“Money for Nothing” is the concept that you can charge a premium if you offer customers predictable facility outcomes at a predictable price. You should be more profitable when “nothing” happens: no emergencies and no system failures. These bad outcomes are undesirable for the customer and expensive for everyone, especially your company. Even if you charge the customer an exorbitant labor rate or emergency fee, being reactive costs a lot more than your tech’s overtime rate. The uneven labor demand of reactive work overextends your most expensive resource, skilled labor. Read our Money for Nothing blog post and check out Billy Marshall’s presentation, Money for Nothing: How Exceptional Service Brands Earn More Pay for Less Work, for a deeper understanding of the topic.

To understand how a Money for Nothing program works operationally, let’s talk about your technician Dan. OK, you may not have a Dan, but stick with me. Dan is the man. He’s been with you for years and he racks up all sorts of repair work and generates a lot of revenue for the business. He’s great at what he does and is irreplaceable in the face of the skilled labor shortage we’re experiencing. On a typical maintenance call, he may find a small equipment issue that has the potential of manifesting into a severe problem in the future. He reports the issue that makes its way to the customer as a quote. As usual, the facility manager, Stingy Steve, ignores the quote because he doesn’t think it’s all that urgent. Eventually, the equipment fails and Dan has to drop another job and work late to resolve the issue. Even though Dan the Man predicted the problem, Stingy Steve is still frustrated that he has to spend more money and deal with the hassle of an emergency.

That’s a bad customer outcome that could have been avoided. That’s how you lose customers. Dan did a great job reporting the problem and your team did a great job quoting it, but more effort should have been made to convince Steve that the minor repair was the right choice. Measuring the right performance metrics can help hold your team accountable for good outcomes and incentivize them to work harder for your customer to avoid situations like this.

Money for Nothing Metrics – or MnMs, not to be mistaken with M&Ms – are business measurements that will help your facility service organization effectively deliver on your premium service contracts and drive better customer outcomes. But first, what internal metrics do you currently use? Labor utilization summaries? Quote approval rates? Revenue per tech per day? These are valuable KPIs for measuring productivity and revenue, but what about customer outcomes? You can measure retention and customer lifetime value, but those are just the results of your performance. They indicate the overall “stickiness” of your brand and how effective you are at extracting dollars from your customers, but they don’t help you understand how you got there. We know that you can’t improve what you don’t measure, so let’s take a look at some key MnMs.

Suggested Repairs

How proactive is your team when it comes to equipment and system issues? Easy. Just track the ratio of reported, quoted, and approved proactive repairs as compared to more severe, reactive problems. The higher the ratio, the better job your company is doing at preventing future catastrophes. Even though these repairs produce less revenue, they will reduce the chance of a bad customer experience and can be scheduled during slow months.

Emergency Calls and Overtime Usage

How often do your customers have unexpected issues? For most service contractors, the answer is very seasonal, but you still have some control over the volume. More proactivity leads to fewer emergencies and happier customers. Measure the volume of emergency calls and overtime hours used for contracted customers to the total number of contracted customers by month to get a sense of what to expect from month to month. You know you’re doing a good job when that ratio drops for the same month year over year.

 

Hold your team accountable and incentivize them for “nothing.” Just like your program, your team should be making money for nothing: no emergencies, no failures, no bad outcomes. MnMs give you the numbers you need to set goals and realize outcomes.

When you deliver great service, equipment and systems don’t fail, nothing happens, and your customer is left wondering if you’re worth the money. When you deliver poor service, systems fail and the customer gets frustrated. You’re damned if you do and damned if you don’t. Billy Marshall’s keynote presentation at the 2017 Digital Wrap Conference, Money for Nothing: How Exceptional Service Brands Earn More Pay for Less Work, explains how to keep customers happy and earn a premium when nothing goes wrong. As Billy explained in an earlier blog post, this strategy requires you to show customers all the “snakes” you find in their systems:

You can give the customer what they want, which is nothing, as long as you are regularly finding snakes on the roof, snakes in the riser room, snakes in the ductwork, snakes in every nook and cranny of their critical equipment.  Of course, these are figurative snakes, not literal snakes.  The snakes are the equipment deficiencies that your technicians are recording with photos, audio, and video for the customer to review online via your Service Link. The deficiency snakes are clickbait that constantly reminds the customer how your diligence keeps them from getting bitten by disruptions and breakdowns which inevitably lead to hassles and aggravation.

Billy didn’t stop talking about snakes for months. He managed to take this snake analogy all the way to his keynote presentation:

The analogies and stories don’t stop at snakes. Check out Billy’s entire presentation to learn how to make “Money for Nothing” and create a customer program that will let you charge a premium because you provide more value.

