Win 'Em & Keep 'Em The Four Imperatives to Maximize Maintenance Contracts

Transcription

1 Win 'Em & Keep 'Em The Four Imperatives to Maximize Maintenance Contracts

2 Introduction Maintenance contracts and service agreements are a win-win for both field service companies and their customers. Customers can get priority service, regular maintenance of their equipment and discounted prices, and the company behind the service gains loyal customers, additional sales opportunities and fill-in work to carry them through the less-busy times of the year. If you are in an industry or business where maintenance contracts contribute a significant amount of revenue to your bottom line, you know how important it is to keep those contracts current and ensure they are profitable. Most of all, you want to ensure that your customers renew them and keep selecting you as their service provider. Maximizing the value of these contracts means that you deliver what you say you will, you do the work you're contracted to deliver and you don't unintentionally give away anything for free. When designed and executed right, maintenance contracts can deliver significant upside such as: Increased revenues through improved maintenance and service contract renewal rates Improved customer satisfaction and retention Expanded opportunities for new and replacement equipment sales and service Ultimately, managing maintenance contracts is about much more than simply maintaining. It's about keeping your customers happy and your business profitable. So how do you go about getting the most out of your contracts without losing money or making too much and losing the customer? Here are four steps to follow to help ensure you're maximizing your renewable revenue stream: 1. Define the agreement 2. Do the work 3. Discover more 4. Measure and adjust In this white paper, we'll give you tips to follow for each of these steps to make the most of your service business. 1

3 Step 1: Define the Agreement Maintenance contracts are a great way to boost your bottom line, creating a recurring revenue stream for your company. But a lengthy field service contract doesn t necessarily make it a good contract. And a robust word count doesn't ensure the contract includes all of the necessary elements. The best contracts are specific, task-based and flexible. Specific A contract is pointless if it doesn t clearly define what work is to be done. Spelling out the deliverables in a service level agreement protects the customer, but it also protects you as the service provider. When a contract is not detailed and repair or replacement parts plans are not clearly spelled out, it s easy for problems to arise. A line item like summer maintenance raises more questions and confusion than it answers. For example, what tasks are included or not included in the maintenance? Helping the customer know what to expect will reduce questions or issues about service performance. Your service contract should also specify how many visits you will make during a year. Some customers believe a maintenance contract is their free pass to call you whenever something isn t working the way they want it to, expecting you to come out 50 times a year simply because they have a contract with you. A maintenance contract should never be based on the pretense when you re in doubt, call us. Instead, it should be clearly defined: I come here to do individual maintenance. I ll be here six times this year and here's the predetermined list of the things I ll be doing. Stipulating the number of visits keeps your contract simple and clear, and listing the tasks that will be performed reduces confusion. Having an accurately detailed service level agreement takes effort, but it certainly helps reduce assumptions and will protect your margin on the contract. Clarity and specificity are important for the customer, but it's important for you and your field service technicians, as well. The more they know and the more detailed the maintenance plan is for each asset, the less likely it will be for unintended costs to arise. When a contract lacks detail, it's easy for problems to arise. 2

4 Task-based It s ideal to include a set of tasks for maintaining equipment that can be adjusted to meet customer budgets. This requires visibility into and documentation of the tasks included as well as those that are excluded. This provides both the customer and your service organization with clear expectations for the maintenance contract or service call. Offering task-based contracts and estimates is important for field service firms because it forces you to think through all of the phases, activities and tasks involved in the maintenance required. It also requires you to apply estimates of time, resources and costs against task. These details will not only provide clarity and set expectations with the customer, but it will also inform technicians of exactly what they need to do and will help you measure profitability of the contract. When you put your estimates together, those details will inform technicians in the field of exactly what they need to be doing because each task is recorded on their work order. For instance, if you prescribe technicians to do a "spring review" of a unit without expressly listing "grease bearings" that work may not get done. Then, a few months later, the fan won t work and you ll have an even bigger expense to absorb. Flexible Each of your customers is unique, so when it comes to their service contracts, flexibility is key. Although your organization likely knows what you want to sell, you must be prepared to make adjustments to meet your customers' budgets. This is where having a 360- degree view of your customers gives you the necessary insight to develop a contract that's right for them or a group of similar customers. For example, with the right data, you will see trends and commonalities across your customer base and be able to formulate different contract options to best meet those needs. You will want to offer a variety of plans ranging from full parts-and-labor protection to a simple agreement that includes a discount on service repairs. Timeframe for the contract is also important. Ideally you want customers to automatically renew their contract with you, but you need to include the ability for negotiation to protect your margins. For example, if you enter into a multi-year agreement, you need to include the ability to escalate the contract price based on a set percentage or on an index. The most common is the Consumer Price Index (CPI). In some geographies, there is also a Service Price Index (SPI) which, if used, more accurately indicates the change in cost of providing service in the commercial sector. By using a set percentage or index, you have the opportunity to revisit the contract prior to renewal, determine if you're getting the margins you expect, and if not, adjust the contract amount. Setting a multiple-year contract with a fixed price without the index can be problematic. The first two years may be profitable, but material increases will likely occur in years three through five, affecting your margin. Establishing an escalation clause provides visibility into reasonable price adjustments for both you and your customer. Do the right work. Today's field service software can help track task-based contracts and ensure technicians perform only the work that is under contract. 3

