelligence required to properly manage service across an installed base. Some companies recognize these gaps, but do not have the resources or expertise to properly aggregate data from multiple sources, not to mention from distributors and value-added resellers (VARs). They also don t have the business intelligence to accurately track their service attach rates, renewal rates and most importantly, registration rates. Other manufacturers are simply in the dark about the state of their service sales initiatives. For example, it s commonplace for vendors to measure service sales based on service revenue alone, without taking into account service renewal rates, attach rates and other data that reveal complete visibility into product sales and the service contracts associated with those products. In other words, a company may have $10 million in maintenance service revenues, but that $10 million may only represent 50% of the actionable opportunity available. In reality, more than half of the company s products could be installed in the market as unattached assets, due to either expired service contracts or contracts that were never sold at the time of initial purchase. With proper analytics that expose up to 100% of the total service opportunity, as opposed to only 50%, the manufacturer can reap substantially greater revenues. 3 A Manufacturer s Guide to Increasing Service Revenue

4 Service sales particularly those associated with low-dollar service contract renewal opportunities require constant attention because of their sheer volume. Staying on top of them is a complex process. As a result, manufacturers and channel partners often fail to capitalize on these opportunities, which represent billions of dollars in added revenue each year. Scott Herron, CEO for MaintenanceNet SERVICE CONTRACT MANAGEMENT: State of the Market The sorry state of service contract management can also be blamed on choice. Many manufacturers simply opt to focus on selling services to their largest enterprise customers located at the top of the sales pyramid, leaving out the major portion of customers and low-dollar opportunities that form the base of the pyramid those who came into the fold through the channel. Due to the complexities of a channel model made up of both distributors and VARs, it has become increasingly difficult for manufacturers to even know who these base customers are. Manufacturers also face the challenge of taking action on low-dollar opportunities due to their sheer volume and high cost of sale. As a result, the base or low-dollar, high-volume service contract renewals go unaddressed. There is a significant revenue opportunity here, however, and if effectively managed and automated, it is substantial enough to allow manufacturers and channel partners to reach their full service sales potential. For the manufacturer, this non-strategic customer base, which represents low-dollar, high-volume service contracts, is where the greatest service sales opportunity lies. According to ServiceXRG, a market research and business consulting firm dedicated to service industry issues, manufacturers customer bases are typically made up of approximately 28.5% strategic accounts and 71.5% non-strategic accounts. In this segmentation scenario, ServiceXRG says service renewal rates are as low as 53% within non-strategic accounts, compared to 92% within strategic accounts. By targeting a higher service renewal rate at the base of the pyramid, manufacturers stand to gain 47% in lost revenues, an amount potentially representing millions of dollars. 4 A Manufacturer s Guide to Increasing Service Revenue

5 GETTING TO THE ROOT OF THE PROBLEM: Poor Registration Rates The beginnings of most service contract management issues can often be traced back to the time when a product is initially purchased. On average, only 60% of products sold with service get registered with the manufacturer. When a service product is not properly registered, it is not entered into the manufacturer s entitlement system, and therefore, no record of the contract exists. As a result, the manufacturer or channel partner cannot effectively provide service, much less track expiration notifications or gain visibility to when the contract should be renewed. This results in lost service renewal opportunities as well as the risk of non-coverage for the end customer on critical assets. Even worse, lack of registration can lead to loss of the customer due to dissatisfaction. What is an Entitlement System? A manufacturer s database that houses the data structure for all service contracts that have been sold and REGISTERED The primary reason for such low service registration rates is poor data quality, which is the principal driving force behind new service contract management practices emerging today. $ 5 A Manufacturer s Guide to Increasing Service Revenue

6 IMPLEMENTING AN EFFECTIVE SERVICE CONTRACT MANAGEMENT PROGRAM With contract expirations that can take place on any given day, and coverage options that can change as time passes, it takes more than a simple spreadsheet to manage product and service lifecycles today. In addition, manufacturers must take into consideration the requirements of their global channel organizations in order to extend business processes beyond the confines of their own direct sales teams. It s important to find a service revenue generation solution that addresses these ongoing challenges. The main characteristics of such a solution would include focus on data quality; a dynamic data environment; anytime-anywhere, access; channel enablement; automation; performance measurement/business intelligence (BI); and predictive analytics. Data Quality The most important characteristic of a service contract management system is data integrity, which can only be achieved if manufacturers tap into a variety of data sources and systems that exist across the supply chain. The customer data integration process involves extensive data mining and aggregation as specialists work to create a single system of record. The key to success is comprehensive data exchange, meaning that data must also be pulled from multiple channel partner systems to fill in the data gaps in order to uncover the total opportunity that exists for the manufacturer. Characteristics of an Effective Service Contract Management Program: Data Integrity Dynamic Data Environment Ubiquitous System Channel Enablement Automation Performance Measurement/ Business Intelligence Predictive Analytics Once armed with the highest quality of data, the manufacturer can augment the data to create a complete and accurate customer record, thereby making it actionable. As data integrity is achieved, it can be transformed into intelligence for whatever the manufacturer needs to do, whether it is improving registration rates, providing visibility to the inventory of services sold, delivering automated renewal quotes to the market and/ or identifying unattached assets. Dynamic Data Environment Manufacturers have historically relied upon one primary source of data to perform renewals on expiring maintenance contracts. This source is commonly known as the entitlement system. The entitlement system is the data structure for all contracts that have been sold and registered. Since many service contracts go unregistered, and many of those that are registered are highly suspect as to the accuracy of the information they contain, manufacturers who rely upon the entitlement system alone are at best accessing only a portion of the available renewal opportunity. To further complicate the situation, data becomes stale, stagnant or inactionable over time, and most approaches don t account for the ongoing flow of new information for continuously nurturing service sales leads. And, more often than not, they also don t embrace the Tier 1 and Tier 2 channel partner. As a result, the service contract data lacks critical adds, moves and 6 A Manufacturer s Guide to Increasing Service Revenue

