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Service Contracts are Easy to Sell: Sell Job Security

They're much more profitable than selling products By Gary Kayye, CTS

Gary Kayye, CTSIf youre a regular reader of my columns, you know that our firm works with dealers, on occasion, to help them become more profitable.  In some cases, its a box company wanting to learn how to sell systems.  In some cases, its a systems integrator trying to sell design/build contracts.  In some cases, its a design/build firm trying to get better cost accounting on jobs.  But, in almost all cases, they are all equally frustrated at the level of success they have selling their most profitable product:  service contracts.

Service contracts (especially proactive-oriented ones) are much more profitable than selling products.  I wont go into the details about how profitable they are as I wrote a three-part series on service contracts a couple of years ago with the help of two of the industrys service gods:  Barry Haligan and Jay Rogina.  You can refer back to that article later, but rest assured that even a poorly run service department is almost always more profitable than a well-run sales department.  Margins for service run between 50-80%!

But, selling them, for a sales person, is often an obstacle.  Even the best sales people have a hard time selling something that is not tangible.  If they cant see it, touch it or demo it, they often find it hard to sell it.  Why would a customer buy something like service?  No one buys extended warranties, right?

Wrong.  Although I dont equate an extended warranty with a service contract, the fact is that even extended warranties sell well.  Even retail electronics companies like Best Buy and Circuit City have ?hit rates selling extended warranties about 20%.  Imagine the profit potential if more than 20% of your systems came bundled with an extended warranty. Now, imagine that same 20% with a true extended warranty!  Wow is right!

First of all, think of it as selling job security to your client.  OK, you cant use those exact words, but isnt that what you are selling them?  Job security.  If the system breaks down; if the president of the company who just spent $80,000 on a new boardroom AV system walks in there and it doesnt work right away, all the time, why loses their job?  Not you.  You might lose a client, but your client may lose his/her job!  A good service contract means that he/she (your client) doesnt need to ever worry about the system working as youll insure them that with some type of guarantee.  And, of course theyll pay for it.  But, theyll be paying for it with their companys money.  So, they use their companys money to save their own job.  Cool, huh? 

Second, its always easier to sell a service contract before going over the clients budget rather than after.  Line list a service contract and its benefits (not features; benefits) on the bid/quote itself.  Up front.

Finally, bill it monthly.  Dont show the cost of service on an $80,000 system at $6,000.  Show it as $500 per month thats a lot easier to swallow.  So, they get to save their job spending only $500 a month of their companys money?  Yep.

To really understand this, you need to understand the art of proactive service contracts and the benefits to the client.  So, if you dont know how already, learn how to do them.  Then, learn to sell them.

A side bar to the ProAV industrys consultants out there:  Please either stop listing a requirement for a first years service on each and every system you design to be performed by the bidding ProAV dealer OR, give them a formula for calculating what to charge (i.e. 10-12% of the cost of the serviceable equipment).  Too many times dealers bidding jobs you design and not calculating the cost of the service throwing it in.  We all know that you cannot ?throw service in, so the ?good dealer loses the bid and, worst of all; the client loses faith in our markets ability to service their own gear.


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Gary Kayye, CTS is Chief Visionary at Kayye Consulting, Inc., a Chapel Hill, NC-based marketing consulting firm that serves the ProAV and Home Theater markets. In addition to strategic marketing consulting, Kayye Consulting, Inc. is also a training development company. Gary can be reached via e-mail at gkayye@kayye.com or through his Web site at www.kayye.com.
Related Keywords:dealers, profitable, systems integrator, design/build contracts, cost accounting, profitable product, service contracts, Gary Kayye, CTS

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