5 You should also be prepared for customers who want to perform some maintenance themselves. For instance, a company might decide on a contract that includes replacement of broken fans, but doesn't cover filters. In that situation, the customer will replace the filters. Modern field service software enables work orders to reflect this level of detail, to ensure that a technician does not replace a filter and you end up eating the cost because the customer had indicated that they'd complete this task. When developing your contracts, your range of plan options could include: Agreements with full parts and labor protection Agreements with full labor and a discount on parts One year plans or multi-year plans Flexible payment options (monthly, bi-monthly, quarterly, semi-annual, annual) Agreements that include customer-performed maintenance or repairs Inspection-only agreements Labor-only agreements Do: Offer Discount Incentives. One of the biggest moneymakers for field service firms is out-ofcontract additional work. Emergency repairs represent a significant opportunity for additional profits. A lot of contractors break even with their regular maintenance contract work while making the most money on pull-through work. To guarantee you re the first call if there s emergency repair work, offer customers your services at a discounted rate. For example, if your emergency repair rate is $115 an hour, offer $95 an hour for customers that have maintenance contracts with you. This savings will be appealing to customers, especially if they already have a relationship with you. Do: Offer service agreements up front with proposals. Typically, any fixes required within the first year of a project will be under warranty, but you want include service agreements up front to ensure you secure the maintenance contract for the equipment you're installing after the warranty time period expires. This will help prevent the service contract from going out for bid. A lot of organizations don't do this because the work is in two different groups (e.g. the construction team is on site and has a relationship with the customer, but the sales team does not). Try to connect the two as it s a great way to ensure additional business down the road. Do: Have a sales staff that s dedicated to service contracts. Maintenance contracts are like a stack of firewood always ready when you need it. For instance, if you repair air conditioners and the weather is mild, you re not going to receive many calls. It s important to have maintenance work to get through the times when business is slow. Then, when the first heat wave arrives and the phones are constantly ringing, you can focus on emergency repair calls. Don t: Deliver differently than the way you sell. If you sell task-based, you need to deliver taskbased. Your work order system must have the ability to assign tasks so that your technician isn t doing more than what the customer is paying for. Don t: Make contracts overly complex. If you put too many variables in a service contract it ll become impossible for your organization to manage the contract effectively. Simplicity is king. 4

6 Step 2: Do the Work Customers with maintenance contacts are often considered a gimme when it comes to revenue generation. But that assumption can prove harmful to the bottom line. Current trends indicate that companies lose seven percent of their maintenance contracts per year. That s seven percent you have to replace annually just to keep up with the revenue you drove the previous year, which is seven percent that could be net new growth if you retained 100 percent of your agreement base. Net: Ensure that you don't get complacent and view maintenance revenue as a given. Do the right work Once your sales team has finalized the contract, they need to clearly communicate to the service technician what is included and what is not included. When it comes time to perform the service, the technician on site needs to know the tasks to be performed on all the different pieces of equipment. This ensures that the work delivered covers what was sold and that he doesn't unwittingly provide services that aren't covered. Ideally, your field service software will capture the details of the contract and include the specific tasks to be performed on the work order, helping eliminate confusion and inaccuracy. Do timely work Precision tune-ups and maintenance should take as long to perform on a maintenance customer as on a non-agreement customer. Schedulers and dispatchers that schedule service calls should quote the normal amount for the call and stress that is it covered in their maintenance agreement. Be sure to remind them of the savings they're receiving because of the maintenance agreement they have with you to help reinforce the value of the contract. Do competitively-superior work In today s busy world, customers have little patience. If they re unhappy with the service they receive, they'll cancel their agreement and seek out your competitors. How your field service technicians interact with your customers can go a long way toward setting your business apart from the competition. And always remember that a poor first impression, even if you resolve the issue in a timely and cost-effective manner, could mean you don't earn the customer's future business. The next time their service contract is up for renewal, you want to ensure the business is secure and that they don't go looking elsewhere because of poor performance. Do consistent work To ensure you have a pulse on how work is being performed and your customers' satisfaction levels, consider creating a quality assurance representative position. Have that person contact the customer following each service call and reach out to them a few months prior to their service contract expiration to talk about renewal. Not every organization is able to have a large staff dedicated solely to contract management, but it s helpful for field service organizations to have at least one person who focuses exclusively on satisfaction and renewals. Those that do tend to have much higher renewal retention and a greater ability to up sell their services. 5

