It is 2016 and the world of the services executive is changing at a historical pace. You have to run faster than ever merely to stay in the same place. And one area that is causing you major grief is growing your revenue.
Actually, you may be suffering from the “Boiling Frog Phenomenon”
- If you drop a frog into a pot of boiling water, it will frantically try to escape.
- If you place it gently in a pot of tepid water and turn the heat on low, it will float there quite placidly.
- As the water gradually heats up, the frog will sink into a tranquil stupor, and before long, it will allow itself to be boiled to death with a smile on its face.
According to the TSIA (Technology Services Industry Association), since mid-2012, product revenue has been slowly declining while services revenue has been flat to slowly growing. This data is from the 31 of 50 public companies originally part of the TSIA top 50 Services revenue generators that still remain on their list:
If you are working in a traditional high-tech company then you are, most likely, dealing with this same issue. To show you how difficult things are, here is the result of a recent webinar poll conducted by TSIA:
Two thirds of the polltakers indicated they are being asked to grow services revenue faster than product revenue. This should not be a surprise considering the drop in product revenue and the subsequent gap in total revenue. We all recognize this has to be closed and services are the only remaining option.
This has been going on for about four years now with the gap continuing to widen – hence the boiling frog analogy.
So, how do we survive?
Growing service revenue is best addressed by a four-pronged effort:
Increase contract capture rate
- Make sure your contract actually adds value to the product or service owner. Your contracts should be set up for different customer segments and should include only the elements they value and will pay for. Make sure everything they will pay for is included!
- Does your sales team sell contracts at the time of sale? What is your attach rate? Has the sales team been properly trained and are they properly compensated?
- Who sells renewals and contracts at warranty expiration? Are they properly trained and properly compensated?
- If your technicians are not currently selling contracts, are they at least trying to upsell and passing leads to your contract sellers? Remember, they are your customer’s trusted advisers.
Decrease revenue leakage
- Sometimes a contract will not be renewed for factors beyond your control. Read “Service Contracts: 9 Top Reasons For Non-Renewal”. The article is in the “Growth” section.
- On-time renewal is vital. When a contract lapses, it is frequently difficult to reinstate coverage and you get into the discussion about when does it start; do we need a pre-contract inspection; and sometimes this just gets plain ugly. Make sure your renewal process is robust and someone owns it!
- Implement renewal metrics and the someone is accountable for reporting and meeting targets.
- Make sure that the organization is not delivering services for free that the customer is not entitled to. This happens more often than you think especially if the cost is very low
Introduce new services
Introducing new services has a number of advantages:
- Adds new value for customers
- Separates your company from the competition and will help product sales
- Gives you an opportunity to reach out to all customers
- For new customers, both product training and other adoption services are good ways to help your customers start enjoying the value they just purchased. Also, you will have less start-up calls, because you did a better job onboarding them.
- You will have a major opportunity to grow service revenue when your company implements the Internet of Things (IoT) and X as a Service. However, you had better be ready for these major changes. Make sure your team is part of these projects, you have enough people with the proper skills to support the projected growth, and that your systems are robust enough to handle different types of invoicing, etc.
Raise price or decrease discounts
- If you are not increasing your prices a few percent a year, then you have been leaving money on the table. If you have increased prices, then you are on top of the process. But if not, think about increases of about 3 to 4 percent. You may have pushback, but explain that having an experienced, well-trained service team is in the customer’s best interest and that all you are doing is keeping pace with inflation. Be prepared for some hard discussions by clarifying in your mind the value your team delivers, especially when it comes to downtime.
- On the other hand, make sure that any discounts you give customers are earned. If you get a multi-year commitment, multi-product contract, good references, etc., then you can give a discount because both parties win. But giving a discount just because they ask is over-the-top. Make sure that discounts are based on a win-win proposition.
Finally, let’s not forget customer feedback…
Collect, analyze, and use customer feedback. When you do you know what your customer thinks about you business, you can make sure that there are no price – value gaps. This also allows you to remove obstacles to contract renewals, find out what services your customers need, and generally let the customer guide you through the relationship.
Feedback is essential to make sure there are no surprises and that you meet your commitments to your business. This alone should help you sleep soundly at night while staying out of the stovetop pot!