Friday, September 26, 2014

How Everyone Wins With Service Agreements

How Everyone Wins With Service Agreements

Any business in the service and repair space should offer a service or maintenance agreement.  Correctly designed, a service agreement program is one of the biggest no-brainers around because everyone wins.  The customers win.  The employees win.  The Company wins.  Everyone wins.  Here’s how.

Defining a Service Agreement

First, let’s define a service agreement.  It is NOT an insurance program or extended warranty, similar to what the consumer electronics big box stores offer.  It is real maintenance work, discounted because it is pre-purchased and scheduled during slow periods.  For this reason, many service companies seek any name for their program other than “service agreement.”  It can be a maintenance agreement, a protection plan, a savings agreement, etc.

How Customers Win

Service agreements are a deal for customers.  Here are five ways they win.

1.    Service Agreement Customers Get Needed Preventative Maintenance

Maybe the biggest benefit is it encourages them to get beneficial maintenance work performed, which is too easy to overlook year after year until something breaks. The prevention of product failure is only the least of it.  Good maintenance extends the life of mechanical equipment.  Because the efficiency of mechanical equipment tends to degrade over time, maintenance restores lost efficiency, which is a serious benefit given today’s energy prices.

2.    Service Agreement Customers Keep Warranties Valid

For recently purchased products, manufacturers may require maintenance to keep longer term warranties valid.  These clauses are found in warranty fine print and overlooked until they jump up and bite you.  A service agreement ensures compliance.

3.    Service Agreement Customers Pay Less

Consumers can get maintenance performed a la carte.  However, they will pay more.  Work performed under a service agreement is discounted so customers pay less.

4.    Service Agreement Customers Receive Discounts

Service agreement customers are also treated better.  Typically, they receive direct discounts on repairs of 15% or more.  In addition, some companies reduce the price for after-hours emergency service for service agreement customers, waive response charges, and so on.

5.    Service Agreement Customers Get Better Service

Since service companies view service agreement customers as their best customers, they treat them better.  Their demand service calls move up in priority over non-service agreement customers.  Faster is better.

How Employees Win

Company employees are also big winners with service agreements.  Here are three ways employees win.

1.    Employees Get Work During Slack Times

Because maintenance work can be scheduled at the company’s convenience, it’s usually performed during seasonal slowdowns or other periods of slack demand.  This means hourly employees have work to do and are not sent home.

2.    Employees Can Earn Extra Money

Since selling or extending a service agreement results in a monetary spiff, company employees can earn extra money.  This includes field service personnel and customer service representatives.  The spiffs may not be large, but they add up.

3.    Employees Get To Do What’s Right For Customer

Since work under service agreements are performed during periods of light demand, there is less pressure to hurry through the work because other people are backed up.  Service personnel and take the time to be thorough and do the job right.

How Companies Win

Companies also win with service agreements.  Here are four ways.

1.    Companies With Service Agreements Enjoy Greater Cash Flow

Since service agreements are prepaid or paid on a monthly basis, they help companies with cash flow.  Companies with service agreements start the week, month, quarter, and year with guaranteed business already paid for.

2.    Companies With Service Agreements Retain Employees

Because service agreements means added work during slack times, companies keep their people busy.  Busy people are less likely to look elsewhere for a paycheck.

3.    Companies With Service Agreements Strengthen Customer Relationships

Some people claim that the only true customer a service company has is a service agreement customer.  All other customers become prospects at large the second the service truck hits the road.  In fact, there’s empirical research to support this.  Even when making significant purchases like heating and air conditioning systems, consumers are apt to forget the name of the installing company within two years of the purchase unless there’s a service agreement in place.  A service agreement means there is an ongoing relationship.

4.    Companies With Service Agreements Increase Their Value

Companies with lots of service agreements sell for more than companies without service agreements.  This is because a customer list with service agreements is a customer list with relationships.  A customer list without them is like a mail list that can be purchased for ten cents a name. 

Without question, service agreements benefit customers, employees, and the company.  They are a triple win, a slam dunk, a no-brainer, and as sure of a sure thing as you can get in the world of service.  In the next Comanche, I’ll explain how you can create a service agreement program and achieve buy-in.

© 2014 Matt Michel

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