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?

 

As I indicated in my previous post, 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.

How many?

“How many?” refers to how many customers the business services under a contract. It can also be how many locations or customer assets are under contract. Likely all three need to be measured. Any business that is overly reliant on a small number of customers, even if they are large customers, has higher risks associated with their future income streams. A single screw up or a change in management at the customer can put the entire company at risk. It is better to have many customers with many locations so that the risk and volatility of the revenue portfolio are lower.

At the end of every quarter and every year, you should measure how many customers or locations were serviced that quarter compared to the same period in the prior year. Do you have more customers and locations under contract now? How many customers that were serviced last year declined service or canceled their contract this year? How many new customers were added under contract and serviced this year? As a percentage, what type of growth does this represent? How much did you spend on sales and marketing to add those new customers (sometimes this is difficult to measure precisely because marketing spending tends to come well ahead of actual customer wins, sometimes by several quarters or even years)?

Here is my favorite chart for plotting the progress of the business in maximizing the how many? metric.

It shows the number of customers/locations serviced in the quarter, the number that declined service or canceled, and the number of new customers added. The customer locations lost and the newly added locations are plotted on the second axis because these may be small in a large, mature business with lots of customer locations under contract from years of servicing the market. Ideally, everything but locations lost is going up and to the right. The number of new customers/locations added should also exceed by a good margin the number that canceled. Otherwise, the “churn” in the customer base will eventually decimate your business if it continues over too many quarters.

How much?

“How much?” refers to the amount of revenue you can collect from a given customer or location. The higher the number the better, of course. There are generally two ways to drive this metric higher: 1) raise prices to charge more for what you do, and 2) do more for the customer. Investors love companies with pricing power in their markets. Companies that can raise prices without losing customers to the competition are valuable to shareholders. Customers love companies that can do more for them because their overhead associated with vendor administration is lower. It is also more difficult to replace a vendor that is doing many things, so your services are likely to be more durable in the face of a hiccup or challenging customer service situation.

Every quarter, you should measure the amount of revenue you earned from each customer and each group of customers relative to the amount of revenue you earned in the prior year period. Were you able to raise prices? Did customers respond to your solicitations for larger amounts of their business? Did they buy new innovations or suggested upgrades that you recommended?

I suggest that you break your customers up into groups or “cohorts” indicating what year they initiated the service relationship with your company. You can plot a view of how much money you are getting each year from customers that have been with your company for one year, two years, three years, four years, and so forth and so on. Ideally, you are growing within each cohort group for the first few years and then holding onto most of that business during subsequent years. Some churn after a number of years is understandable as companies go out of business, merge and change strategies, or experience other corporate disruptions that ultimately affect their relationship with you. However, if you can show strong growth from sales to existing customers along with staying power within accounts as a business pattern, a new investor will pay you a premium for that trend.

Here is a chart that shows how revenue breaks down by customer cohorts grouped into the year you landed the service contract with the customer.

Notice how the recent cohorts start smaller, grow over time, and then hit a steady state before a slow decline.

You should also measure how much? as a function of the type of revenue you are recognizing. I would suggest three different categories – contract maintenance or program subscription fees, planned repairs and upfits associated with quoted work, and unplanned repairs such as emergency service calls. You want to demonstrate a pattern over time of an ever increasing portion of your revenue coming from contract fees and planned work as compared with emergency service calls, which are typically associated with customer equipment malfunctions.

Planned work is more efficient and more scalable because the logistics can be meticulously coordinated. Customers benefit and your business benefits when you can plan the work to avoid excess travel time, expedited parts shipping, overtime expenses, and the general administrative stress associated with delivering service “right now.” Ideally, you can get the customers assets “under control” and minimize the service calls by quoting planned repairs to replace the risky equipment assets with more robust ones that are less prone to failure.

Here are a couple of graphic illustrations that demonstrate why you want to pursue a strategy that ultimately transitions your revenue mix from unplanned, service call work to programmatic contract work and quoted work.

