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How to Make Billions Selling Nothing – The Story of Red Hat

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.

Don’t be Sold by Your own Sales Team

Look at these two career software salesmen.

Along with silly and fun, we’d describe Billy (in the Batman Snuggie on the left) and Tim (in the Superman Snuggie on the right) as:

  • Charismatic
  • Engaging
  • Great at building relationships

This can be extremely helpful when you’re in sales. Why? Because storytelling is a huge part of successful sales. We regularly train our sales teams on storytelling. Everyone shares interesting stories they hear from customers and prospects because stories are so important in relating to prospective customers.  

If your sales team is engaging and they can tell a good story, they can be successful. But there’s another story they might be telling, and that’s what we want to warn you about.

Watch this scene from the 2011 movie Moneyball where the Oakland A’s are trying to replace three star players lost to free agency.

Did you notice the helpless look from General Manager Billy Beane as his experienced scouts start evaluating opportunities to replace players in their pipeline? You hear: “He has the looks.”  “He’s ready to play the part.” “He just needs the playing time.” We won’t even mention the girlfriend (bless her heart.)

Do you know what that sounds like in a commercial service business?  “I’m behind but I have a lot of good opportunities about to drop.” “We have a great relationship. We went out for drinks last night and it’s a done deal.” “They’re just busy. But they said they’ll commit by the end of the quarter.”

“He has the looks.  He’s ready to play the part.  He just needs the playing time.” For a sales manager or business owner, this subjectivity is easy comfort but dangerous to believe. So our warning is this: Don’t. Be. Sold.

Now, look at what Billy Beane did instead of being sold.

Baseball managers traditionally only cared about batting averages, bases stolen, and RBIs.  What the Oakland A’s did was start thinking about getting on base.  It was a statistic that was completely ignored but helped get the team to the playoffs with about a quarter of the budget other teams had. They expanded their view to see the whole story.

Believe it or not, most business owners and sales leaders are watching the game instead of coaching. They’re sitting in the dugout waiting for home runs because what else can we do but believe the people that are going to bring us the wins?

Once you see the whole story you can stop spinning your wheels waiting for runs to be scored. You’ll know what’s happening, not happening, and what needs to happen to get those wins. Knowing the whole story removes the guesswork so you’ll know who needs some extra time in the batting cages, who needs to take a night off, or who just needs to be cut from the team. Once you’ve figured out the formula and what benchmarks you need to keep everyone accountable, your success becomes repeatable. It becomes predictable rather than a surprise at the end of the month, quarter, or year.

So what stats should you be looking at? Well, it depends. It depends on what you’re selling. It depends on how your team is structured. It depends on a lot of factors.  But here are a few general stats everyone should be looking at.

At-Bats

The great thing about sales is that a salesperson can have as many at-bats as they’re willing to go out and get. At-bats at ServiceTrade are initial activities that are measured by the number of calls recorded in our CRM and made in our phone system.   

On Base Percentage

This one is easy, it’s the number of opportunities being generated and is pulled directly from a CRM.

RBIs or Runs

The number of opportunities won.

Now that you’ve looked at the front end and what’s most in your control, you can start considering some other stats like opportunities left on base, your time to turn deficiencies into quotes, and your quote approval rate.

There’s no one formula that works for everyone, but once you have an understanding of the whole story and what your stats sheet should be saying, you can coach the game rather than sitting in the dugout hoping that sales delivers the home run they say they’re going to hit in the bottom of the 9th.

This blog post is adapted from the 2017 Digital Wrap Conference presentation “Moneyball” by ServiceTrade VP of Sales Anna McMahon.

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Get Busy Growing

“It comes down to a simple choice, really . . .  Get busy living or get busy dying.”  

            —  Tim Robbins as Andy Dufresne in The Shawshank Redemption

Growing your business is a simple choice.  And if you are not growing, the business is in decline, whether you realize it or not.  Equilibrium is dangerous, and it is also difficult to maintain.  The slightest perturbation will knock the system out of balance and cascade it toward its natural inclination.  If that natural inclination is growth, growth will continue.  If that natural inclination is a decline, the decline will hasten.  Growing is the better of the two choices, and it is actually easier and more fun than the alternative – grinding away just to keep what you have already.

Why do I say that growing is easy?  It is easy for many reasons, but foremost among them is because talented people gravitate to growth.  And the opposite is true as well.  If your business is growing, talented people will come aboard and stick around to advance their interests, while using their talent to build your brand.  If you are not growing, you will find yourself surrounded by dead weight on the payroll that you must lug around to achieve the results you desire.  You will work harder and achieve less, and that is no fun.  Less work for more pay is a better alternative.