ServiceTrade sells software, so we spend a reasonable amount of time coming up with ideas and content (like this blog post) to help customers make better and faster decisions about buying software (preferably from ServiceTrade). We are particularly fond of catchy, summary phrases and slogans that are memorable for the same reason that consumer marketers come up with jingles that stick in our head. Humans are impressed by and gravitate to rhythm and rhyme (along with images and stories) as a mechanism for storing and retrieving information. It is easier to learn the lyrics to a song than to memorize a speech. If it has rhythm and rhyme, you are more likely to remember the phrase.

So what is the catchy breakthrough I am seeking with this post? I have been writing a lot about how to evaluate and purchase software applications to increase the value of your business. You can check out some of that content here, and here, and here. My latest breakthrough in measuring software value is what I call the “bank bandit barometer” (note the meter and alliteration of that phrase! nice huh?). Why did Jesse James rob banks? ‘Cause that’s where the money was held. Banks are more dense in money than restaurants, or retail outlets, or hotels, for example. A robber is going to get more bang for his buck (or more bucks for his bang if he has to deploy his weapons) by focusing on banks instead of these other cash-poor outlets.

So what does any of this have to do with software? Well, the “bank bandit barometer” for software purchases would say to look for software that helps bring more bucks into the business. What is the metaphorical bank for a service contractor? Where is all of the money? I would argue that the biggest hoard of cash to go attack with software is the cash that is in the hands of the prospective customers in your market. Cash that is currently being spent with other vendors or not being spent at all due to lack of attention. The potential customer spending in the addressable market that can be reached by your services represents probably 1,000 times your current revenue. Maybe only 100 times your revenue if you are a larger contractor in your market.

Contrast this bank vault of customer spending with the focus of most service contractor software consideration – how do I lower my payroll by being more efficient internally? How do I lower my administrative costs? By definition, your administrative costs are some small fraction of your overall revenue. Maybe 10%, or .1 times your current revenue. If you were a bandit, you would be doing poorly using software to “stick up” your administrative payroll. Wringing dollars from administrative payroll is like a bandit sticking up the local neighborhood kids lemonade stand. There just ain’t much money there, so any robbery that is focused on extorting dollars from the lemonade stand is doomed to marginal success at best.

So, what do you think about the “bank bandit barometer” for software purchases? Are you focusing on innovations that help you take more money from the bank that is the market you service? Innovations that help you sell to the customer accounts that you covet? Innovations that help you charge more? And deliver new capabilities? And attract a better class of customer to your business? Are or you content to hold up the lemonade stand because the poor kids running it are a soft target? Think like a bank bandit next time you go out shopping for software applications.

Get more advice for buying software in the Practical Guide to Buying Software for Service Contractors.

What’s the worst customer service experience you’ve ever had? Think about that for a second.

How would you describe that experience? Was it inconvenient? Was it a waste of your time? Did a lack of transparency or information lead to a bad outcome? These are the calling cards of a bad customer service experience.

My recent experience with Monoprice, an online retailer, nearly caused me to have multiple aneurysms. I ordered some speakers and a small amp for my living room and the day they showed up, I was so excited to set them up that I forgot to eat dinner. It was better than Christmas. The problem is that one of the tubes on the amp was damaged during shipping. Not a big deal, right? Any reputable retailer would take care of this in no time.

After waiting on hold for an hour to speak with a customer service rep, I finally gave up and tried their online chat tool which lead to even more frustration and wasted time. When I finally reached someone, they told me they would ship me a new part. They didn’t. This happened 3 more times before they finally replaced the entire amp. 5 months. That’s how long this whole process took. WTF? What an opaque, inconvenient process. This was not the easy way.

Changing gears, what’s the best customer service experience you’ve ever had? This question always takes longer to answer because most of us don’t mentally catalog our good experiences. How about the first time you used a good app to make a purchase with something like Amazon, Uber, or Domino’s? Even though you didn’t speak with anyone to make that purchase (except your Uber driver), you probably had a great customer service experience that was convenient and transparent. That’s the easy way.

Service contracting is hard as hell, but it shouldn’t be for your customers. It should be as easy as ordering a pizza from Domino’s or buying products from Amazon. Pull that off and your brand will stand out from the competition. Customers will be loyal and happy to pay you a premium if you can take the hassle and worry out of their lives.

My Amazon order history tells a pretty interesting story that starts back in 2011. That’s the year that I finally decided to create an account because I realized I was probably going to be purchasing a few more items from this Amazon company and I was sick of retyping my credit card information. At this point, I didn’t realize what an impact Amazon was going to have on my day-to-day life.

It’s not like I immediately started ordering everything from Amazon. Quite the contrary. Between me and my wife, we made one order on our Amazon account in 2011, four in 2012, and fifteen in 2013. You see the trend. Later that year, we subscribed to the Amazon Prime program to get fast, free shipping for an extra $80 a year. That changed everything. Our Amazon use skyrocketed to the point where we made over 70 orders to Amazon last year. And, a quick poll of my co-workers suggests that we’re light users.