The oscillating, sine-wave-shaped pattern represents demand associated with random equipment breakdowns when no programmatic approach is in effect across the customer base. If you scale up your technician workforce to deliver great service in the face of random peaks in demand, you will be losing lots of money as you keep that workforce in place during the random slack periods.

If you scale back your technician workforce to avoid the plunge in profits when demand tapers, you are at risk of delivering poor customer service during the peak periods.

The ideal situation is to get the customer demand curve “under control” on a customer by customer basis by putting them into a contract that incents both you and them to programmatically eliminate the risks that ultimately drive equipment failure.

In this case, customers pay more for your maintenance program and monitoring fees, and in return, they have less risk of failure and fewer unplanned expenses. If you do a good job demonstrating to them the story of their equipment via video and photo evidence, they will not have a problem with the program fees, and they will generally accept your advice regarding repairs, retrofits, and upgrades that further eliminate risks, disruptions, and unplanned expenses. The ideal situation, as always, is that you are getting “money for nothing” while the customer sees daily evidence through your digital wrap that they are indeed paying for “something” very valuable.

How long?

In addition to measuring how many? and how much? on a periodic basis, you also need to measure how long? which refers to the duration of your relationship with a customer. If you can create a really sticky digital wrap that reinforces the story of your brand throughout the service cycle, you should, in theory, be able to hold onto those customers forever. Ideally, you are actively working your pricing model to manage your portfolio of customers by raising prices on those customers that do not fit with your model and in other cases perhaps trimming prices or offering other value-added services at a discount with those customers that are your prized possessions. In fact, once you become comfortable in your marketing and sales strategy and the cost of attracting new customers that fit the model, you will probably begin actively firing customers that do not fit by not renewing their contracts or simply directing them to your competitors when they call for service.

Investors love sticky brands with repeat customers that pay up year after year on a subscription basis to continue receiving the terrific results from the relationship. However, investors are just like customers in that they generally do not want to pay for nothing. In this case, nothing refers to sales pitch platitudes that ultimately add up to “Trust me! It’s gonna be great! Just sign the check so I can cash it!” You have to provide the evidence that your “money for nothing” program really yields higher returns in the form of a predictable income stream. Show them the charts that you use to measure the business value you are generating. I bet they are impressed, and you might be surprised at just how much “money for nothing” you get if you ever decide to sell shares in your company.

 

The bar graphs in this post were created from data in ServiceTrade with Amazon QuickSight.  Learn more about how you can use this Business Analytics tool to uncover insights in your own service data.

The Eagles didn’t win the Super Bowl. Nope, Tide won it with their amazing ad campaign. Everybody is still talking about the Tide ad campaign. Wouldn’t it be nice if you could generate that kind of buzz with your customers and prospects without spending anywhere near the estimated $15M Tide spent on their ads? It’s possible. Take a page from Tide’s book: impress customers, steal the spotlight, and reinforce your value to make your brand memorable:

Make an Impression

That ad is impressive. Instead of exceeding our expectations, it transforms them. For that, it will leave a lasting impression on us, increase Tide’s sales, and improve their brand loyalty. Not bad for a laundry detergent. How are you going to leave an impression on your customers? With an invoice and a bunch of text describing the services they are paying for? The last time you bought laundry detergent, did the receipt leave an impression on you?

Of course, you’re not going to spend $15M to impress your customers. Fortunately, your customers don’t expect much from service contractors. With the right technology, you can transform your customers’ expectations and leave an impression without spending millions. Building your company’s Digital Wrap will change the way your customers think about working with you. Instead of a relationship built on invoices and emergencies, you can transform the conversation to one about the great work you do and the value you provide.

Steal the Spotlight

After that Tide ad, every other ad became a Tide ad. No matter what the ad was about, viewers were looking at the actors’ clothes and thinking about Tide. They convinced viewers to dissociate the actors and their clothing from brands and logos. What if every time your customers looked at an invoice from another service company and thought about your brand?

