On the fence about selling Service Agreements?

Are you having reservations about selling Service Agreements as part of your company’s products and services? If you are, the good news is that you are not alone. There are a lot of companies out there that are not selling Service Agreements today. Some may have thought about it, but decided that it would be too much work or that it was too complicated to get started. If you are one of those companies that are on the fence as to whether or not to sell Service Agreements, let me help by providing some guidance.

Types Of Agreements

First, let’s start with the different types of Service Agreements that are being offered today. One of the most common is the Preventative Maintenance (PM) agreement. This type of agreement provides your customers with pre-scheduled times when your technician will come out and make sure that everything is working and will stay working for a specified period of time. The PM Agreement is typically used within companies that are servicing items that are seasonal such as Air Conditioning and Heating.

Another type of agreement is the simple Maintenance Agreement. This agreement provides your customer with parts and repair services for an item or items when they breakdown. A Maintenance Agreement can apply to anything from appliances, computer equipment, medical equipment, or anything and everything that has the potential for needing service.

The next type of agreement is sometimes called a Replacement Agreement. It provides your customers with replacement coverage should an item become impossible or highly unlikely to repair. In some cases, the Replacement Agreement is offered in combination with the above mentioned Maintenance Agreement. This provides the customer with a possible "Full Coverage" solution.

Finally, there is the Services Only Agreement. This type of agreement provides your customer with a set list of services that are made available during a specified period of time. The Services Only Agreement is typically used within the Veterinary or pet industry as well as other industries that provide services other than repair type services.

Why Service Agreements Are Good

So why offer Service Agreements to your customers? One reason is to develop customer loyalty. Customer loyalty allows your business to build a set number of customers that you know will call you when they need service regardless of whether or not the service is covered under their agreement. A loyal customer is also more inclined to listen to you when you have a new product or service that may help them to save money over time. Ultimately, having customer loyalty provides your company with better up selling/cross selling opportunities while your technician is in front of the customer and when you may be helping them over the phone.

Another reason to sell Service Agreements is to entice potential customers with discounted service rates and product offerings. If you are offering a set list of services for a flat fee, customers see value in that and usually don’t think twice about jumping in. The same rule applies when selling/including consumable items within the total cost of the contract. The more money you can save the customer over the long run, the easier it will be to get them on board with your Service Agreement offerings.

The biggest reason for selling Service Agreements is to create an incoming stream of reoccurring revenue into your business on an annual basis. As long as you provide your customers with great service all of the time and provide them with plenty of notice of expiration, they should have no problem renewing their agreement with you every year. The better news about generating a reoccurring revenue steam is that all of that renewal revenue typically goes straight to your bottom line and what company doesn’t like that?

Some Things To Do Before You Get Started

So, what are some of the check list items you should know before you start putting together your Service Agreement offerings? Well one of the most important items is making sure that you have the workforce to support the extra service call volume that your agreements will generate. Remember you want the customer to renew each year, so don’t let your service calls go out more than a day or so before you can provide service.

The next checklist item is to create a pricing structure for each of your agreements that is simple and straight forward. Include your costs that will be associated with supporting the agreement, but don’t make the pricing so much that your customers won’t be interested. It is also a good idea to provide different levels of agreements. For example, maybe a gold, silver, and platinum plan or something similar that will give your customers a set number of choices to choose from. Note that too many choices have a tendency to overwhelm people, where as a good, better, and best approach provides your customer with choices that will make it easy for them to choose the agreement that is just right for them based upon their needs.

Another checklist item is providing some flexibility with your agreements. As I noted above, you don’t want too many choices in the way of a base Service Agreement. However, your customer may need coverage on an item or items that may not be covered in one or any of your base service agreements. In this case, give your customers the ability to select add-on items to augment one or all of your agreements. That way your customer gets a Service Agreement that fits their needs perfectly. Just like your Service Agreements, you also want to make your add-on items are attractively priced for your customers, but be sure not to cut your business short when it comes to your costs.

The last checklist item that I am going to cover is one that, in my eyes, is the most important and that is creating your Terms and Conditions. Each of your Service Agreements should come with a professionally created (by a lawyer) set of Terms and Conditions. The inclusion of this legal document helps to protect you and your customers in the event of a misunderstanding and leaves no confusion as to what is covered under your agreements and what is not. It also sets limits as to what the damage will be in the event of arbitration (your preferred path) or litigation in a court room. Note that it is important to keep this document up to date as your business changes. Shop around for some legal advice on how and who can help you create this. The money you spend will be worth every penny.

So, there you have it. Service Agreements are a great way to create new business and revenue. But, there are some things that you need to do before selling Service Agreements to your customers. I have listed a few of the most important items to help you get started. If you would like an excellent resource for getting your company in to the Service Agreement business, check out this excellent video called Service Agreement Success from Gary Elekes on Contracting Business. It is a little long but chalk full of great information on getting your business started selling Service Agreements. If you get to the point that you would like to sell your Service Agreements online, check out our Service Plan Builder tool. It makes it easy for your company to sell and process your Service Agreements online.

Are you currently selling Service Agreements for your products and/or services? Do you have some advice for those just getting started? Let us know below…