So, how are you going to grow?  So that you can attract better talent, work less, and earn more pay?  A good place to start is simply committing the organization to growth.  Say it out loud to everyone.  “We are going to grow!”  Then set targets and build a plan, because it won’t happen just because you say it (although saying it helps). Here is a simple set of ingredients that I find work well in a growth recipe.  You can modify and add others, but these make a good start.

Choose Your Customers – It is difficult to grow when customers are a source of aggravation and heartache in the business.  Who wants more of that?  Choose customers that you actually enjoy serving, and who appreciate what you do for them.  Fire the others as quickly as you can, or raise their prices until they are forced to fire you.  The simple act of choosing good customers will give you miles and miles of credibility during your organization’s journey to consistent growth.

Keep the Customers You Choose – Great service businesses are built upon long lasting customer relationships.  Set up your service programs to maximize the outcomes for your best customers.  If you can eliminate customer churn, your growth every year will simply be the additional customers you add through the sales cycle.

Add New Customers – If you know the type of customers you want, and you also know how to serve them well, and you have a sales team that you pay to go sell to them, you should grow every year.  Simple logic, right?  If you cannot add customers, then you need to determine if your salespeople are ineffective or if your service program somehow is not attractive.  If you have already been successful in the first two principles above, you might need to replace your salespeople.

Commit to an Apprenticeship Program – If you know you are going to grow, you will need skilled labor to service the customers.  In case you have not noticed, there is a skilled labor shortage. It can be very difficult to hire quality trades people to deliver the service in the manner that keeps the customers you choose.  Go ahead and commit the resources to hiring, training, and developing talent to support your endless growth cycle. Always be hiring. The pressure of the growing payroll will add urgency to the sales efforts of the organization.

Offer a Branded Service Program – It is far easier to rally an organization around your branded service program than around platitudes like “integrity, honesty, hard work, motherhood, apple pie.”  Be specific in the creation of service programs and features that define your brand.  Commit to technology innovations that establish the bedrock of how you deliver service so that the organization can actually enjoy growth instead of being crushed by it.  “Work harder and care more” is NOT a sustainable growth strategy.

It may feel risky to you to strap on a bunch of ambition and commit to growing your company year after year after year.  It is far riskier, in my opinion, to grind away with mediocre people just to keep what you have already earned. Go ahead and be ambitious.  Get busy growing and enjoy the best things in life.

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Are your services significant?

Significant objects are worth more than regular objects.  At least that is the conclusion arrived upon by the significant objects project and its team of researchers.  Joshua Glenn and Rob Walker, a writer and a journalist respectively, set out to prove that stories can increase the value of objects.  While it is tempting to view the goal of the exercise as justifying the existence of the writing class, the results of the experiment are unequivocal. Humans value stories, and they become invested in the life objects that reinforce the stories they enjoy.

Joshua and Rob purchased one hundred pieces of stuff from garage sales, thrift stores, and related trinket outlets for a grand sum of $129.  They then enlisted professional writers to conjure stories related to each piece of stuff to accompany the auction of said stuff on eBay.  The auction value of the storied stuff as measured by sales price on eBay was $3,612 – a return of 2,700%.  Pretty good margin, huh?

So what is the return on your services?  How much are you able to charge above what it costs you to deliver?  Somewhere between 30% and 50%?  Maybe your services would be more significant, and therefore more valuable if you delivered your services with the story describing what happened.  I don’t mean an invoice.  The story is what you saw, what you did, why you did it, and what likely trouble the customer avoided because of you.  It is also the photo essay of images that reinforce your story.  And I am not suggesting you type it all out.  Record it as a video or audio memo.  It will take all of 2 to 4 minutes extra, and it could be worth a lot over the course of the relationship with the customer.

Humans learn from images, story, rhythm, and rhyme.  It is programmed into us since the days of the cavemen and the campfires.  Since you are not going to insist the technicians become poets or rappers, you should at least insist that they relay their good work to the customer in the form of images and stories.  When you teach the customer something about their facility, it reinforces the good decision they made in contracting with you. Over time, the accumulated review of your work will imprint your brand in a manner that is not easily supplanted by the “one truck Chuck” competitor that is always willing to go lower on the invoice.   You will be able to raise prices because your services have become significant through the power of story.