Start by challenging them to dissociate the valuable services you provide from the cost of those services. Impress them with online summaries of the work you perform that include pictures, videos, and information that helps them make the best decisions about their equipment. Don’t rely on invoices to convey your value.

Do this, and your customers will think about your company every time they look at an invoice from another service contractor. They’ll wish the other contractors could offer the experience you provide. You can steal the spotlight when you transform their expectations and leave an impression.

Reinforce your Value

Tide didn’t stop with that one ad. No, they played 3 more!

These marketing impressions reinforced Tide’s message in order to keep viewers thinking about their brand and wanting more. We call these MIPS: Marketing Impressions Per Service (or Super Bowl, in Tide’s case). Instead of one impression (a single ad or an invoice), shower your customer with useful MIPS to reinforce your value. A month before they are due for service, send them a reminder. Send them an en route notification that shows them what the tech looks like and when he or she will arrive. Send them an online summary of each appointment with pictures and videos. Your customers will eat up the information and ask for more.

Is Tide better than other laundry detergent brands? Online reviews suggest they are comparable to other detergents. Is Tide cheaper than its competitors? Not by a long shot. They are 3-4 times more expensive than other options on Amazon. Do you think they are selling more product than their low-cost competitors? After their Super Bowl ad campaign, you can bet your ass they will. Tide shows that a premium brand can easily overcome price concerns when it brings something new and unexpected to its customers.

“When we started with ServiceTrade we had one pipefitter. Now we have five.”  When Mary Krinbring of AAA Fire Protection in Seattle told us that in September 2015, everyone on our end of the phone’s eyes opened wide at that 500% growth.  “Tell us more, Mary…”

Mary Krinbring, AAA Fire Protection. November 2017.

When AAA Fire Protection joined ServiceTrade in August 2014 they were bogged down with paper processes and wanted to go digital. They adopted ServiceTrade to speed up the time it took to send Invoices to customers.  

Mary told us that they didn’t use ServiceTrade for quoting at first because they felt like they had it covered. But after learning how ServiceTrade’s built-in quoting could help them turn regular inspections into more repair jobs, they gave it a try. Mary attributes their need for more pipefitters to the nice workflow that converts deficiencies into quotes for repairs.  Before long, they were having a hard time keeping up with their repair opportunities and added an estimator to create repair quotes for their expanded pipefitting team. Mary reports that using ServiceTrade has increased their quote volume by at least 50%.

Today, AAA’s pipefitting department has more than doubled again and the company has achieved 20% growth. Mary sat down with us at the 2017 Digital Wrap Conference to explain why she thinks that ServiceTrade and a Digital Wrap helped AAA break through barriers that were holding them back from reaching the growth they’d been working hard to achieve.

AAA Fire Protection is dedicated to smart growth and using technology to keep their customers around. ServiceTrade is proud to be their partner.

Want to charge 146% more than your competition and still have customers beating down the doors? The secret to easy money for service contractors is simple:

Convenience is more valuable than low prices.

Modern buyers are willing to pay a premium for convenience. In a world flooded with One Truck Chucks and low-cost competitors, differentiating your service brand with convenience, instead of price, can give you a serious competitive advantage. Spiffy and FilterEasy are a couple startups that teach us a lesson about how service contractors can make easy money.

Spiffy

Would you pay $49 for a basic car wash with interior vacuuming and $69 for an oil change? For comparison, pricing from traditional national chains is about $19 and $29 for the same services. That’s a 146% price increase. Sounds like a ripoff. What if the service came to your car, wherever it was, and you could easily schedule the appointment with a mobile app? Now we’re talking.

That’s just what Spiffy is doing. What has this convenience-first strategy gotten them? Since they were founded in 2012, they’ve raised $9.1M and expanded to cover 5 major cities. They didn’t do it by having the best price in town. Instead, they focused on customer convenience. Now, customers love them and Spiffy is making piles of easy money.

