4/4/2013
DB04: How To Design, Price and
Sell Service Agreements
Alan Kruglak
Genesis Security Systems LLC
Wednesday: April 10, 2013
“If You Don’t Ask,
You Don’t Get!
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4/4/2013
Growing Service Revenue
• Why Sell Service Contracts?
Growing Service Revenue
• Why Sell Service Contracts?
• The Excuses!
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4/4/2013
Growing Service Revenue
• Why Sell Service Contracts?
• The Excuses!
• Designing the Right Package
Growing Service Revenue
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Why Sell Service Contracts?
The Excuses!
Designing the Right Package
Selling Service to Prospects
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4/4/2013
Growing Service Revenue
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Why Sell Service Contracts?
The Excuses!
Designing the Right Package
Selling Service to Prospects
Selling Service to Existing Clients
Growing Service Revenue
• Why Sell Service Contracts?
• The Excuses!
• Designing the Right Package
• Selling Service to Prospects
• Selling Service to Existing Clients
• Pricing Strategies and Laws
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Growing Service Revenue
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Why Sell Service Contracts?
The Excuses!
Designing the Right Package
Selling Service to Prospects
Selling Service to Existing Clients
Pricing Strategies and Laws
Q&A
Why Sell Service
Contracts?
Why Not Just Through T&M?
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Service: Why Is It Important?
Power of Recurring Revenue
• Predictable
• Calm in a Sea of
Turbulence
• Flexibility
Why Don’t
Companies Sell
Service Contracts?
The Most Common Reasons...
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Reasons to Not Sell Service Contracts
#1 Inertia
We’ve Always Done It This
Way (ie, T&M). We Don’t Need
to Change.
Valid
Invalid
Reasons to Not Sell Service Contracts
#2 Customer Needs
Our clients don’t want service
contracts. They prefer T&M
Service.
Valid
Invalid
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Reasons to Not Sell Service Contracts
#3
We’ll Lose Money
If we offer our clients firm fixedprice service contracts with a
guaranteed response, we’ll lose
money.
Valid
Invalid
Reasons to Not Sell Service Contracts
#4
It’s Impossible!
No one can honestly provide 24hour a day, 7-day a week service,
with guarantees.
Valid
Invalid
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Reasons to Not Sell Service Contracts
#5 It Rips Off Clients
Service Contracts are overpriced
and rip-off the client. Selling
service contracts would be an
economic injustice to the client.
Valid
Invalid
Reasons to Not Sell Service Contracts
#6 Revenue Too Small
The revenue from service contracts is
too small to meet our overhead needs.
We view service strictly as a necessary
evil to win installation contracts. That’s
where the meat is.
Valid
Invalid
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Biggest Reason
Client:
Your
Firm:
“Do you provide service
after the installation?”
“Yes”
What’s Wrong with This Exchange?
Commodity
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Your Services
Designing the Right Package
Designing the Right Package
My Role Models for Service...
DEC
IBM
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Client Needs
What Do They Really Want?
Clients want any and
all features that
Minimizes...
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Risk!
Risk Management
• Primary Focus of Corporate Manager
Job Security
Achieve Job Security by:
Maintaining Budget
Risk Avoidance (Not Rocking the Boat)
Integrated Systems are real-time, tech solutions
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What Features
Should It
Include?
Important Features
One Fixed Price for All
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Important Features
One Fixed Price for All
Priority Response
Important Features
One Fixed Price for All
Priority Response
Fast Response
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Important Features
One Fixed Price for All
Priority Response
Fast Response
Instant Loaner
Important Features
One Fixed Price for All
Priority Response
Fast Response
Instant Loaner
Guaranteed Resolution
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Important Features
One Fixed Price for All
Priority Response
Fast Response
Instant Loaner
Guaranteed Resolution
Simplicity
Important Features
Simplicity
One Contract Meets
90% of Client Needs
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Feature Summary
Simplicity
One Fixed Price for All
Priority Response
Fast Response
Instant Loaner
Guaranteed Resolution
How Important
is a Name?