Here’s the kicker, Amazon is not the cheapest option. I price shop all the time and find better deals. But, those cheaper options either mean ordering from some sketchy online retailer that might take my money and run or a stressful, frustrating trip to a big box store. I’m not dealing with that mess. There is almost nothing as inconvenient as a trip to Walmart or Best Buy. It’s a waste of precious time. I don’t mind waiting 2 days for a product to ship from the Amazon Warehouse if it means avoiding the hassle of those madhouses.

That’s how doing things the easy way can make a loyal customer for life. Amazon is the easy way for me and for that, they’re making a killing. Compared to their most dominant competitor, Walmart, they’re absolutely cleaning house. As of the writing of this post, Amazon’s stock has increased in value over 2,600% since 2005 to a market cap of nearly $700 billion. Not bad for a company that started as a little bookstore. Walmart’s stock price, on the other hand, has only grown 82% to a market cap of $260 billion. Would you be happy with 82% growth in the value of your company over 13 years? How about 2,600%?

Now, I know you’re probably not running a multi-billion dollar company, but this strategy isn’t unique to megaretailers. Ever heard of Spiffy or FilterEasy? These aren’t big companies, but they’re growing like crazy by doing it the easy way. These two brands are built on the premise that customers want convenience and transparency and are willing to pay a premium for it. Check out my last blog post for details about their convenience-first strategies.

Could you imagine if all of these successful companies only used employees equipped with spreadsheets, phones, and email to provide this level of customer service? A concierge for each customer to update them on the progress of every purchase, answer their every question and resolve any issues. It would be a rat’s nest of communication. Of course, this is preposterous. The costs would be astronomical and the results would be a mess.

So, why is that how most service contractors solve the same problem?

Instead, Amazon, Spiffy, and FilterEasy use scalable customer service technology to make their customers’ lives easier. They cut human costs and provide a better, more convenient, and more transparent experience with applications that differentiate their brands. Of course, there are still people involved, but their cost to deliver customer service doesn’t increase with each new customer. In fact, the cost per customer goes down as they grow.

What technology are all of these companies using on the backend to manage accounting and logistics? It doesn’t matter. Their customers don’t care how they manage the business. Customers just want their lives’ to be easier. In their customers’ eyes, Amazon’s warehouse software doesn’t differentiate them from Walmart. Spiffy’s accounting system doesn’t set them apart from Jiffy Lube. FilterEasy’s payroll system doesn’t help them sell more filters.

So, why is that most service contractors think their backend and accounting systems will help them grow?

I’ll never buy from MonoPrice again and I avoid Walmart like the plague. I’ve never spoken with an Amazon customer service rep, yet I’ve been a loyal customer for over 7 years and spend more with them every year. Good customer service is convenient and transparent but great, scalable customer service can only be achieved with technology.

This doesn’t have to be hard. Give your customers the easy way.

When I joined ServiceTrade to begin its services division in 2012, Billy greeted me with the
welcoming threat “if you screw this up I’ll fire your ass.” I’m still with the company, so here is my advice for how to buy good software and not get fired in a growing company.

  1. Use the right tool for the job.
    I didn’t set out to solve our CRM, marketing, accounting, and payroll challenges. I was looking for the right tool for customer service. Any software that says it can solve all of your problems is going to be terrible at everything. I focused on choosing the right tool for one problem at a time.
  2. Choose good software.
    Two of the most important elements of good software is open APIs that allow for integrations with our other applications and that it is SaaS. The picture below shows what integration looks like with bad software. Nobody at ServiceTrade is spending time managing our own servers. We have better things to do with our resources.

    This is what integrations look like in a server environment.

  3. Blow it up from time to time. 
    When I started, I chose ZenDesk to run customer service. About five years later, we blew it away because something better came along. We discovered that Intercom offered a few more integration options and we like its online chat. So one morning in about four hours we unplugged ZenDesk and plugged in Intercom. It didn’t require us to change our accounting system. It didn’t bring down our CRM. It was just like when you get a flat tire – you pull over, change the tire, and leave the rest of the car alone.
  4. Enable more integrations.
    In making the change to Intercom, we added more options for creative integrations. We rely heavily on Zapier to connect our apps to each other, so compatibility with Zapier is a must. Search for “Zapier library” to get an idea of how an application you are considering can connect with other apps in your company.
  5. Be decisive.
    The Practical Guide to Buying Software for Service Contractors gives you six things that should be easy to determine when you’re working with a good software company. It’s important to us that our applications keep up with the pace of our growth and new ways to help our customers. If that means adding new software, we’re decisive and act fast by following the tenets in this guide.

Also read:

This blog post is adapted from a 2017 Digital Wrap Conference presentation by ServiceTrade Vice President of Customer Success James Jordan. Presented here without the rooster photo.