 

 

 

 

FilterEasy

Drop by Walmart or Lowe’s and you can find cheap home air filters for under $1. You can even find allergen air filters for less than $5 on Amazon. Why would anyone choose to pay $12 – $20 for a filter? You guessed it: Convenience. FilterEasy is a subscription service that ships home air filters to customers on a frequency that matches their HVAC system’s need. Home with no pets? You get a filter every 3 months. Home with 3 dogs? You get a filter every month.

When I tell people about the FilterEasy business model, it’s not uncommon to hear this: “I’d never spend that much on filters!” That’s fair. I wouldn’t either. That doesn’t change the fact that FilterEasy has raised $11.4M and is growing like crazy.

Their customers love that they don’t have to remember when to change filters. Their customers love that they don’t have to waste their time with a trip to Walmart or Lowes. Their customers don’t really care that they’re paying more. Now that’s FilterEasy money!

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Commercial Service Contractors

So, how are commercial service contractors supposed to make easy money? Start by thinking about how you can use technology make your customers’ lives easier. Give them instant, online access to past service history and current service activities so they never have to contact you or wait for information they need. Set up your contracts with subscription payment so your customers never have to worry about month-to-month budgeting. Sell more repairs with online quotes so there are fewer costly and disruptive emergencies.

Your customers will tell you that price is all that matters, right up until you give them a more convenient alternative. That’s how you make easy money.

I remember reading books in grade school where I could choose my own adventure.  The book began by introducing characters, a setting, and some trouble. As I read along, I made decisions at forks in the story.  Should they turn left or turn right?  Should they enter the castle or continue through the forest? Should they follow the trail of candy to the witch’s house or turn and run? I knew the beginning of the story but my decisions would change the ending.

You are writing that type of story every day in your service business. You have your cast of characters, the setting, and maybe an evil villain or two. But can you predict how the story will end? QuickSight reporting will help you make better decisions in the midst of writing the story of your business that lead to a better ending.

As we were deciding on the reports we wanted to show during the QuickSight webinar we hosted this week, I realized we were examining plot twists: Which sales rep is the most successful with their quotes? Which technicians are and are not recording deficiencies that represent new revenue opportunities? What does the labor demand curve look like for planned contract work in the next six months?

Here’s how you can approach setting up your QuickSight data analysis to uncover insights that will help you make good decisions:

  1. Define what you care about. What are the key performance indicators for your business? There will probably be a lot of them and that’s good.
  2. Choose your cast of characters. ServiceTrade data can be analyzed in six major datasets:
    • Deficiencies
    • Jobs
    • Recurring services
    • Invoices
    • Quotes
    • Technician productivity
  3. Ask some questions. Parameters around your reporting generally fall into two buckets: Time and money — or both. Craft a one-sentence question that data analysis can answer for you like:  
    • How many of our quotes for deficiencies are being approved?  
    • Which sales rep in the Durham office has the highest quote approval rate?  
    • Which technicians record the most deficiencies?
    • What service lines generate the most revenue throughout the year?
  4. Collaborate. Create a team that’s responsible for generating reports and finding the best ways to discover what it is that you want to learn. Once you’ve built a few reports and are familiar with the app, you’ll think of new ways to uncover new insights.

While you’re discovering new insights from your ServiceTrade data there’s one more thing to do:

  1.  Take action. Insights require action, whether that’s doing more of what’s working or making changes where needed.

QuickSight reports tell you the whole story of your business – the comedies, adventures, dramas, and the horrors. Use this reporting tool to measure the health of your business and learn where you should make changes for better growth, profitability, and efficiency.