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Selling
Service
Agreements
Two Markets
Prospects
Existing Clients
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Prospects - 3 Legs
Presentation
Adding Value
Sales Force
Motivation
The Presentation
The ‘Ask For It’ Principle
Seamless Integration into
Installation Proposal
Place Price Below Install Price
Avoid Looking Like an Option
Make It Easy To Sign (one T&C)
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System Investment Summary
Our price for the turnkey supply and installation of the
system outlined in our proposal is as follows:
Base System Investment
$125,337.00
One-Time Discount
($26,102.00)
Total System Investment
$99,235.00
Full Service Agreement (monthly)
(Five-Year Term)
$1,295.00
Recommended System Enhancements
List Both
Prices
Together, so
They
Appear
Linked
If the budget allows, we recommend the following
system enhancements:
Additional Storage
$1,975.00
Expand Security Console
$4,500.00
How to
Add Value
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Adding Value
Differentiate Service From Warranty
Limit Warranty Services
7-24 Availability
Priority Response
Instant Loaner
10% Discount on Add-Ons
Reduce First Year Price
Adding Value
Secret Weapon
Reference Letters
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Selling The
Sales Force
Eat Well, Sleep Well
Selling The Sales Force
Increases
Your
Cash
Flow
Annuities
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4/4/2013
Selling The Sales Force
Increases Sales
Add-ons
Referrals
Selling The Sales Force
Increases Client
Satisfaction!
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Compensation Plan
Drives Sales
Sales Commissions
Compensation Plan Drives Sales
Reward Sales
Longer the Term, the Larger the
Commission
Renewals
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Overcoming
Objections
Reasons Not to Buy a Service Agreement
#1 Indifference
Why should I pay for a Service
Agreement? Aren’t you going
to provide service anyway?
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Reasons Not to Buy a Service Agreement
#2
Warranty Expectations
Aren’t I covered under
warranty? Isn’t that the same
thing as service?
Reasons Not to Buy a Service Agreement
#3
Alternative Shopping
Do you have a less
expensive plan?
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4/4/2013
Reasons Not to Buy a Service Agreement
#4 You’re Too Expensive
These prices are pretty
sporty, aren’t they?
Results of Our Approach
90%
Purchased Service
Agreements from
the Git-Go
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4/4/2013
Why 90%????
?
Made It Easy (signing mood)
Appear Install & Service
(one and the same, interlinked)
Met Their Needs
(Reduced Risk, Budget)
Pre-programmed Behavior
Selling to
Existing Clients
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4/4/2013
Why Buy a SA
From You, and
Not Your
Competition?
Two Prong Solution
Follow Xerox Model
(risks)
Differentiate T&M
and Service
Contracts
(budget cycle)
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4/4/2013
Value Added Comparison Table
Feature
T&M
M-F
Availability
Response Priority
Response Time
FSA
After
FSA
As
Available
Defect Corr. Response Time
N/A
Loaner
N/A
One Fixed Price
N/A
24Hr
2 to 4 Hr
Sales Strategy - Mailer
Develop an Intro Letter
Include Feature Table
Reference Letters
One-time Reduced Price
Selective Follow-Up (face)
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Price
Alan’s Rules on Pricing
Alan’s Rule #1
Law of Gravity
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Alan’s Rule #2
Law of Added Value
Alan’s Rule #3
Price Your Product at
What The Market Will Bear
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Alan’s Rule #4
Raise Your Hourly Rates!
Why
Raise Your
Hourly Rates?
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The ‘True’ Hourly Costs
Base Hourly Rate
Benefits (30%)
Inefficiency (20%)
Call-backs (15%)
Truck and Equipment
Overhead (35%)
Total Cost (Hourly Rate)
$25.00
$8.00
$6.00
$4.00
$7.00
$18.00
$68.00
Alan’s Rule #5
Raise the Rates of Your
Existing Service
Contracts!
HOW OFTEN????
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How Do You
Price Your
Services?
Alan’s Rule #6
Law of Price Sensitivity
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Glen’s Rule
Law of Client Complaints
Service Agreements
7% to 15% of Installed Price
Rule of Nickels and Dimes
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Service T&M
Make a Competitive Matrix
Identify Premium Providers
? Do Not Exceed $99 Barrier
Land of Expectations
Delivering On
Your Promises
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4/4/2013
Questions
and
Answers
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