United Fire wanted to increase the level of customer service that their technicians provided by improving technology, automating processes, and increasing efficiency across the organization. Their first steps towards this goal were to replace their 20+-year-old computer systems and to implement ServiceTrade. However, there was a lack of integration with United Fire’s current accounting system. They needed a cloud-based solution that could:

  • Integrate with ServiceTrade
  • Eliminate manual duplicate entries
  • Deliver up-to-date custom reports and dashboards
  • Reduce dependency on Excel spreadsheets

FINDING THE RIGHT SOLUTION
United Fire chose Leap the Pond to implement Sage Intacct, a cloud-based accounting software solution. The seamless integration between ServiceTrade and Sage Intacct was a key decision factor. Sage Intacct allows them to significantly improve accounting processes (no more manual dual entry and tedious Excel spreadsheets) and have real-time access to their financial reporting.

SEEING RESULTS RIGHT AWAY
“Accounting was an accidental blessing to our company-wide technology upgrade. Before Sage Intacct, we could not get a real-time status of our financials and our accounting department was doing a lot of manual entries. Now we have real-time visibility and transparency to our financial results from anywhere. It has completely changed our business model.” Jeff Wallace, United Fire. Sage Intacct provides a user-friendly environment for business and accounting users.

United Fire has a small accounting team and during the implementation process, they lost a key accounting staff member. Leap the Pond provided the extra support needed to complete the implementation on time and trained United Fire’s new accountant on Sage Intacct’s platform. In addition, during United Fire’s staffing shortage, Leap the Pond assisted with their outsourced accounting services to close their month-end.

Since United Fire’s implementation, they have:

  • Shortened their invoice cycle dramatically – they can now process same day invoices
  • Improved the monthly reporting cycle to provide timely reports within days of the month end
  • Simplified and streamlined key accounting processes
  • Increased competence in accounting transparency and ability to track spending
  • With investing in the right systems, United Fire now has a greater focus on their customers and is in a better position to make long-term strategic plans for their organization.

ABOUT UNITED FIRE
Since 1969, United Fire has provided installation, service, recharge, and repair of fire extinguishers, fire suppression system, backflow devices and offers repair, inspection, and parts for fire alarm systems, sprinkler systems, exit lights, and emergency egress lighting. They pride themselves on keeping their employees educated on the newest standards and require proper licensing of all their technicians. United Fire offers excellent on-time service, reliability, and quality products.

ABOUT LEAP THE POND
Leap the PondLeap the Pond delivers Sage Intacct based accounting solutions to small to medium-sized organizations that have BIG plans. Our senior leadership averages more than 20+ years of experience with accounting and operations. Since 2008, Leap the Pond has led more than 350 projects for nearly 300 companies.

ABOUT SERVICETRADE
ServiceTrade is a software as a service platform that manages customer service, service management, sales, and marketing for commercial service contractors.

 

Thank you to Kate Johnson and David Furth at Leap the Pond for sharing this case study with us.

Good design makes a small company look big or a big company look like a leader. Whether that’s on a website, in emails, social media, on proposals, or in customer service, it’s worth a service contractor’s time to create unique, engaging, modern designs.

You do not have to spend a lot to get something good. We think that we put together good-looking designed pieces on our own. And when our needs are beyond our capabilities, we’ve found some affordable outsourcing options.

Here are five tools that service contractors can use to create professional-looking marketing materials.

Canva
canva.com

Canva is an easy-to-use online tool for creating images for websites, emails, advertising, invitations, posters – just about anything. They provide templates that you can use as a starting point or you can start from scratch. It does not give you as many options as the Adobe Creative Suite – nor the hefty price tag. For simple creative projects, Canva is our go-to tool.  

Cost:  FREE

The paid version is $12.95 per user per month and I like it because it offers a few important features like saving PNGs with a transparent background, establishing brand preferences, and setting up teams of users that can share an account.

Samples that we’ve created with Canva:

 

Animoto
animoto.com

Animoto is great for creating short marketing videos that use photos and existing videos.  We’ve used it to create a video that loops in our booth at tradeshows, check it out below.

Animoto has a stable of storyboard templates. Once you choose a template, the customizations you can make are pretty limited, so be sure to try out a few template options to find the right one for your project.

I like Animoto because I am overwhelmed by video editing applications. For simple projects and short videos that combine existing elements, Anomito is a very usable tool that’s saved me a lot of time and aggravation.

Cost: They don’t offer a free version. I seem to have everything I need at their Professional level for $264 a year.

Sample booth video:

 

Beautiful.ai
about.beautiful.ai

When you need a beautiful presentation, Beautiful.ai is a tool for creating stylish slide decks with the option for cool animations. It’s another point-and-click tool that produces professional results. They offer about 50 templates, and like other tools, the templates are only somewhat customizable but are a fast way to put together attractive slides for those of us who are allergic to PowerPoint and want a slick design.

