Q. I haven’t updated my service contracts in five years – is that OK?
A. No. This is way to 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 major 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 a good set of contracts (bronze, silver and gold) and just keep on selling as long as customers keep on buying them.  However, over time the reasons a customer purchases a contract change as their environment, strategy, internal product mix, or whatever changes and 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 3 months, you reach out to you friends and ask, “how come you stopped selling service contracts.”  And you hear back, “because customers tell me they are to expensive, and they do not meet their needs”.

Your first inclination is to attack them as poor sales people because they should be selling all the company’s products.  You hold your tongue and instead ask “how come you did 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:

  1. Purchased contract at time of sale
  2. Did not purchase contract at time of sale
  3. Purchased contract when the warranty expired
  4. Did not purchase contract when warranty expired
  5. Renewed contract
  6. Did not renew contract

If you serve multiple markets, or multiple groups of customers with like needs, then create separate customer lists for each group.

Step 2 – Create a survey script that will give you insight into two main areas:

  1. How do customers perceive all aspects of your service?
  2. What contract features are most valuable to them and which are being looked at as unnecessary cost?

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 figure out what you have to do to make money from all customers. Before moving ahead, you should then go back to a few key customers in each group and get their feedback about what you came up with.  Iterate a few time if necessary.

After understanding what has to be done to update service contracts, many companies contact us since this is what we do all the time.

At this point, you are ready to try the new contracts out on your toughest 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 of 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.