Introduction
For over 20 years, I was two companies’ vice president of service. I had global responsibility in one company, and in the other, I was responsible for the Americas. To keep up to date with industry trends, I attended local and some Global AFSMI meetings and read as many service-related articles as possible.
I was always jealous of people who published articles and got their names “out there.” Then I retired and started my own consulting business. I felt the time was right to share my ideas and collect information with my peers.
Thanks to an introduction from a friend, I got an article published in the September 2008 issue of American Laboratory. The topic I chose was “Why Companies Sell Service Contracts and Why People Buy Them.” Since then, I have written 16 articles and whitepapers and posted approximately 220 blog posts. Most of these were about some aspect of the business of Field Service. Yet when I searched through the 220 post titles, I realized that I had never updated my original article, even though our industry has undergone significant changes since the original piece was published.
Buying a service contract pre-COVID
Before COVID, the people who purchased service contracts were Manager level. They had the day-to-day responsibility for whatever their equipment was being used for. In that first article, I listed the four reasons why people purchased contracts:
- Maximize Uptime
- Predictable costs
- Peace of Mind
- No hassle
When I have the assignment to grow service revenue, I survey customers and ask them to rate these four characteristics, one being the most important. Here are the results of three of my pre-COVID engagements:
The first and last columns are part of the same survey for the same client. The last column is for a few customers with many instruments that provide the company with excess testing capacity. Yet the managers were interested in a service contract for all their devices! They were not worried about maximizing equipment uptime but because they were interested in minimizing their daily hassles. They were willing to spend company money to reduce their job-related stress.
Changes in customers wants and needs now.
Today, the reasons people want service contracts are more varied than ever before. When it comes to buying hardware service contracts, we are seeing two significant changes:
- A more senior individual is making the purchasing decision than the department manager.
- The reasons to buy a contract are frequently based on more strategic factors than in the past. They are as varied as the reasons they purchased your product and the high-level strategic goals of the company.
Here are some of the challenges that most business executives (including your customers) are dealing with today and which will continue for the foreseeable future:
- Grow revenue and reduce costs
- Minimize CapEx
- Digitize their business
- Introduce a servitization business model
- Mitigate known and unknown business risks
- Provide a safe and secure environment for their employees
- Figure out how to retain key employees
- Deal with an aging workforce
Your customer’s challenges will change how you create, price, and deliver your services in 2021. Here are a few well know changes:
- Enable customer self-service
- Move to a blended workforce of direct and contract field engineers
- Migrate from a transactional to an outcome-driven service organization
- Innovate to embrace the notion of touchless service
- Personalized and multichannel services
Changes in the Sales environment
These three snippets from a recent report, 2021 Predictions for Sales Leaders: THE YEAR OF VALUE, highlight some changes sellers must be prepared to manage. These conclusions are generic and impact both product and service selling:
- In 2020, CFOs got more involved with every purchase and scrutinized every dollar spent. Those who were able to quantify the outcomes associated with their spending could get their projects completed. Those who could not articulate value saw their projects overlooked by those with a higher perceived value to the business.
- To succeed in virtual B2B sales cycles in the coming year and beyond, CROs (Chief Revenue Officers) must work with their sales leadership to ensure that their teams are intentional in discussing and quantifying value early in buying conversations and that every opportunity is substantiated with the most robust business case possible based on actual economic impact and outcomes. To thread the value conversion through the entire customer journey and ensure retention and expansion remain positive, sales leaders will also need to work with the customer success leaders to ensure that the company is proactive in communicating the outcomes of their solutions to maintain renewals NRR (Net Recurring Revenue) remains high.
- Unlike at the beginning of 2020, sellers can no longer take clients to hockey games or dinners to build rapport. Instead, all information sharing happens digitally, via email, or at a web conference. You have minutes, not hours, to make an impact. According to McKinsey, “digital self-service and remote rep interactions are likely to be the dominant elements of the B2B go-to-market going forward when selling to both SMBs and large enterprises.” And 89% of companies expect these changes to stick, anticipating they will need to sustain these virtual go-to-market models for 12+ months.
They are selling services now and post-COVID.
The best time to sell a service contract is during equipment sales. Your product sales teams deal with customers with the same issues your service sellers are experiencing. But the product people have successfully addressed their prospect’s challenges when presenting and closing your product sales. Therefore, the sales team can integrate your services into the overall justification (use case) and simultaneously complete the product and service sale if they are professionally trained and adequately compensated. Also, adding services into the use case will likely differentiate your company and help close the deal.
We all have a sizeable number of service contracts that renew yearly. Suppose you are experiencing difficulties in securing renewals on a timely basis. In that case, I suggest you spend quality time with your sales management peer and get some help to identify customers’ most pressing challenges. You can then present your solutions to show the customer how you can help them achieve their objectives while feeling that they are minimizing their risk.
If you find a large gap between what you are offering and what you believe the customers want, you have to put on your service marketing hat and find out their needs and the price they are willing to pay. Then you must update your offerings and create new value propositions for each customer segment and the services and contracts you want them to buy. Sometimes you can do it all by yourself. Sometimes you will need a more experienced consultant to interview a representative number of customers and determine what your customers are willing to pay for. The consulting investment is generally minor compared to the contract sales you achieve.
You must ensure that your contracts and other services create enough value for your customers, so they will find it difficult to move to a time and materials model or, worse, a third-party vendor.
On December 3, 2020, Field Service News first published this article.
To read about the 9 Reasons People Fail To Renew Service Contracts go here
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 more value for your customers, please get in touch with us or check out some free articles and white papers here.
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