By far the biggest challenge cited in one of our State of the Industry surveys of 200-plus integrators is low product margins: specifically, how those relate to selling service contracts.
Integrators must move beyond the product margin-based revenue model and think more creatively about ways to boost their bottom lines, such as selling service contracts.
Meanwhile, the so-called A/V-IT convergence has also influenced the approach systems integrators take to making money, with more emphasis on service in addition to installation. The potential for recurring revenue makes this a model more companies are embracing every day.
“The truth is if you truly have to sell a service contract, your customers don’t understand the value it can bring them,” says Julian Phillips, VP at Whitlock, CI’s 2012 Service Integrator of the Year. He’ll teach a class at InfoComm 2013 about the reasons AV service contracts are so important.
If you haven’t started selling service contracts along with your systems contracts, you should seriously consider it. Here’s some tips for selling service contracts from those who’ve done it and done it well:
Do: Try selling service contracts on every install.
It may not happen, but the only way to ensure complete success is to ask every customer if they’re interested. Tyler Bonner, director of the critical space solutions group at Technical Innovation, says the company has service contracts secured on about 80 percent of its installations, most of which are in control rooms or mission-critical spaces. “It can be a tricky proposition in the 24/7 space,” he says. “The one thing that helps is the fact they make a significant investment on technology up front and don’t want the boss to walk by and see the video wall not working.”
Do: Make it easy for customers to see the cost of adding a service contract.
Whitlock’s quotes include automated information on adding maintenance contracts, says Phillips. The calculations are based on a complicated algorithm that predicts the use of each piece of the installation over a certain period of time.
Do: Explain the value of a service contract to customers who need help.
“If you don’t understand the value of service, you will always struggle to have good-performing equipment,” says Thomas Berry Jr., president, CEO and chairman at Verrex Inc. “We look for an opportunity at the front end, but the sales process often involves heavy negotiation and competition.” During the warranty period, Verrex Global Managed Services staffers talk with customers about service contracts.
Do: Make selling service contracts scalable, just like systems contracts.
Advanced AV offers service contracts that range in size from a single room to the entire project, says services account executive Chris Turner. The service contracts can also include on-site staffing. “More companies are willing to [sign service contracts] than in the past,” he says. “The level of integration is so much more than in the past.”
Adds Dana Barron, CEO at HB Communications, “You have to be able to offer an entire suite of services. Not every customer is going to want or need everything you offer.”
Do: Include the CIO in discussions about selling service contracts.
They’re used to having AV service contracts, and in most cases expect to have them, when making major equipment purchases. “They already have the mentality of including support costs in proposals,” says Phillips.
“If you don’t understand the value of service, you will always struggle to have good-performing equipment.” — Tom Berry, Jr., Verrex
Do: Consider having dedicated service contract sales staff.
“We were trying to add the responsibility [of selling service contracts] to systems sales reps, but it’s a different mindset,” says Bradford Caron, president of Signet Electronic Systems. “The dollars are less and it’s a different kind of sale that’s not always appealing to systems sales reps. They don’t want to distract the client from a half-million-dollar system agreement. It’s not conducive to closing business to talk about ongoing costs.”
Do: Allow systems sales reps to sell service contracts if they want.
“They understand the value of the recurring revenue,” says David DeGenova, product manager for managed services at IT integrator Atrion. “The more stickiness with the clients the sales reps have, the more money it can be for them.”
Do: Stay in touch with customers who don’t yet have AV service agreements.
“As the warranty expires, you can leverage that as a means to close business,” says Caron. “You want them to be in the habit of calling you.” Signet offers complimentary semiannual site inspections to its systems integration customers.
Do: Explain the bottom-line costs with and without a service contract.
“Clients are already familiar with how complex the technology is and that problems can happen,” says DeGenova, product manager for managed services at IT integrator Atrion. “It’s not ‘set it and forget it.’ You’re talking about voice, collaboration, licensing and software. It’s cheaper to buy it as a managed service than build that in-house.”
Atrion has a service called MaxTime that helps clients support and manage their IT systems, working with IT directors and supplying both proactive and reactive monitoring.
Do: Offer customers the option of on-site staffing.
“Our customers are mostly in the corporate space. They’re not worried about their equipment breaking. They’re more worried about running and operating it,” says Berry. “Most of them don’t have the resources to do that.”
Don’t: Wait until after you’ve finalized the A/V system contract to start discussing selling service contracts.
“It’s a lot harder to make a decision to get a service contract a year later when you haven’t budgeted for it,” says Phillips. Whitlock typically tries to secure three-year service contracts. “We need to look at the value we get over a long period of time and help the customer to see the value they’ll get in sticking with you.”
“If they go a year without using their warranty, they’re probably not going to want a service agreement,” Caron says.
Don’t: Assume the chicken comes before the egg.
AV service contracts don’t always have to spring from a systems contract. Many referrals for Advanced AV’s systems solutions come from customers who have service contracts on previous installations, including some that weren’t installed by Advanced AV, says Turner.
Don’t: Separate the solution from the service.
“The customer is buying a service experience, not just a bunch of products and a maintenance plan bolted on to that,” says Phillips.
Don’t: Think of service as separate from the system installation.
“Service is part of the solution that starts with integration,” says Turner. “It’s no longer just the head of facilities who’s deciding whether to do these things.”
Don’t: Make selling service contracts too complicated for customers.
“We sell AV service like we sell a hardware solution,” says Barron. “You can’t look at it myopically. You have to think about how the technology plays from an IT perspective in terms of filling a business need.”
Don’t: Sell service contracts until you’re ready to deliver on them.
“You can’t start any program without it being fully fleshed out, but that’s especially true when you’re asking people to pay for AV service,” says Bonner. “You have to be prepared to make an investment in people and infrastructure. It’s a capital investment that can likely stretch over a year or two, if not more.”
Don’t: Assume some customers aren’t candidates for service contracts.
Most of the execs we talked to say they expect their percentage of revenue tied to AV service contracts to continue climbing this year and beyond. Atrion has gone from about 15 percent of its revenue going to service a decade ago to about an even split between products and service.
“That service culture really became part of our DNA,” says senior VP Paul Cronin.
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