How often should your service contracts be updated? Your products change every year or two. Your customers change their priorities and plans every year. Your company updates its strategic plan annually. If you placed your current service contract next to a five-year-old version, would they look the same (maybe with a price difference)?
If you answered in the positive, then you have a problem. And it is the same problem if you created a new service contract and based it on one that was successful for you a few years ago. That’s because customer’s expectations constantly change and you are not keeping up.
So how often should your service contracts be updated? Depending on the rate of change in your product space, customer needs, and improved capabilities, you should update your service contract every three to five years. Less than three years will confuse your customers. More than five years will not meet your customer’s needs and expectations.
Why should we change our Service Contracts?
One of my favorite saying was “Do what you always did, get what you always got.” Unfortunately, that no longer works because what you did successfully in the past occurred in a different time than today. Over the last five or so years, we became omnichanneled, mobile, always connected, and spoiled by technology. Today we expect, and can generally find, instantaneous gratification.
Think Amazon. Today, you can order something with one-click and get 2-day delivery at no extra cost. In a hurry? Pay extra and get next day delivery. Live in San Francisco? Get same day delivery on many items. If you compete in that space, then standard delivery, your norm 5-years ago, is a non-starter. And even if you are active in a different space, your customers know all about Amazon and expect your business to be almost as good.
In the past, most hardware support contracts included an annual preventative maintenance visit, technical support, parts, travel, and engineer time for one on more service incidents during the period of coverage. The added value was increased uptime and predictable costs.
For software products you were paying as much as 18% of list price for upgrades and support. Same added value.
Today, most tech products are a combination of hardware, software, and communications or software sold under the SaaS model. In any case, the complexity has increased over previous generations, product reliability has increased, and waiting for service or support won’t work because the customers depend on 24×7 uptime. All these are very good reasons to answer the how often should question your service contracts be updated with a recommendation of every three to five year answer.
What should new style Service Contracts include?
This is a difficult question to answer accurately for any specific business, product, and customer segment. The only way to find out what your customers are willing to buy is to talk with them and collect detailed feedback.
An example – a medical device service organization supports “small” tabletop blood analyzers in both physician’s offices and clinic or hospital labs. The doctor’s offices do a small number of tests in any given day and, if the instrument is down, they can direct their patient to a local lab, maybe even using the same type instrument, which can do all the tests and provide results in less than 24 hours. The doctor is interested in limited and minimal cost while the lab is concerned about repair time and cost control. However, in both cases, the users will also be interested in unique, additional paid services. The doctor’s office will probably want scheduled consumable shipments with an end-of-year adjustment while the central lab will want frequent shipments based on actual consumption.
If the equipment is used in a hospital, the biomed engineering organization may want to perform all first level repairs so they need training and certification, easy access to spare parts, and 24/7 technical support. Plus they may want an annual software Validation and Verification check and an OEM calibration.
The challenge
Back in the day, we created a “one size fits all” contract with a few variations. Today, customers expect customized contracts that include options that will make their business more effective. They also want us to know enough about their business so we can suggest one or two choices that will most likely work for them. If you can meet their expectations, your service organization will be creating customer value and generating loyalty that will create additional services and product sales.
Do your contracts pass this test? If no, contact Sam.