We have seen this phenomenon time and again at ServiceTrade as our customers are surprised and delighted by how easy it is to get customers to approve online quotes when the photos demonstrating the reason for repair are literally viewed inline with the quote.  They are likewise surprised at how much customers value the Service Link feature that presents the “story” of the services delivered online with a gallery of photos, video, and audio for review.  They shouldn’t be.  Humans sharing photos and stories is the basic power behind the growth of Facebook into a company valued at $500 billion in a little over 13 years.  Maybe some of that Facebook photo and story magic will work for your brand.  Can you think of a better way to make your services more significant?

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Amazon Prime Lessons for Service Contractors

Everyone knows Amazon has been on a tear lately.  Here is their stock performance over the last 5 years as compared to the broader S&P 500.  Wow!  A big part of that success has been the Prime subscription program.  

Amazon customers who subscribe to Prime to receive the following benefits:

  • Priority shipping.  It varies by area and items from FREE 2-day shipping to FREE 2-hour shipping.
  • Prime videos, music, and books.  Certain titles are available to stream or borrow for FREE.
  • Photo storage.  Amazon will store your photos so you don’t have to worry about losing them on a device.

And there is a long laundry list of other Prime benefits that you can review here.  Most folks probably only care about one or two of the benefits, but which parts of the bundle are valuable to which customers probably varies considerably.  So Amazon just includes a bunch of stuff to cast the widest net into the market.  They are committed to the costs of most of these things anyway, so why not maximize the revenues across their most attractive customers while getting the glow of a great customer service reputation?  It also leads folks to spend more time and money with Amazon products.

So, what are you doing in your service contracting business to get more by doing more for your best customers?  Do you have a Prime program?  Is there a tier of service that includes the basic preventative maintenance program PLUS a bunch of extras that get them to pay upfront?  

Here are some suggestions for how to form a program that pays you similarly to how Amazon is paid.

  1. Give it a name.  Sales people cannot talk about your program and customers cannot reference it if it doesn’t have a name.  Amazon chose “Prime,” whose root is from the Latin word prim or primo, meaning first, as in first in line.  This is a good name because it conveys some meaning while also being easy to remember.  You should do likewise.  Obvious choices are names like “Premium” or “Platinum” or “Gold,” which are unimaginative, but at least connote value easily.  Ideally, you can name your program in a way that has both meaning and rhythm and rhyme so it is easy to say and easy to remember.
  2. Charge a subscription fee.  You should collect a monthly or quarterly or annual fee in exchange for the program.  Angle for annual for the obvious reasons, but offer other options that might appeal to different customers.  Try to price it where the average customer would happily pay for the benefits and you would make a decent margin on average.  Some customers will be more profitable than others, but maximizing profit is not the angle for the program fees.  Locking the customer into your services as the preferred vendor is the goal.
  3. Offer expedited service response.  Everyone likes the idea that they will get priority (hence the “Prime” name) service relative to others.  If you are committed to great service, go ahead and make the promise to your best customers that you will respond with skilled technicians to any problem within 1 or 2 hours.  Maybe there is also a promise to return a call or web inquiry within 15 minutes.  You are probably committed to it anyway, so why not get credit for it?
  4. Include basic maintenance services. If there is a PM protocol for the equipment that will be under your care, and you are committed to delivering the work, go ahead and build it into the program.  It makes it easier to schedule the maintenance when it is included (you don’t have to ask or wonder if they will pay), and you will get opportunities to upsell based upon the maintenance reviews.
  5. Offer a lower rate on all planned services. It is good for both you and the customer for all services to be planned instead of emergencies due to failures.  When you quote repairs and upgrades that can be scheduled instead of emergency, the rates will be cheaper.  The more customers you get into proactive mode instead of reactive emergency mode, the more efficient you can be with your scarce technician resources.
  6. Offer an online account. Give your customers a reason to come to your website.  Show them online details of their plan, history, equipment, quotes, etc.  It lowers your cost and makes your company stickier and more memorable.
  7. Offer a performance guarantee. After you get their equipment into good order AND you have a regular maintenance routine or remote monitoring to expose any risk, offer emergency service response at the subscriber program rates.  It shows your confidence in your plan, and it incentivizes the customer to approve your quotes for planned repairs so that the equipment stays in the program.  Any equipment exhibiting failure symptoms that are noted and quoted by you comes off the plan if the quote for planned repair is rejected or ignored.

When customers feel that you have been thoughtful in meeting their needs with a premium customer service program, they will happily pay a program fee to claim their membership.  You can use the steady cash flow and predictable schedules to hire and grow and expand the program.  Then you can put the Amazon python squeeze on all of your competitors and laugh as they wiggle and squirm in the grip of your escalating capability and brand value.