7 Step 3: Discover More Maintenance contracts are one of the best ways a field service company can guarantee a steady stream of work throughout the year. What makes maintenance contracts even more valuable, however, is the extra pull-through work those service agreements bring that your company may never have been considered for otherwise. Discover it Field service technicians play a pivotal role in not only delivering what s in the service agreement, but also in taking service contracts to the next level by essentially playing a sales role in the field. After all, they are the face of your company to the customer and are ideally building a trusted relationship with the customer throughout the year. In addition to performing the regularly scheduled and expected maintenance, field technicians are in the best position to identify and capture additional work. They should be trained to listen for signals or alerts to additional pain points that customers have. This can sometimes result in additional services or offerings that drive more value in your customer relationship and also drive revenue. It s a win-win for the customer and the service provider. Capture it Many field service organizations are using mobile solutions to allow technicians to perform tasks that previously were associated with salespeople, such as quoting additional work and receiving customer signoffs. This is important because it allows technicians to perform all of the necessary work during one visit, thereby eliminating another service call and an additional bill. And it ensures that the opportunity doesn't grow stale between the visit and the handoff to sales. While your technician is out in the truck for 15 minutes getting information on pricing for the work, the customer may be on the phone inside calling other companies for a quote. In the end, when you present a customer with a price to solve a problem right then and there, they will often agree to have you do the work. The key is timing, and automated service management software solutions can help field service organizations deliver accurate estimates in minutes. Some companies, however, are hesitant to allow technicians to quote work. Remember that the focus should be to have technicians quote relatively small repairs that they find while on a service call in the field rather than large-scale projects. This frees your salespeople to spend more time working on large projects instead of small service work. Timing is everything. Mobile solutions enable on site capture of signatures, giving immediate approval to complete the work. 6

8 Step 4: Measure and Adjust Measuring the profitability of your service contracts is vital to ensuring the future success of your business. Contracts with too much profit or too little profit are both issues. Too much profit could price you out of future contracts or could prompt the customer to look elsewhere. Too little profit could threaten your business. Effectively managing contracts means measuring what was delivered against what was estimated. The only way to really know if maintenance contracts are profitable (or too profitable) is to understand the end results and manage the contract along the way. Good service managers know their average profit for time and materials, for preventative maintenance plans by plan type, and they understand that margins will differ depending upon the market and the price the market will withstand. Monthly analysis of profitability by customer, location, division and maintenance agreement type, if tracked for a period of time, can give you key trend information that aids in business development. Maintenance contracts primarily cover labor and parts. What you need to watch for are variations that arise in these areas that have the potential to impact profitability, such as: 1. Cost of resources: If you are in a highly competitive and technical market, the cost of resources may be quite high. People resources generally account for the highest cost in any organization. If your cost of labor is extremely high, then your margin will likely be low, resulting in less profit on labor. 2. Fluctuating inventory costs: If you are a service provider that uses a high-priced item, such as copper tubing, your profit can be impacted by the fluctuating cost of your inventory and also from theft. It s quite common for service providers to experience theft on the job site, and as the price of goods like copper rises, the occurrence of theft also rises. This has a direct impact on your profitability. 3. Manufacturer quality: You may identify that one particular manufacturer's equipment breaks down more than comparable manufacturers. Watch for and monitor this and make adjustments to contracts as necessary to maintain profitability. 4. Equipment age or state: On a service call, you may identify that equipment is older than anticipated, the parts are more expensive or difficult to locate, or the equipment may break down frequently. Frequent repairs under contract may squeeze every last cent of profitability out of the contract. Today's modern field service software should capture the critical business development data you need to identify your greatest moneymakers. It can assist with service estimating and automate processes like contract review and maintenance schedule setup. Software tools can assist in profitability analysis, too, and help to avoid common maintenance contract issues. 7

9 Conclusion All of the effort you put into successfully managing a customer relationship repays itself in many ways. Satisfied customers purchase more of your products or services. They spread the word about the level of service you deliver and create awareness of your brand with no marketing investment on your part. But today's customers are savvy and status quo does not remain so for long. They will keep comparing you to the competition and your competition will do their best to win your customers and their business. In the end, your customers are just looking for the service provider that will deliver the best offering. And if it's not you, it will be your competitor. Today's modern field service software is designed to help you manage all the processes required to deliver competitively-superior service from identifying the opportunity and securing the work to completing the work as promised, to maintaining and repairing equipment and finally, capturing additional work. With the right technology solution and adherence to the guidance we've shared in this paper, you can ensure your customers continue to choose you and that you continue to drive profit to your bottom line. 8

10 About WennSoft Connections across the organization are key for those who want to better manage installation, maintenance and repair processes and WennSoft solutions help make them happen. Founded in 1995, WennSoft delivers innovative field service solutions that streamline operations from sales to the field to accounting, arming customers with the insight they need to do their work more proactively, productively and profitably. Contact us and our team will work with you to explore the options that are right for your business S. Calhoun Rd. New Berlin, WI