Selling Service Contracts to Your Customers

Service, rather than product, is the key to long-term profit
By Lauren Gibbons Paul In many types of business, service is the key that unlocks profit. Depending on the type of product you sell, offering a service contract extends the value you offer your customers. And profit margins for service are often much higher than are those for product sales.

A few things to remember when selling service contracts:

1. Sell them as job security for your customers. If you're selling a product to a business, especially a high-priced one such as a piece of office equipment or a telecom system, the last thing your customer needs is to have it break down and not be covered by a service contract. If you can persuade the customer to think of the contract as job security, you are doing well for the customer — and yourself.
2. Build the service contract into the sales process before discussing the customer's budget. If you wait until after you agree on a price, it will be that much more unpalatable to him or her to add to the cost. Emphasize the contract's benefits, not just its features.
3. To make the contract's cost easier to swallow, refer to cost per month rather than cost per year. Of course, anyone can quickly figure out the annual fee, but this small touch will get you that much closer to inking the service deal.

 

Work from samples

A plethora of Web sites offer sample service contracts for you to work from — some for free, some for a fee.
Try: You can see dozens of sample services contracts from many different industries at Oncle.com. AllBusiness.com's sample contracts run about $25 each.

Make your service contracts proactive

Customers are more likely to buy service contracts that entitle them to proactive service visits rather than just maintenance in the event of equipment breakdown.
Try: Kayye Consulting outlines a "proactive service contract" theory.

Let the technicians do the selling

If you employ field service maintenance and repair people, it may make sense to them sell service contracts. Customers are likely to view service techs as trusted contacts. When an existing service contract is about to run out, the field service person can bring up options for extending and even expanding the agreement.
Try: Teach your field force the basics of "cross-selling" using TechTarget's tips and "up-selling" with strategies from Business Know-How.

Be aware of the bad blood

Extended warranties have gotten a bad rep in recent years because of scams in industries such as home appliances and car sales. Hit the negatives head-on and differentiate your offering from the infamous ones.
Try: ConsumerAffairs.com provides a list of five reasons consumers object to buying extended warranties. The Federal Trade Commission cautions consumers to examine service contracts and make sure they spell out what the contract covers, whether a service contract offers more than a warranty, the length of time the contract is in force, and whether the product generally needs repairs (a repair-free contract won't need much service).

• Make sure your service contracts clearly spell out your responsibilities and also those of the client.
• In certain industries — information technology, for example — customers now demand Service Level Agreements (SLAs). These contracts demand accountability on the part of the provider (for instance, a percentage of uptime for computer networks) and come with penalties for not meeting responsibilities, and sometimes come with benefits for meeting or beating levels of service and/or deadlines. Offering an SLA can add to your credibility and help you close a large sale.
• If a service contract is to last for a significant length of time — more than a year, for instance — detail future pricing adjustments and when they will occur.
• Many consumers are likely to start the dialogue thinking a service contract is a waste of money. You'll need to combat that attitude from the get-go.