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 left IBM to join Red Hat in late November of 1998.  Red Hat would record five million in revenue in 1998 selling a software collection on compact discs (CDs) to computer science enthusiasts in retail outlets like Fry’s, CompUSA, Egghead, and Best Buy.  All of the software on the CDs was also available for free online, but in those days the Internet was still a bit slow for most people, so the CDs were more convenient because installing the software from CDs was faster and easier. The collection also included useful user manuals to help with installation and setup.  Fast forward twenty years to today and almost all of the software that Red Hat provides to its customers is still available for free on the Internet, but somehow Red Hat is a worldwide enterprise worth more than twenty billion dollars with annual sales of about three billion dollars.  How is that possible?  How can Red Hat make so much money for something that is available for free?  Because Red Hat is a “money for nothing” premium brand.

One of my first tasks, after I joined Red Hat, was to determine why all of these computer geeks liked Red Hat so much, and what, if anything, the company might sell to them or their employers that was worth more than the fifty to sixty bucks they were spending on a CD collection at Best Buy.  Shelley Bainter, who works with me here at ServiceTrade, alongside Hilary Stokes and Marty Wesley began setting up “customer Friday” events every week to quiz Red Hat customers and users on their experience with the technology and the company.  Our goal was to understand what was important to them, and how Red Hat might use that information to make a more valuable product.  The company had an initial public offering of stock on the NASDAQ exchange in August of 1999, and the shares jumped from about $20 per share to about $150 per share in a few short weeks. With huge expectations and a monster market capitalization of about twenty billion dollars, it was critical that we figure out a premium product strategy.  The company still had no clue what to sell potential customers, and we certainly did not want the shareholders to figure out that we didn’t know what we were doing.

Well, we weren’t fast enough.  The share price plummeted from one hundred fifty dollars to about three dollars over the course of the next few months.  But in the midst of incredible employee anxiety and shareholder lawsuits, we discovered something that proved to be very, very valuable.  We discovered from our research that the more experience a customer had with Linux (the name of the software collection that Red Hat distributed), the more they valued easy and quick access to the maintenance package downloads provided by Red Hat.  These highly experienced Linux users were keen to keep their server systems in top working condition.  They did not want their critical servers to be susceptible to security flaws or operating errors that might disrupt their business.  They readily indicated that they were willing to pay Red Hat a premium to be certain that nothing ever happened to their systems.

With validated information about why Red Hat was valuable to its most knowledgeable and experienced customers, my product marketing team set about defining a premium program that would allow customers to pay for a subscription to the maintenance packages delivered by Red Hat engineering.  Coincident with our efforts to formulate a scalable product plan, the press became involved in describing Red Hat’s business model (we couldn’t yet describe it, so someone was going to fill the gap). Red Hat was a high flying stock (before the crash), and journalist and technology pundits were keen to weigh in with their opinions of whether or not any business model would actually emerge to sustain the shareholder value.

The press told the world that Red Hat sold “support” for free software.  Unfortunately, our customer prospects took this to mean that if your free software “broke” you could call Red Hat to fix it.  Nothing was further from the truth.  Our most valuable users told us that AVOIDING system failures was most important, not fixing problems after they happen!  But the “break/fix” story was a simple message that was widely promoted in the technology press.  A “break/fix” business model is a miserable model. You engage with your customers when they are under extreme stress and every revenue opportunity is an emergency.  By definition, the relationship will be stressful and challenging.  But it was easy for the salespeople to talk about it, so that’s what they began trying to sell.

No matter the musings of the popular press, my product marketing team knew what Red Hat needed to deliver to be valuable to customers.  We released two products in 2001 that, taken together, represented a premium subscription program.  Red Hat Network was a management console that helped customers update and patch systems, and Red Hat Enterprise Linux was a well-defined set of free software packages for which Red Hat promised to deliver prompt and quality maintenance.  We priced these based on the number of computer systems under maintenance and the type of application workload these systems supported for the customer.  This pricing scheme aligned the value of the systems and their consistent operating performance with the amount the customer paid.  Perfect alignment, right?  Not exactly, because the press has poisoned the market with their “break/fix” news story, which resulted in a lot of uncomfortable conversations with large potential customers.