Cost:  It’s free for now. They have plans to add a paid pro tier later in 2018.

Sample slide:

 

Stock Photos

It is hard for any company to have a full supply of their own high-quality photos that they can use on a website or other projects, so that’s when you turn to stock photos. Choosing stock photos is a matter of personal style and brand personality, so I can’t give you much advice there, but I can tell you about some sources for stock photos that we’ve found helpful.

Here are three stock photo websites we use most often:

Pexels – there are a ton of sites that offer free stock photos, but I like Pexels for its good search function and large library

New Old Stock – lots of black and whites from days gone by

Shutterstock – where we purchase most licensed stock photos.

As I’m browsing free photos, I save the ones that I hope to find a use for in the future that strike me for being beautiful, funny, or relevant to our messaging — including these gems.

 

CAUTION: Try not to chose cliche or over-used photos. How many times have you seen (or even used!) a vanilla stock photo of a smiling person wearing a headset? Be unique! Need advice for choosing photos? Start here.

 

WARNING: Do not use licensed stock photos without buying the license. The owners of the license (companies like Shutterstock, Getty Images, iStockPhotos, to name a few) have highly intelligent systems that find where their images are being used online without proper licensure. I know someone who learned this lesson the hard way by receiving a bill for $900 for using a photo after the license expired. Always buy the license or choose royalty-free stock images instead.

 

99 Designs
99designs.com

My biggest challenge is recognizing when I need the help of a professional designer before I spend hours working on a project before I realize I’m in over my head. When that happens, I usually turn to 99 Designs.

At 99 Designs, you begin a contest where you describe the project and set your budget ($199, $299, or $399 are common amounts – do you see why they’re called 99 Designs?) and how many days you want to run the contest.  Then designers within their network choose to participate and submit an initial design for your consideration. This is where the contest part comes in – after designers have had a certain number of days to submit designs, you go through them and choose the designs that you want to go to next steps with and request revisions.  Once you have chosen a final design, you award the project to the winning designer and they hand over your final files. The winner is the only designer who gets paid.

I enjoy the contest element and having a number of options to consider. For the price and the amount of time each designer can invest in the project, I realize that I’m getting a lot of template work that the designer has on file, but that’s usually just fine for us.  

A recent 99 Designs project:

 

What other tools do you use that I should know about? I’d love to hear about them in the comments.

I hear customer prospects cry out for “the perfect application for my business that does everything” in nearly every sales call that I make. It does not exist. I have argued again, and again, and again that every business of any size will ultimately buy multiple applications to serve the diverse needs of their business functions. Look at your phone. One application? Or many? Displaying the weather is different from transferring money from your bank account is different from measuring the intensity of your workout is different from keeping up with your social network. Likewise, your accounting function is different from your sales function is different from your customer service function is different from your marketing function. The idea that one application will be sufficiently good for your business to remain competitive in all of these different functions is silly, and any software vendor promising you that outcome is a silly vendor.

But what about the follow-on question. If I am going to buy many applications, how much should I expect to spend? How do I value applications that make my business more competitive in a world where technology innovation increasingly determines market competitiveness? Well, before you even consider how much to pay, you need to perform the first and most basic test in the software buying cycle. Go to your favorite online search engine and enter the following query:

[INSERT NAME OF SOFTWARE APPLICATION HERE] API documentation

The first organic link below all of the advertisements from the software vendors that are trying to sell you a competing application should be a link maintained by the vendor of the application in question. That link should lead you to detailed documentation for how the application you are considering can be integrated with other applications that you use. Application Programming Interfaces (APIs) are the key to a new world of connected innovations for your business. Without good APIs that are publicly documented, the application you are considering is worthless. You should not pay anything for it.

Go ahead and try the search for a couple of high-quality applications that are on the market today. Insert “ServiceTrade” or “ZenDesk” or “PipeDrive” or “Marketo” or “Hubspot” or “Slack” into the query above. Check out the first organic link below the advertisements. What do you see? This query is the first test to determine if an application is worth at least a penny.

Let’s say that your application passes that first test. What now? How much is it worth? Well, it sort of depends on how much it increases the value of your business. In a prior blog post, I argued that the questions that determine the value of your business are How Many? How Much? and How Long? How many customers do you have and how many can you attract with your value proposition? How much can you charge those customers for the services that you provide to them? How long can you keep those customers when you are charging a significant premium compared to your low price competition? These are the questions that you should use to evaluate how much a new software application is worth to your business. The more the software impacts these measurements, the more you should be willing to pay because it is going to make your business more valuable.

Does the new application help me attract new customers? Does it help me charge them more because it provides my service with some new features that customers value? Does it help my business become sticky so that it is difficult for customers to fire me and replace my service with a low-cost competitor? If the answer to these questions is “yes, absolutely, definitely” then the application is probably very valuable. If the answer is “no, not really” then the application is only worth some fraction of the money it might help you save by eliminating administrative burden. Let’s look at some examples from ServiceTrade’s business to set some benchmarks for how much to pay.