7 changes (MACs) information that is only available via sales teams on the front lines. This further compromises the value of these static approaches as time passes and MACs occur, ultimately resulting in lost opportunities for renewal. Manufacturers may want to automate many of these functions by leveraging multiple static existing systems without disrupting or displacing current systems (such as POS systems) or processes, resulting in increased data integrity, and ultimately increased revenue. Anytime-Anywhere System To serve as an effective tool for behavioral change, a service contract management system must also be ubiquitous: it must be easily accessible and available, and it must be able to serve as a single source of intelligence for the entire supply chain. Web-based systems offer the ideal platform for ubiquity. They are accessible anywhere and anytime, allowing contract management on an as-needed basis. Further, because cloud platforms are hosted solutions, complete with implementation services and ongoing support, activation requires only minimal IT engagement and resources. Once populated with the high quality data uncovered in the above steps, a web-based service contract management system becomes an extremely effective tool, providing sales organizations and channel partners with a steady stream of actionable opportunities, while keeping all parties across the supply chain in sync. Channel Enablement Multi-party access is key to the success of a service contract management system. Access rights and privileges in a web-based system can be granted at varying levels and with a range of capabilities tailored to each party to provide extreme personalization and empowerment. End customers, for example, can take advantage of a platform to balance their own internal systems against those of their suppliers to guard against inaccuracies or misinterpretations of service entitlements. And supply chain sales leaders can track the performance of their team at important milestones, while account executives can review renewable contracts by client or by product, or check to see if sales quotas are being met. Beyond arming all parties with insight into their entire array of maintenance service contracts, a service contract management system should provide proactive notifications in advance of expiring services, or deliver notice of other factors affecting service agreements. Automation Extreme automation is emerging as one of the most important factors in low-dollar, high-volume service sales, allowing opportunities that once were too costly to take action on to now be addressed at a low cost of sale. Manufacturers are building or buying innovative automation tools that allow their channel partners to address up to 100 percent of their renewal opportunities. By auto-generating renewal quotes and delivering them on behalf of the manufacturer or channel partner, some forward-thinking manufacturers have empowered the supply chain ecosystem to capture millions of dollars of additional revenue that would have otherwise been left on the table. Performance Measurement/Business Intelligence BI reporting capabilities are critical to accurately managing the performance of your entire supply chain. With an integrated service revenue generation solution, manufacturers can use analytics to measure the effectiveness of their channel model on everything from incentive programs, renewal rates and attach rates, to specific registration rates. This new visibility through the point of distribution can help manufacturers and their channel partners engage with a clear understanding of partner performance and the revenue impact their participation (or lack there of) has on an organization s service revenues. 7 A Manufacturer s Guide to Increasing Service Revenue

8 Predictive Analytics By looking at the data you already have, it s possible you can start predicting what your customers will buy next. Predictive analytics they take shape by aggregating data from across various internal sources (such as CRM platforms, product catalogs, transaction histories, marketing interactions and more) and uncovering customer behavioral and buying trends, which can then be transformed into actionable intelligence. Based on these intelligent insights, new opportunities beyond low-dollar service renewals, such as up-selling or cross-selling, can be identified and pursued. Predictive analytics can also be paired with mathematical modeling and get the next big thing in BI: prescriptive analytics. Here, the idea is to take your predictive analytics projections, analyze different possible approaches to your preferred outcome and receive a calculated recommendation for the best course of action that will optimize revenue opportunity and reduce risk. For example, quick, calculated prescriptions can be made as to the best time to contact each customer and the right messaging to use to close a deal. CONCLUSION Beyond providing substantial repeatable revenue streams, maintenance service contracts also play an integral role in connecting manufacturers with their channel partners and end customers. They yield improved brand loyalty and better communication with customers, and also provide a means for channel partners to boost sales while strengthening their allegiance to a manufacturer. As awareness of the importance of service contract management has increased, manufacturers are already taking steps toward improvement. By making BI available across the supply chain and delivering sales automation and enablement tools, these companies have solidified relationships with their customers and partners, while literally doubling their renewal opportunities and achieving other measures of success that they never before thought were possible. They are proof of a maturing market, where service contract initiatives are finally keeping pace with dramatic shifts in the way technology products are bought and sold. 8 A Manufacturer s Guide to Increasing Service Revenue

9 Want to Learn More? MaintenanceNet specifically developed its Service360 AutoQuoteTM solution to help manufacturers improve service revenue management. Request a demo and see how we can help you: Uncover Revenue with Data Enrichment Empower Your Sales Team Hit Your Numbers with Quote and Sales Automation Request a Demo About MaintenanceNet MaintenanceNet is the global leader in service revenue generation. Our Service360 cloud platform accelerates recurring service revenue by integrating big data, automating the sales process, and innovating a world class customer experience. The key to MaintenanceNet s success is its ability to uncover and automate recurring revenue opportunities within a sales practice. By aggregating disparate data sources and turning incomplete or inaccurate customer data into actionable and reliable business intelligence, MaintenanceNet increases service revenue and profits for customers by reducing friction in the sales process. MaintenanceNet s Service360 platform and its AutoQuoteTM solution, fueled by its data foundation, serve as powerful sales enablement tools that deliver billions of dollars in sales opportunities to the global market. MaintenanceNet makes service sales simple, predictable and repeatable MAINTENANCENET, INC. ALL RIGHTS RESERVED. Services Made Simple 9 A Manufacturer s Guide to Increasing Service Revenue