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Service Repair Funnel

As a commercial/industrial service contractor, what is your ratio of repair to recurring service revenue? 1 to 1? 2 to 1? 5 to 1? If you don’t know, you could be missing out on a gold mine of high-margin work. If you do, you probably know that there’s room for improvement. And, when skilled labor is so hard to find, you know that you’ve got to drive as much repair revenue as possible to maximize the revenue potential of each tech.

So, what’s holding you back? Funnel friction. In other words, how easy it is to move from the top to the bottom of the repair funnel. Now, before we talk about the friction, let’s define where the funnel begins and ends. Too often, service contractors think that all the magic happens once the deficiency or repair report gets back to the office. As I wrote in another blog post, it actually starts WAY before you ever find a problem to quote. To keep this post simple, we’ll be talking about a funnel that starts with reporting problems in the field and ending with customer approval:

Now, ask yourself: “How much friction is in each task?” Or, simply put: “How easy is each step?” The easier it is, the more money you’ll make.

Report problems from the field

How easy is it for your techs to send the office all of the information necessary to generate a quote? How is that information communicated? Phone calls, paperwork, and email attachments? Does that data have to be manually entered into your database that manages repair sales?

…Do you have a database to manage repair sales? ServiceTrade does this, and if you’re not using ServiceTrade, a good CRM is your next best bet.

It should be as simple as taking a couple quick pictures, videos, and audio notes that automatically get added to a database for your office staff to start working from. The easier it is, the more reports your techs will create.

Create quotes

How easy is it to take a report from the field and create a quote that’s ready for the customer? Do you have to read chicken-scratch handwriting on reports, call the tech for more details, and retype everything into a Word document?

It should be as simple as clicking a couple buttons to turn a digital report from the field into a quote ready for the customer. The easier it is, the more quotes your company will create.

Follow up on quotes

Does your team manage this whole process out of their email inbox/outbox? Is it obvious which quotes need a follow-up? Is that chain of communication effectively managed and easily shared across the team?

It should be as simple as viewing a list of quotes that are due for a follow-up, no matter which of your team members created and sent the quote. The easier it is, the more follow-ups your company will perform.

Approve quotes

Once your customer receives your quote, how easy it for them to say “yes?” Do they have convenient access to the pictures, videos, and audio notes that will help them make the best decision quickly? After they decide, do they have to print, sign, and fax the quote?

It should be as simple as viewing an interactive quote online with rich media collected in the field that can be approved with the click of a button. The easier it is, the more quotes your customers will approve.

 

The easier all of these steps are, the more repair revenue you will drive and the more you will get out of each of your techs. Spend an hour assessing your processes. You’ll probably be surprised what you find.

Another blog post you might be interested in: 6 key metrics that that boost repair revenue

Your Best Sales Rep: Data

When you’re selling to a new customer, can you predict their future? You probably try and you don’t even realize it. Like a palm reader, you survey their equipment and try to divine what failures are likely to occur, how much ongoing maintenance will cost, and how much money you are going to make. And, like a palm reader, I bet you are doing this with very little useful information beyond your own experience. So, how can you get scientific about this process and make accurate predictions and decisions? Data!

When a customer has a particular model of equipment that you regularly service, you should be able to tell them the average cost and frequency of repair for that make and model across your entire customer base. Imagine walking into a sales meeting armed with that information. If you are up against a low-price competitor (One Truck Chuck), who do you think customers are going to trust? The guy who tells them “Yeah buddy! I work on these all the time. No problemo. It’ll be cheap cheap cheap!” or the professional sales rep who tells them “We manage 4,065 model ANS-3214s across our entire customer base. We find about 43% in need of repair and the average repair quote is $1,136.83.”

Sounds like a lot of work to get at this data, but it’s not! Let’s walk through the steps:

Establish a list of common assets

You don’t want to perform these calculations for every make and model of equipment you service. All you care about are the most common assets under management. This is a great use case for the 80/20 rule. 20% of the make/models that you service probably account for 80% of the volume and revenue. So, let’s start with an export of all equipment data from your system. Don’t have or can’t access that data?  You can with ServiceTrade.

Next, in your favorite spreadsheet application, create a pivot table from the data that summarizes the count of each make/model pair in your database. Unfamiliar with pivot tables? Oh boy, you’re missing out. Just Google “how to pivot table” and be prepared to have your mind blown! Here’s a real example, with fake model names, from a ServiceTrade account:

Model Count in database
ANS-3214 4,065
LEN547 156
HOB2 102
CHILL-625 99


Now that you’ve determined the most common assets under management, let’s step through the quick analysis to be performed on each one.