I got to lead most of those conversations because I was promoted to run sales for the company after I negotiated the first seven-figure deal the company had ever signed.  The sales team was not yet comfortable with all of this new messaging around maintenance instead of “break/fix.”  So I nominated myself to go show them how it was done, and I got my first opportunity when Cisco Systems of San Jose, California reached out to Red Hat for suggestions on how they might simplify and streamline their Linux technology systems and applications.  The biggest deal the sales team had closed to that point was in the low six figures. When Cisco signed a multi-year seven-figure deal, the formula that I had used to sell them became extremely interesting to the rest of the company, especially the sales team.  I happily accepted my promotion to run sales, and off I went to have a bunch of uncomfortable conversations with high profile customer prospects.

One of the first calls that I fielded was from someone that worked directly for the Chief Information Officer for BankOne in Ohio.  BankOne was one of the ten largest banks in the country, and it was run by the visionary executive Jamie Dimon.  They would later merge with JPMorgan Chase in a deal orchestrated by Dimon, and today the combined JPMorgan Chase, headed by Jamie, is one of the largest and most admired banking and financial services conglomerates in the world.  Clearly, this was an important prospect for Red Hat, and they had approached us about helping them with their Linux strategy.  The person responsible for Linux made it very clear to me that they were not interested in our maintenance product strategy, but they would sign an agreement to call us when they needed technical support.  He wanted me to come to Ohio for a meeting.  I told him there was no point in me coming to Ohio because we did not offer what he was looking to buy.  I referred him to our competition and told him to call me back if he ever had a change of heart.  The CEO of Red Hat was beginning to wonder if promoting me to run sales was such a great idea.  BankOne was gone.

Fortunately for both me and Red Hat, I was having other conversations that were going quite well.  One of them was with Rich Breunich, then the global head of technology for Citigroup, which was actually the largest financial institution in the world at the time.  In a meeting with Rich and his team, I explained our maintenance business model to them.  “A break/fix model means we are incentivized to provide customers with technology that breaks all the time in order for us to grow our revenue.  This model delivers the highest revenue when things break.  But we don’t want to collaborate on technology with you only when things are broken.  We want to have a more thoughtful relationship where we collaborate continuously to give you great technology that never breaks and exceeds your expectations.”

Rich’s staff was having none of it.  They pounded the table and puked on my grand vision.  They explained to me that every major technology publication asserted in article after article that Red Hat sells support for Linux, and by God that is what they intended to buy from us.  Rich, however, was in my corner, and he settled the matter quickly by siding with me.  Citigroup did not want to incentivize their vendors to deliver shoddy products in order to increase revenue from break/fix support, he explained to his staff.  They would happily pay a premium for great technology that performs without aggravation.  Certainly, Red Hat was available when things go wrong, but that should not be the basis of the relationship.  It should be the exception, not the rule.  Like Cisco, Citigroup signed a multi-year, seven-figure deal with Red Hat.  Now my sales team was off to the races.  They had a premium formula, and they had a leader that would back them up as they engaged in uncomfortable conversations with high profile market prospects, even if that meant walking away when a large prospect like BankOne did not agree.

Does any of the Red Hat story feel familiar?  Do you find yourself selling service features that are defined by your customer and by low-end competition? Break/Fix? Price? Labor Rate? Parts?  Do the sales people race to the lowest common denominator to declare a win?  And then dump it into the lap of the service department and move on?  All of these things were true for Red Hat as well, and yet they managed to break out of this mold of break/fix misery and create a multi-billion dollar brand by collecting “money for nothing.”  

When Red Hat turned the corner financially with a scalable model, I was often dispatched to investor and press meetings to explain how we were making so much money selling free software. My message was simple.  Red Hat offered customers “a predictable outcome for a predictable price.”  Sure, they could download a bunch of free technology off the Internet and cobble it together, and in some cases that might work out OK. In the most important cases, however, not having a reliable vendor for critical systems was not acceptable.  Putting the hardware vendor in charge was also generally a bad idea because all they want to do is sell more hardware, not optimize outcomes.  Hardware vendors get paid more when systems have marginal performance and the customer requires more hardware to support the load.  Red Hat was perfectly positioned to help them get the most from their hardware and systems through a managed technology maintenance program.