The biggest technology application expense category that ServiceTrade faces is for infrastructure services that power our customer’s experience with our product. Amazon and Google charge us for technology that provides neat features in our application. The ability to send a quote to a customer via an email with a link that presents the quote online with photos and video and audio and a “one click to approve” button that drives revenue for our customers is largely dependent upon capability provided to ServiceTrade by Amazon. The ability to map customer locations for scheduling efficiency, see the locations of the technicians in real time, and prefill the fields for setting up new customer location records is largely dependent upon capability from Google. The applications from Amazon and Google are VERY valuable to ServiceTrade because they help us attract new customers and charge them a premium, and we spend about 6% of our revenue on these types of applications.

Now, ServiceTrade makes about 80% gross margin on the applications we sell, so we can afford to spend heavily on making these applications great. If your service to your customer drives a lower margin, say 35%, then 6% of revenue makes no sense for any technology. The apples-to-apples comparison, in this case, is probably close to 7% of gross margin (roughly), which would equal 2.6% of revenue for an application that really helps you deliver differentiated value to your customer. So for a $10 million dollar service contracting business generating 35% gross margin, the equivalent amount would be $260,000 per year.

The next biggest category of technology expense at ServiceTrade is for sales and marketing applications. We have Salesforce, Marketo, Salesloft, and a handful of other applications that help us present our value proposition to customers in a way that drives new sales. These applications help us increase the How Many customers metric. We spend about 1.5% of revenue on these types of applications. Again, to adjust for gross margin, that would be about .6% of revenue for a 35% gross margin business. So for a $10 million dollar service contracting business with 35% gross margin, the equivalent annual expense would be $60,000.

The next biggest category of technology expense at ServiceTrade is for customer service oriented applications. These are the applications that help our engineers and our support staff keep track of how things are going for our customers and to monitor the application for errors or potential signs of trouble. We spend about .4% of revenue on these types of applications. They are tangentially oriented toward helping with the How Long can we keep our customers question. Clearly, these are far less valuable than Google and Amazon, and also less valuable than the sales and marketing applications, both of which help us drive up the How Many? and How Much? elements of our business value. Adjusting for gross margin again, and you get .16 as the percentage of the revenue in a 35% gross margin business. A $10 million service contracting business should consider spending $16,000 per year on customer service infrastructure.

Finally, there are the administrative applications like accounting, email, file sharing, calendar, reporting, office productivity, etc. These are the applications that every business needs, but their value is simply in keeping the administrative burden of running a “tight ship” as low as possible. ServiceTrade spends about .3% of revenue on these type of applications, and it is unlikely that the expense of these will scale linearly as we grow. When we double in size, I would expect that percentage of revenue to be about .2%. So for a $10 million dollar service contracting company generating 35% gross margin, the administrative applications in the business should be on the order of .08% of revenue, or about $8,000 per year on accounting, email, reporting, calendar, office productivity, etc.

If we total all of these up for a $10 million service contracting business, the percentage of revenue spent on technology applications is about 3.44% of revenue or about $344,000 per year. Now my ears are almost bleeding from the screams and bellows of “That’s Crazy!” that I can hear coming from service contracting customers reacting to this number. But is it so crazy? Are applications that help your business become competitive in attracting new customers, driving new revenue, and charging a premium price really worth that type of spending? Consider these two examples. How much do you pay for an application like Square that helps you collect money from a customer in the field? It consummates the sale by getting the cash now. You happily pay about 2.5% of revenue for this type of application. How about the central station monitoring application that enables you to sell a high margin monitoring service? You happily pay between 30% and 50% of revenue for this valuable addition to your service arsenal. So no, 3.44% of revenue is absolutely not crazy for a full set of applications that help you drive value in your business.

The problem is that you are probably significantly overpaying for administrative applications like accounting and underinvesting in applications that drive new customer acquisition, service differentiation, and revenue. And I also bet your accounting application provider is telling you “we have a plugin for sales, and customer service, and technician management, and every other thing you might need” in order to justify the crazy price you are paying for that application. Am I right? Probably.

So how can you alter your portfolio of applications through time to push down the expense associated with administrative applications so that you can reinvest those dollars in applications that actually drive up the value of your business to its shareholders? Applications that enhance your ability to add customers, charge them more for your services, and hold onto them longer? Well, the first step is to only consider modern software as a service (SaaS) applications that have publicly documented APIs. These will generally be cheaper than the older, legacy server-based applications, and they will deliver more innovations to your business going forward. Software investors are NOT investing any of their precious capital in old server applications, so these legacy applications are going to stagnate and die. No point in throwing your money away on a dead horse.