Deficiency frequency

How often do you find deficiencies for ANS-3214 units? Well, with a quick export of deficiencies reported filtered down to this asset model, we found that 1,748 assets had deficiencies reported against them. That means that there is a 43% chance that you will find a problem with a given ANS-3214 unit.

Average repair price

Easy! Export your repair quote data, remove all quotes that include more than one asset (to avoid skewing data with repairs of different asset models), and filter down to all quotes for ANS-3214 units. In this case, the average repair quote came in at $1,136.83.

Obviously, there are caveats to this data analysis. First, the results are only as good as the data! Garbage in equals garbage out. Also, you are much more likely to find issues with equipment on your first inspection/maintenance visit. Any given asset may deteriorate differently depending on its environment and usage. Variations in a particular model may make a significant difference in the reliability of the equipment. With all that said, this type of data can make a compelling argument that you are a transparent, data-driven vendor that is more valuable than you low-price competition.

Data-driven sales enablement is just a small piece of selling the program. To learn more, check out our webinar “Don’t sell on price. Sell a premium program.”  and read our book, The Digital Wrap.

Money for Nothing

In 1985, Marc Knopfler, the front man for the band Dire Straits, overheard a guy in an appliance store grudgingly admiring the MTV rockers performing on the store display TVs. Knopfler memorialized the reflections he overheard in the grammy winning, number one hit song “Money for Nothing” later that year. The song opens with the lyrics:

Now look at them yo-yos that’s the way you do it
You play the guitar on the MTV
That ain’t workin’ that’s the way you do it
Money for nothin’ and chicks for free

He goes on to declare “them guys ain’t dumb” and that the rocker “is a millionaire” while lamenting that he has to “install microwave ovens, custom kitchens” and make “deliveries” to get paid his meager wage. Now the truth of the matter is that not every rocker gets paid like a rock star, and those that do are paid handsomely for delivering hits that their fans love. If you are a service contractor, how can you get paid for delivering hits instead of delivering labor? How can you get paid “money for nothing” by becoming a rock star for your customers?

If the only time you get paid is when your customer needs your techs to show up and install, repair, or deliver something, you are destined to get paid like the guy in front of the TV instead of the guy on the TV. The graphs below illustrate the dilemma you face in a business model that requires skilled labor to drive revenue.

Customer demand is always lumpy. If you staff at a level that matches peak demand, you will deliver great customer service, but you will be losing money during the periods when your crews are idle.

Graph of lost profit to maximized customer service
If you staff to optimize for profit, you will certainly lose customers (and revenue opportunities) during peak demand when you cannot deliver the repair.

Maximize profit and lose customers
The ideal situation is one where you can shape the customer demand curve in a manner that allows you to staff for great customer service while also maximizing profit.


So how do you do this? How can you shape the demand curve? How do you get customers to pay for “hits” instead of paying for “performances?”

For your customers, your “hits” are actually not “hits” at all, but instead just plain old boring outcomes where nothing ever breaks and all the labor you deliver is for planned maintenance instead of emergencies. Never an emergency. Never a disruption. Never an outage. Money for nothing.

Customers want predictable outcomes for predictable fees, and you can get paid “money for nothing” (i.e. no breakdowns) if you can deliver on a “no drama, just results” program. It is unlikely that you can be perfect in this scenario (i.e. nothing ever breaks), but you can certainly adopt an approach that minimizes the breakage while maximizing the profit and the customer service. Here are the elements to consider:

Offer a preferred customer service plan. Preferred customers “subscribe” to your proactive maintenance plan (for an annual fee) in exchange for lower, preferred rates and guaranteed response on “demand” work. To do this program well, you need to have a very strong understanding of their existing equipment and its condition, a periodic inspection and preventative maintenance routine, and a waiver for any equipment that represents a high risk to the plan. Generate a good, strong contract from the equipment records you collect in the survey of the customer’s facility (with exactly what you service and what is excluded) and collect the annual fee up front as a fair trade for the lower rates.

During your routine inspections and maintenance, any deficiencies you note that represent risks need to be immediately turned around to the customer with a preferred rate quote for remediation. If the customer declines the quote, the equipment is automatically excluded from the preferred rate plan, and higher rates for future remediation now apply.

