Maintenance contracts are a lucrative source of income, but IT solution providers need to be dedicated to giving those sales the time and attention necessary to be successful. With companies counting every resource, VAR customers are hanging onto products longer than ever: In June, IDC lowered its expectations for worldwide PC shipments in 2011, and foresees only 4.2 percent year-on-year growth. (For more, see Partners: Economy, Tablets Change PC Refresh Cycle.) Here, the director of marketing and product management at MaintenanceNet, provider of warranty and service contract management services and data-driven lead generation, outlines how IT solution providers can justify servicing high-volume, low-dollar sales.— Jennifer Bosavage, editor
Time. If VARs only had more of it, then they clearly wouldn’t neglect the market opportunity that high-volume, low-dollar service orders represent. Many IT solution providers today are so focused on product sales, or are not willing to apply resources to service sales, that they frequently overlook the revenue gains that maintenance contracts can generate. Those contracts can substantially boost service sales.
Yet, in this economy, customers might be more likely to extend the life of a product they already own, rather than buy a new one. By purchasing or renewing a service or maintenance contract, IT departments can extend their technology investments while gaining a better sense of security about them. That benefits VARs as well: Experts say that sales growth of 40 percent or more can be achieved each year through service contract sales, including service renewals.
Maintenance contract sales, particularly those associated with low-dollar service contract renewals, require constant attention because of their sheer volume. Many VARs feel they’re not worth the effort. But those VARs could be missing out on a windfall.
What constitutes a “low-dollar” order? Typically, a larger VAR’s service business is measured based upon the ratio of contracts that are more than $25K in value (high dollar) and those that are less than $25K (low dollar). Many resellers will generally assess that 20 percent of their service contract value comes from low-dollar orders. And while solution providers do a good job of attaching those contracts to new product sales, it is in renewing them that they miss out. That’s because the process of tracking and acting upon these renewals can be tedious and time consuming—which is why it often never gets done.
Taking control of your low-dollar service business through the methods I’m about to reveal is very feasible, and can bring measurable increases to your bottom line, as well as provide a way to build upon those increases year after year. (At the same time, the opportunity to increase high-dollar service contract sales in a similar manner generally does not exist, as VARs are quick to identify and follow up on all potential renewals in this category, for obvious reasons.)
Turn to the Cloud
The service sales challenge— from understanding the complex web of service contracts available, to reaching out to customers when contract expirations approach—has not gone unnoticed. Many channel heavyweights, such as Ingram Micro, Cisco, CDW and PC Connection, are turning to cloud platforms to identify low-dollar opportunities and maximize service contract revenues across the supply chain. Some of these emerging tools also take it a few steps further by automating the sales transaction, while also incorporating VAR-specific profit margins and discount models to ensure that the entire supply chain is benefiting.
Today’s service contract platforms will literally do all the heavy lifting: they set the stage for VARs to send out authorized quotes to customers in a timely manner – just in advance of service contract expirations. By making the low-dollar, high-volume service contract process a “low touch” or even “no touch” transaction, channel pros can eliminate the bottlenecks traditionally associated with service contract sales, expedite time-to-close ratios, and dramatically reduce sales costs along the way.
What’s great for the channel is that many distributors today are offering service contract management tools to their reseller partners free of charge. Some of these are associated with specific vendors, while others span a wide range of manufacturers’ products.
Quality Data is Key
Whether you have access to a service contract platform or not, having quality data to work with will be critical to your success. It all starts with maintaining accurate records on product and service transactions. When you’re potentially dealing with thousands of service contracts attached to thousands of products sold over a period of several years – from networking products to laptops, notebooks, PCs and more -- your sales teams must have access to data that details which products were sold to whom and when. This includes complete transaction details as well as up-to-date customer contact information.
Only then can the most effective follow-on sales take place, whether for service renewals, or product refresh sales. With this kind of business intelligence in hand, your sales team will be able to take all the guesswork out of the service sales equation, ensuring your ability to more effectively track expiring contracts and, most importantly, take action on them at the proper time.
In a two-tier channel distribution model, data integration is also key. Many of today’s service contract platforms integrate seamlessly with manufacturers’ and distributors’ ERP, purchasing and order processing systems to ensure complete compliance with existing business practices. This helps streamline the quoting and ordering process, making sure not only that quotes meet with manufacturer approval, but also that the transaction is communicated to the distributor and accounted for in all the appropriate systems. And, all of this must be executed quickly, so that customers don’t lose patience, or interest, and VARs don’t waste time on the sale.
Everyday, VARs face the challenge of driving more revenue and ensuring that all sales opportunities are being addressed, while also staying on top of customers’ ongoing service needs. Why not go after the low-hanging fruit and place more emphasis on selling low-dollar service renewals to your installed base? With the right strategies in place, you’ll be sure to reap substantial rewards for your business.