Three Quick Ways to Increase Service Revenue

Three Quick Ways to Increase Service Revenue
By Shera Mikelson

In today’s economic climate, increasing service revenue has become imperative for many companies. As we in service marketing have understood for years, a strong service business can help a company weather a downturn in product sales. With corporate spending down (many say it fell off a cliff), budgets being slashed, and product sales slowed to a trickle, companies that have enjoyed steady growth for years are suddenly facing critical losses. Now savvy, and even not-so-savvy, executives are turning to their support organizations to bring in more service revenue to offset the losses.

There are three actions you can take that will help you bring more dollars into your company this quarter, and maybe even this month. They are: (1) stop discounting, (2) add telesales, and (3) train the sales team.

Stop Discounting

Did you know that only 10% of buyers make their buying decision based on price (see chart below)? It’s true. Studies in both the consumer world and in high technology services show that 90% of buyers choose what to buy based on things like product quality, product features, quality of customer support, and liking the sales person. Only 10% of buyers choose based on price, and those buyers are quick to move to any vendor that offers a lower price. They are not loyal customers and will continue to ask for further price concessions for as long as a vendor continues to give in to the pressure. In high tech services specifically, the choice is made on perceived need. Despite what your sales people are telling you about "your ridiculously high service prices" causing them to lose sales, the truth is that less than 1% of customers say that the price of service is a factor in their decision to buy a product. Of course, that’s not what they are saying to your sales team during negotiations, but it is important to realize that this is just that - negotiating. When asked after the fact why they selected a product, so few customers mention the price of service that it cannot even be statistically measured.

Rather than reward your problem customers for tough negotiating, you should be rewarding your best customers. In other words, replace negotiated discounts with earned discounts. There are several types of earned discounts that can be offered. Most companies offer a multi-year discount if the customer will sign an agreement that extends over several years. This can take the form of locking in the current price for the full length of the agreement, or offering, for example, 10% below the list price each year of the contract, or 10% below the current price and no increases for the duration of the agreement. At Hahn Consulting we generally recommend a version that provides for some modest increases each year so the customer doesn’t experience sticker shock when it is time to renew. Otherwise, renewing the contract can become an even greater challenge than the original sale. Other types of earned discounts include an allowance based on the dollar volume of the customer’s service business or taking something out of the service offering to account for the lower price.

It is helpful to recognize that in some cases buyers are compensated for the concessions they get from vendors, or perhaps are the type of personality that just has to "get something" from the vendor. This can usually be addressed by allowing sales people to give a 3% to 5% discount at their discretion. Remember, price is not really the deciding factor, so it does not take a large percentage to satisfy these situations.

Now raise your right hand and repeat after me, "No more negotiated discounts."

Add Telesales

Telesales is a widely overlooked technique for increasing service revenue. The mere word "telesales" is usually met with groans and unprintable words, probably due to the universal dread of the dinner-time phone call at home from consumer sellers. However, done professionally in the corporate environment by well-trained people, it has proven to be a highly successful sales model for services. A few years ago the Hahn Consulting Best Practices Case Studies report included a story about the phenomenal success of Oracle Systems at selling, renewing, and upselling software service agreements via telesales. At that time, individual telesales representatives were meeting quotas of multiple millions of dollars - over the telephone!

More recently, a well-known company in the semiconductor industry implemented telesales for service contracts about one year ago. This group is dedicated to selling service contracts and warranty conversions over the phone, and their service sales have grown 25% during this time. In another company, the country manager in Germany, who was adamant that telesales would never work in his market nor in his country, reluctantly agreed to a trial of telesales for one month. To ensure the failure of this experiment, he chose the month of December for the trial. At the end of the month the telesales team had brought in more service revenue than had been made all of the previous 11 months combined. The country manager became a believer and a strong advocate of telesales.

Remember, we’re talking about dedicated, trained service telesales representatives, not contract administrators making calls during their spare time. No resources to try this? That’s OK. You can outsource this effort to a number of companies that will do this for you. Some of them only charge based on incremental revenue, so it’s hard to lose. Try it - you might like it.

Train the Sales Team

While it may seem counter-intuitive to take sales people out of the field for even a day when sales are down, the return on investment can be both awesome and immediate. Whether the responsibility for selling your services lies with the product sales team, a dedicated services sales team, or some combination of both, chances are they are relying on traditional techniques they have learned for selling physical products. Unfortunately, those techniques just don’t work very well when selling services, which are intangible. While a product can be seen, touched, and demonstrated, a service is really a promise to do something in the future. The customer must make a leap of faith when first buying a service from you, so some different sales skills are needed for this type of sale.

If nothing else, at least make sure that your sales team is trained to understand and articulate the value of the services you provide. They spend a lot more time with customers than with you, and they are frequently being told that your service costs too much and the competition is better, and they come to believe it. Of course, your competitors’ sales people are being told the same thing by their customers. Training in the value of your services arms your sales reps to focus the customer’s attention away from price and to stand firm on the 'no negotiated discounts' policy discussed above.

One of the best investments your company can make is in negotiations training for the sales team. Even if some of your sales reps have had this before, now is a good time to refresh those skills. What makes this so vital is that over the past five years or so, negotiating classes have been filled with more buyers than with sellers. At our company we have been hearing lots of stories from clients about how skilled, and even ruthless, their customers have become at negotiating. Without good training and a solid understanding of the current techniques being used on them, many sales people believe they will lose the sale unless they lower the price. But remember, only 10% of buyers make purchase decisions based on price, and less than 1% purchase a product based on the price of service. Training, training, training, is key to getting higher service revenue.