Develop a monitoring and early warning system for high-risk situations. Certain equipment you maintain may be prone to expensive failure modes. Look for solutions to generate early warnings and preclude expensive and dramatic failures with low drama, scheduled repair and replacement. These solutions do not necessarily need to be extremely high tech. For example, if you know that a sprinkler section may be prone to freeze in very cold weather, just tag that location with a freeze warning that automatically sends the customer an email reminder to engage auxiliary heating. When the pipes burst at your competitor’s locations, you buy Google ad words that night and use the high drama to add your competitor’s customers to your preferred maintenance plan.

Consider offering warranties for important equipment. This further extends the concept of preferred rates with a “pay in advance” mentality for a “guaranteed hit.” In this case, the preferred rate is “zero” in exchange for the “pay up front” warranty fee. Aggressively monitor and maintain the important equipment to be certain you avoid warranty losses. You will not win on all of them, but a data driven approach with strong maintenance discipline will usually result in “money for nothing” for you along with a happy customer.

Being a rock star requires talent and hard work, just not necessarily the hard work of skilled labor installing “microwave ovens, customer kitchens [and] deliveries.” Instead, it is the hard work of selling a program that pays “money for nothing” when you get paid up front to deliver boring outcomes with no drama instead of relying on high-risk demand work where great customer service and high profit present a difficult, if not impossible, balancing act.

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Say “yes” to the quote

Are you worried that customers are going to “shop” your repair or upgrade quote around to other service contractors? If so, you failed earlier than you may realize. Getting customers to a “yes” on quoted work starts well before you ever find a problem and send a quote. It starts with trust. I’m not talking about the kind of trust built through personal relationships and old-school customer service. That’s not scalable or reliable. I’m talking about trust built on a technology-enabled, convenient customer experience. I’m talking about giving your customers the Amazon experience so they won’t consider buying from anyone else.

Amazon is dominating its competition because it innovated for the customer instead of focusing on backend efficiency. Now, they don’t have to compete on price. Walmart, on the other hand, focused on efficiency and logistics. They are the low-price leader, but the markets have spoken and you can see from the stock chart below that consumers will pay a premium for convenience. I, for one, will happily pay a few extra dollars to avoid:

  • Fighting for a parking spot
  • Wandering around looking for products
  • Waiting in line to check out

It’s not just the brick-and-mortar retailers that Amazon is dominating. Other e-commerce retailers struggle to compete with Amazon’s innovations. Even though other sites have lower prices most of the time (just check Google shopping), Amazon customers are loyal and don’t consider buying from anyone else. Why? Two reasons. Amazon’s order process is more convenient, reliable, and transparent than any other e-commerce site. From beginning to end, Amazon’s customers can trust that they are ordering the right products based on pictures and reviews and that their order will arrive on time based on notifications received throughout the process. Prime is the second reason Amazon customers don’t shop around.

Amazon sold the program when it introduced Prime, a service that gives customers free, 2-day shipping on most orders for an annual fee. It’s not like 2-day shipping is a new concept, and customers are still effectively paying for expedited shipping with the annual fee, but the concept built loyalty. Prime customers are bought into the program so they feel obligated to buy exclusively from Amazon and buy more to get their money’s worth. It’s brilliant.

Service contractors can take a page from Amazon’s playbook. First, sell the program to build customer loyalty from the beginning. Your program won’t look exactly like Prime, but here’s a webinar showing what it means to sell the program as a Service Contractor. Once they are in the program, use technology to give your customers a convenient, transparent, and reliable experience. Then, when you send a quote for an upgrade or repair, customers will trust that you are the only option to consider.

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Write your Vows to your Premium Program Customers

We’ve mentioned (here and here) how much more profitable it is to sell a premium program that gives the customer better outcomes than it is to negotiate on labor rates.

 You’ll need a few things to sell a premium program:

  1. Technology-enabled differentiators
  2. A proactive maintenance and/or inspection plan
  3. A defined service level agreement (SLA)

The goal of your SLA is to clearly state your customer service promises that will reduce their pain and indicate how easy you’ll be to work with. Your SLA should cover:

  • Your commitment to respond. Be specific about how quickly you will respond to emergency work.
  • A promise of a priority response. Give your attention to them first for maintenance or inspection work over customers that haven’t committed at the premium level.
  • How you’ll share the risk. Explain that by buying into the program, they’ll receive a valuable customer rate and/or eliminate some additional charges that non-plan customers pay like trip charges or OT labor.  

You don’t have to go so far as to promise to love, honor, and cherish your customers, but let them know what you promise in return for their agreement to buy in at your premium program level.