Q. I haven’t updated my service contracts in five years – is that OK?
A. No. This is way too long
Q. If they still sell, why should I change anything?
A. Because customer needs change, and you don’t want to wake up one morning with a significant problem on your hands
Q. What if I do nothing?
A. One day, you will realize that your customers are also doing nothing when considering buying a contract.
Q. When should I start?
A. Now!
We all know that products and services are different. For example, software-intensive products need constant bug fixes and scheduled releases to tweak the product’s capabilities. Likewise, many car manufacturers release genuinely new models on a 3-year schedule.
But many of us created good contracts (bronze, silver, and gold) and kept selling as long as customers kept buying them. However, over time, the reasons a customer purchases a contract change as their environment, strategy, internal product mix, or whatever changes. One day, you find that what you thought was the best set of contracts turns out to be a dud.
You may find this out when the sales force stops offering contracts at the time of sale. When you notice the attachment rate has declined for three months, you ask your friends, “how come you stopped selling service contracts.” And you hear back, “because customers tell me they are too expensive and do not meet their needs.”
Your first inclination is to attack them as poor salespeople because they should sell all the company’s products. You hold your tongue and ask, “Why did you not tell me?” Well, it probably turns out they did tell you, but your ego got in the way of hearing the message. However, you now have the inside scoop.
What to do?
Step 1 – Divide your customers into six groups:
- Purchased contract at the time of sale
- Did not purchase contract at the time of sale
- They purchased the contract when the warranty expired
- Did not purchase contract when the warranty expired
- Renewed the contract
- Did not renew the contract
If you serve multiple markets or groups of customers with similar needs, create separate customer lists for each group.
Step 2 – Create a survey script that will give you insight into two main areas:
- How do customers perceive all aspects of your service?
- What contract features are most valuable to them, and which are unnecessary costs?
While you or someone in your organization can perform a telephone interview with about 15 unique customers in each market and each of the six outcomes, you may find that the results from an independent third party yield more insight that you can immediately put into practice.
Putting all this information into a comprehensive document will help you determine what you must do to make money from all customers. Iterate a few times if necessary. Before moving ahead, you should return to a few key customers in each group and get their feedback about what you came up with.
After understanding what has to be done to update service contracts, many companies contact us since this is what we do all the time.
You are ready to try the new contracts out on your harshest critics – the sales team. Reach out to the highest-selling reps, make an appointment to meet them face-to-face, explain the concepts, and ask for their honest opinions about whether they can sell each contract for each group. Trust their feedback and take their input seriously. When you get them on your side, you can roll the new contracts out to the whole customer base, and you will see contract sales accelerate again.
And next time, do not wait so long.
Related article: Selling Service Contracts Is A Team Effort
About Middlesex Consulting
Middlesex Consulting is an experienced team of professionals with the primary goal of helping capital equipment companies create more value for their clients and stakeholders. Middlesex Consulting continues to provide superior solutions to meet the needs of its clients by focusing on our strengths in Services, Manufacturing, Customer Experience, and Engineering. If you want to learn more about how we can help your organization create or update your spare parts strategy, please contact us or check out some of our free articles and white papers here.