The second step is to ask the basic questions around How Many? How Much? and How Long? for new applications you are considering. If the applications you are considering do not contribute to these value metrics, then simply look for the low price alternatives that meet the SaaS and API criteria and determine how much administrative expense they might save you. You can spend up to 100% of the savings on the administrative applications to eliminate manpower spending.

If the applications do in fact help you attract more customers, charge them more for valuable new features, and hold onto them forever, open up the wallet and let fly for up to 2 – 3% of the revenue you expect to drive by being the most innovative service contractor in your market. I assure you that the best service contractors will collect a 15 – 25% revenue premium in their market, which easily justifies the spending on the applications that drive that differentiation. I will also assure you that competing on technology innovation is much more fun than competing on price.

Predicting the future is tough, but predicting the future of customer service for commercial service contractors? That’s easy. The technology is already here. It’s already permeated the consumer world. It’s just a matter of time before it revolutionizes how you do business. Just like local retail was rocked by e-commerce and video rentals were decimated by online streaming, the way you deliver service and make customers happy is going to be upended in the next 5-10 years. Rest on your laurels and your brand will end up like Blockbuster. Prepare and, on the other side of this revolution, your company will emerge as a dominant brand like Amazon.

Three different technologies are going to drive the service contracting revolution: Smart cars, smart equipment, and smartphones.

Smart Cars

Every major car and truck manufacturer is developing some form of autonomous, self-driving vehicle. Imagine a fleet of driverless work trucks that are involved in a fraction of the traffic incidents and can deliver parts without wasting a tech’s billable time. That’s great! But, what happens to your company when nearly 5% of all workers in the national economy that drive for a living lose their jobs practically overnight?

When semi-trucks, delivery vans, and taxis don’t need drivers and all of those jobs disappear, the unskilled labor pool is going to overflow. With no new demand for unskilled labor and a massive increase in supply, economics tells us that the cost will go down. Hiring low-skilled workers is going to get cheaper and easier. This won’t solve the skilled labor shortage, but you will have a huge selection of candidates to fill entry-level and apprenticeship positions. Prepare for this labor glut by building an efficient job application review process and scalable training program for new employees, but don’t worry about their driving record.

If you’re an early adopter of a smart fleet, you’ll differentiate your brand and show customers how you take advantage of technology to reduce costs and provide better customer service, you’ll stand out from the competition. It’ll be part of selling the program. Driverless cars are a perfect fit for the program. They’ll enable your company to reduce costs for you and the customer while opening up productivity for improved customer service. Besides that, how cool do you think it will be to take your customers for a spin in one of your driverless trucks?

Driverless vehicles will be as transformative as the internet and successful service companies will adapt quickly. Just like the companies today that still use fax and paper to communicate instead of internet-enabled technologies, there will be Luddites and slow adopters of driverless cars. They will get left in the dust. Companies that are prepared will dominate.

 

Smart Equipment

Imagine building equipment smart enough to alert you when it needs maintenance or repair, all the while customers are paying you a recurring fee for “equipment monitoring.” You’ll be able to deliver exactly what the customer wants, optimal uptime, without the extraneous labor costs. In fact, it’s already on the market. However, manufacturers and building automation companies are fighting to lock everyone else out of the market. Whoever wins this fight will be positioned to own the relationship with the customer and levy a toll on anyone who wants access. What happens to your company if you’re on the wrong side of this toll?

If you don’t own the relationship with the customer, your brand will be devalued and you will become the truck depot beholden to a third party. Don’t get locked out of the revenue stream. Equipment monitoring products that bypass the building automation system are already on the market. From monitoring sprinkler flow for leak detection, to HVAC and chiller performance monitoring, you can track it all. The moment a problem occurs, you’ll be alerted and mobilize to save the customer’s day and prevent future mayhem.

But, there’s a catch. This future only exists if there is demand for standalone equipment monitoring products. Otherwise, the manufacturers and building automation companies, with their deep pockets, will push those companies out of the market or acquire them. The solution? Incorporate equipment monitoring in your premium program today! Go explore the market for the best monitoring solutions for your customers. They should have simple subscription pricing models with a API-enabled, cloud-based applications that feed equipment data directly to you and your customer. Treat it just like any other software purchase and refer to Chapter 9 of The Digital Wrap for buying criteria. Tell all of your colleagues at other service companies about the solutions you’ve found. Collaborate to find the best solutions and build demand in the market to avoid getting locked out.

Smartphones

Widespread smartphones adoption isn’t new, but its impact on your workforce and your relationship with customers is not done evolving. The average smartphone user spends 3-5 hours a day on their device. Those screens enhance almost every aspect of their lives except for how they do business with you. What happens to your company when they expect to engage with you through that screen? Will you be ready?