There are several important lessons in the Red Hat “money for nothing” story for the commercial service contractor:

  1. Break/fix support is a terrible business model.  Your brand becomes associated with stress and chaos at the customer.  Earning more revenue means the customer is experiencing more trouble. This model does not end well for the vendor.
  2. Selling what the market is buying is often not a good idea.  All of Red Hat’s competitors simply said “yes” to the customer’s break/fix support request because that was easy.  They got exactly what they deserved.  Almost all of them went out of business after the Linux frenzy subsided.  Be willing to have the hard conversation with the customer to get a better outcome for both you and them.
  3. Know who you are and the value of your service model.  It is not enough to say “no” to something that is obviously bad.  You have to offer the customer an alternative plan.  You need to sell a premium program.
  4. Say “no” to the customers that do not buy into your vision.  Better still, offer them the contact information for your competitor.  Let the competition sully their brand with miserable customer experiences while you strengthen yours with long lasting and scalable relationships.
  5. A subscription revenue model for a technology maintenance program is an extremely lucrative business model.  Service contracting is not incredibly different than Red Hat’s model.  Red Hat found a position of authority relative to the system vendors (Dell, HP, IBM, etc.) by offering a branded, third-party system maintenance capability.  Customers could turn to Red Hat for advice on which technology subsystems were most scalable and reliable.  As the manufacturers in your segment seek to exert more control on the customer maintenance program, you need a strategy to push back and become the technology expert that the customer trusts to deliver optimum system performance.
  6. Don’t let the manufacturers of the hardware take your seat at the table with the customer. System vendors are generally terrible at customer service, and they are incentivized to sell more systems.  Be certain you build skills and collect data across a broad swath of hardware brands to offer the customer the insights and outcomes that they are seeking.
  7. Focus on engineering and innovation.  The only way you will get to set the agenda (as opposed to a hardware vendor or another contractor) with the customer is if you have the expertise to optimize their outcomes through your premium service program.  It is better to get paid for what you know instead of getting paid for where you go.

Red Hat is a terrific example of how a “money for nothing” strategy can be used to deliver incredible customer loyalty and superior business results.  A premium system maintenance program gives the customer the “nothing” that they want – no breakdowns, no budget surprises, optimal performance – while providing your business with a predictable, high margin, subscription revenue stream.

“What skilled labor shortage? We don’t have any trouble hiring service technicians. We’re covered up in job applications.” That’s what a ServiceTrade customer told Billy Marshall, our CEO, on a recent visit. This customer figured that the economy was tanking because there are so many techs applying for work at his company. Billy just shook his head. “Nope. Everyone else is struggling to hire skilled labor. Your Digital Wrap is recruiting new techs for you.”

Your truck wrap has always been a recruiting tool. Just by performing the day-to-day work and driving around town, your technicians and the trucks they drive market your brand to potential customers and employees. A Mercedes Sprinter with a well-designed wrap is going to leave a good impression, right? A beat up, 15-year-old Ford Econoline with a few decals designed in the 90s, not so much. But, you already knew that.

What our customer and most service companies don’t realize is that a Digital Wrap works the same way. Just by performing the day-to-day work and generating online content for your customers, your technicians, equipped with technology, can market your brand to potential customers and employees. A well-designed website that shows up on the top of Google search results thanks to hundreds of great reviews collected by technicians is going to leave a good impression, right? A 15-year-old website that looks like it was designed before the .com bust, not so much. But, you probably already knew that.

Modern buyers and workers find and judge the companies they want to work with online. If you can’t be found on Google, strike. If you don’t have good reviews, strike. If your website looks like hot garbage, strike. You’re out of consideration. But, if you do have a great Digital Wrap, the customers and job applications will come to you. Selling and recruiting will get easier because people want to work with a premium brand they can trust.