Leveraging service agreements
The major reason a prospect requests your proposal is usually to fulfill an installation need, not a service requirement. In most cases, the price of the installation, not price of the service agreement, dominates the discussion because it is a much larger expense with a greater financial impact on the prospect.

What most service providers fail to understand is that although the price of your service agreement has a much lower profile than the larger installation price, its features and benefits can have tremendous bearing on the prospect’s final decision about which vendor to select. Usually, prospects heavily weigh the value of a vendor’s service capabilities and track record.

The impact of service agreements on the sales process is strictly a function of the added value, whether real or perceived. Added value can take the form of reducing risk, or it can be leveraged as a direct economic benefit. Several techniques we used follow.

The extensive use of reference letters praising your company’s service, especially when they come from a prospect’s industry, can mean the difference between winning and losing a bid. Prospects assume that if you did a good job for other companies, then you will perform for their company, providing added value by reducing risk.

In another example, I remember when a prospect wanted to select us, but had reservations because our installation price was significantly higher than our competitors’. We did not want to cut our price – the project margins were modest, and the effort would consume a lot of technical resources.

To make us more competitive, we leveraged our service agreement, providing one at no charge during the first year. The prospect appreciated the economic value of our gesture as well as the fact that they won some concessions. In the win-win spirit, he awarded us the contract. Our service agreement was a tool to wedge our foot in the door to capture the installation revenue and the additions that occurred over the next five years.

Driving sales
Integrating the service agreement and its price in your base proposal is a step in the right direction. To ensure that it is actively sold, however, you must incentivize your sales representatives – financially and otherwise.

Most sales representatives will sell anything – just give them a product and turn them loose. They will get the best results, however, only when they are educated about – and believe in – the benefits of their products. These benefits are not only in the best interest of the client, but support your company and its sales representatives as well. You may believe that this step is unnecessary, but experience taught us otherwise.

One of our representatives believed that service agreements were nothing more than a way to rip off the client. As you might guess, he never sold service agreements, nor did he find a home at GIC because he was a poor fit for our corporate culture.

Education about the features and benefits of the service agreement is good for all parties, providing a common ground from which everyone can work. There is the obvious financial reward from the sales commission, but the benefits go far beyond that.

One of the most neglected benefits of service agreements – one that directly affects your sales representatives – is client satisfaction. One of our senior salespeople approached me out of the blue one day and said, “Alan, I’ve noticed that my clients who purchased our service agreement seem extremely happy with our business relationship, while our T&M clients seem less satisfied.” I had never given it a moment’s thought before, but suddenly it made complete sense.

Service agreement clients receive a higher level of service, producing greater client satisfaction. This is an important barometer for the sales force because, although they generally focus on financial rewards, they also want to sleep peacefully at night, knowing their clients are adequately supported. Besides, even the greediest sales representatives get positive strokes form helping others. So, keeping clients happy is its own reward and makes the day-to-day contact between sales representatives and clients more pleasant, not to mention that it is well understood by salespeople, especially the good ones, that improved client relationships usually mean increased commissions down the road.

The compensation plan clearly drives sales. The same process that incentivizes sales representatives to sell installation projects applies equally to selling service agreements. Salespeople should be financially rewarded when they sell in congruence with the sales mandates of the company. We established two objectives for the sales compensation plan – offer rewards for selling service agreements and provide greater rewards for selling longer-term service agreements.

We structured our compensation plan on a graduated scale. The longer the term of the agreement, the higher the commission. It was that simple. Guess what? More than 80 percent of our service agreements were three years or longer with more than half covering five-year terms. Our goal of capturing the recurring revenue of long-term service contracts was achieved largely by designing a compensation plan that told our sales representatives what to do – to sell long-term service agreements.

Some things are hard to believe. Can you imagine? Selling service agreements to more than 90 percent of our clients? It is true. We integrated the three pieces of the selling puzzle – proposal integration, leveraging features and the sales compensation plan – into a plan that made our competitors green with envy. You can do the same thing at your company. If you do not believe me, ask Captain Kirk. S&VC

Alan Kruglak is former owner of GIC, a $20 million security systems integration company with a 54 percent growth margin. He sold his company to Sensormatic Electronics in 1995, and is author of the book The Entrepreneurs’s Handbook: Lessons form the Battlefield. He can be reached at 888-365-7500 or by e-mail at akruglak@erols.com.

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