Trends in B2B tend to lag behind the consumer world by a few years, but they’re coming. Your customers will expect to engage with you entirely through their smartphones. The better their experience, the more valuable you’ll be. Easy said, hard done. Unlike banks and massive consumer brands like Amazon, you can’t afford or get away with a single shiny mobile app to manage all the communication. It’s too expensive and impersonal. You have a close relationship with your customers. You meet them in-person and chat with them on the phone all the time. Your solution to mobile engagement will require a multifaceted and integrated technology approach.

One way or another, you’re going to give your customers a branded mobile app. It will tell them everything they need to know about the work you do for them and give them a way to request and approve new work. While standing in front of a piece of equipment, they’ll have instant access to pictures, videos, and notes from every service you’ve performed on that asset. They’ll see a spend summary on the equipment and have the information they need to make a smart choice: repair, replace, or roll the dice. That information will roll up into an overall summary of their equipment so they can have their finger on the pulse of their facilities. All of these features will integrate seamlessly into their experience when they log in on their computer, just like ordering from Amazon or banking.

These future conveniences for you and your customers are coming. As we like to say, if you ain’t first, yer last. Be the leader in your market for adapting and adopting new ways of operating your service business.

The following story is a preview from an upcoming book about how commercial service contractors can earn “money for nothing” by rethinking the way that they present and deliver the services that they provide their customers.

I am amazed at how often I see service contractors spending extraordinary effort to measure the gross margin of each service call, job, or project to two decimal places while simultaneously making zero effort whatsoever to measure and understand the value of their business in total. Service call gross margin is a very poor proxy measurement for the overall value of the business to its shareholders.

Any financial calculation of investment value is always about the current value of a future stream of income. The more certain and less volatile that future stream of income, the higher the premium that can be paid today to own that future income – i.e. to become a shareholder. For a service contractor, optimizing this value is all about having a large set of somewhat diverse customers that spend predictable amounts of money each year for the maintenance, monitoring, repair, and upfit of their important equipment. It is also about having a sales approach that regularly adds new customers to the portfolio while simultaneously having high customer satisfaction levels so that few customers ever terminate the relationship.

So what questions should you be asking as a shareholder to determine the value of a commercial service contracting business (or any other high value, maintenance or subscription-oriented business)? Here are a few ideas to get you started. Let’s see how you do in answering these:

  • How many customers do you have under an annual or longer maintenance contract?
  • What is the monthly recurring revenue (MRR) or annual recurring revenue (ARR) for the set of customers that have a maintenance contract?
  • What is the total contract value (TCV) of future committed revenue for all customers under contract?
  • What is the annual contract value (ACV) expected to become revenue in the next twelve months?
  • What is the amount of deferred revenue on the balance sheet that reflects payments collected in advance for services to be delivered in the future? What is the ratio of this number to the ACV number above? To the TCV number above? The higher these ratios, the more committed the customers are to your contracts.
  • What is the ratio of planned work revenue (maintenance, inspections, quoted repairs) to unplanned work revenue (emergency or priority service calls where something broke)? The higher this ratio the better the customer service being delivered. Customers do not like unplanned expenses nor the disruptions they represent.
  • How much does it cost in sales and marketing expense to land a new customer (the cost to acquire a customer or CAC)? What is the ratio of that cost to the first year average revenue from a new customer?
  • What is the net revenue churn in the customer base? How much revenue did you get this year from customers that have been with you for over a year relative to the revenue from those customers for the prior year? Minimal churn means your digital wrap is sticky.
  • What is your contract renewal rate? What percentage of customers do not renew their maintenance plan when it comes due? How much annual contract revenue on average do these non-renewing customers represent? These numbers represent your gross churn.

All of these questions are directly correlated with the value of a service contracting business (or any subscription-oriented business for that matter), and not one of them deals directly with the question of gross margin for a service call. Service call gross margin is important, but gross margin on contract maintenance, inspections, and planned repairs is actually much more important. No investor will complain about an occasional expense hiccup for unplanned services in the context of a highly predictable stream of high margin, contract service fees. The very nature of unplanned work (it is unplanned!) makes it volatile and not particularly valuable to an investor.

So what is the formula for managing the business toward the highest return for the owners of the business? If service call gross margin is the wrong metric, what are the right metrics? And how can they be measured regularly to assure the business strategy is generating high shareholder returns?

As I indicated above, the basic finance formula for determining the value of an investment is to assess the amount and the risk of future income streams. Of course, predicting the future is tricky business, so it is best to rely on historical trends as a proxy for future performance, along with a healthy dose of common sense. With that in mind, I have developed a simple, easy to remember mantra for service contractors to keep in mind as they consider strategic initiatives to increase the value of the business:

How Many? How Much? How Long?

These three questions underpin the basic value-building fundamentals for almost any business.

Tune in next week for a continuation of this chapter with tactical examples of how to measure “How many? How much? How long?” In the meantime, check out Billy’s previous post on this topic: What’s your company worth?