Given the enormous attention that field service organizations (FSOs) are placing on growing topline service revenue, Blumberg Advisory Group and Giuntini and Company recently partnered to conduct a study among service executive about best practices involved in selling extended warranty and/or extended service programs. A key finding of the survey is that the configuration of extended warranty and extended service programs has a tremendous impact on the sale of these programs. In other words, the length of coverage, level of customization, processes engaged and resources employed in delivering the warranty, and entitlement levels offered play a key role in driving sales. These findings suggest that the more distinctions a company can make about its service program, as defined through the configuration, the more effective the company will be at getting customers to purchase it.
The survey also validates the fact that Field Service executives need to pay close attention to contract attachment rates and renewal rates. These KPIs measure the effectiveness of a company’s marketing and sales programs. They are also the most important metrics when it comes to determining service profitability. Some field service executives may argue that KPIs associated with operational excellence such a first-time fix, customer satisfaction, cost per service event, mean time to repair, etc. are more important to service profitability. However, without service revenue there can be no profits at all. Once a customer purchases an extended warranty program there is a high probability they will renew. Furthermore, a sizable percentage of customers who purchase a service contract require very little service or no service at all. This means the service provider doesn’t incur significant costs in servicing that customer.
At issue, very few companies have achieved superior performance when it comes to contract attachment and renewal rates. Only 20% of survey respondents experience contract attachment rates higher than 70% and renewal rates higher than 90%. In addition to warranty configuration, the factors that impact attachment rate include the factors that influence attachment rates include the customer’s ability to customize agreement, ability to terminate early, and ability to negotiate price. Companies who excel at contract renewal also allow for periodic invoicing and the ability to extend contract length. They also provide frequent notification about when a program is up for renewal
To dramatically improve contract attachment and renewals, service organizations must have the right systems and processes in place to market and sell service contracts. The current state of the art is effective in tracking entitlements, managing equipment histories, and notifying customers about when their contracts are about to expire. However, a large majority of FSOs lack the systems to properly configure, price, and quote (CPQ) service contracts. Extended warranty/service programs are often treated as a line item on a price quote generated by a company’s CRM/ERP systems. As a result, FSOs are limited to offering only standard programs. Almost fifty percent of companies surveyed rely on their CRM/ERP to perform CPQ functionality. Astonishingly, approximately one-third of the survey respondents utilize spreadsheets. Obviously, neither of these applications are ideally suited to CPQ. CRM applications can’t deal with the complexities involved with customized service contracts and spread sheets are too time consuming to manage. It is likely that CPQ will be the next major area of innovation for developers of field service management applications.