One way to achieve sustainable growth that can withstand external factors is to balance commercial and residential work. This way, when one side slows down, the other can pick up the slack and ensure that technicians won’t be sitting around waiting for work.
The services you offer are complex. Selling them to customers is much more than selling a simple product. This rings particularly true in the commercial area, where business-to-business is the norm and the stakes are much higher. Service contract management is a practice where the stakeholders agree on a mutual definition of what services should be provided, as well as the expected standard of quality.
According to Tersh Blissett, an HVAC expert with 15 years of experience in the field,
“the commercial side of things is very consistent, which is nice. So, even during the winter and during the colder months here, you’ll still get a lot of calls through commercial HVAC, whereas residential, there’s very little work.”
Blissett made a point of highlighting that his businesses, IceBound HVAC & Refrigeration and Tri-Star HVAC, Plumbing & Electrical, strive to maintain a 50/50 ratio of commercial to residential work for this exact purpose.
In simple terms, service contract management is finding a middle ground between a customer’s expectations and the provider’s capacity to satisfy them. Service Level Agreements (or SLAs) are an integral part of this area. They’re the system in place used to effectively enforce a standard of quality, as well as the breach penalties for either side.
At the end of the day, a customer can’t expect a plumbing company or an HVAC contractor to offer zero downtime on all assets. Expectations can be high, but they should also be reasonable. In turn, the latter should ensure the same level of commitment is awarded to a contracted customer every time, not just when they’re waiting for them to renew the contract.
Pricing is also a major factor to be considered in service contract management.
Similarly to other services, electrical generator contractors or HVAC system installers can have a fixed contract price, a subscription, or a tiered system, all depending on the range of services they provide.
For example, suppose a company has technicians with different qualifications. In that case, they can reasonably sell themselves at a premium rate since they can provide an “all-in-one” solution for the customer.
The same can be said if a company can offer 24/7 availability to reduce asset downtime and, as a result, offer the customer peace of mind that there is always someone to help them.
What are the Key Components of a Service Contract?
Each trades business has its approach to how they build and execute service contracts. However, there are some common criteria that most contracts include.
- Specific services included in each contract
- Specific services excluded in each contract
- Contract length
- Plan renewal process
- Relevant coupons and discounts
- Payment plan and timeline
Types of Service Contracts
Service contracts are so valuable because they’re so customizable. Some common examples of service contract types include:
- Tiered contract plans, like bronze, silver, and gold
- Emergency call-out plans, which outline what actions will take place and all associated fees in case of an unexpected break
- Seasonal plans, including services like snow removal, gutter cleaning, or pesticides
We’ve touched upon how balancing commercial and residential work is a sustainable growth strategy for a field service business. But in addition to future-proofing your company, you can also count on these benefits when you lay down a strong service contract management strategy:
- A healthy cash flow
- Upheld deadlines
- Managed inventory
- Build a strong field service proposal
Let’s get started!
2.1 A Healthy Cash Flow
There are cons to focusing more on commercial work.
One thing operations managers have to deal with is keeping the cash flow running smoothly. Residential customers tend to pay soon after being invoiced but commercial businesses will take full advantage of the grace period (usually 30 days) and then use credit to extend that period for another 30 days until you have the payment in your account.
On one hand, commercial contracts will be more profitable but they also require a larger initial investment.
According to Blissett:
“You have to be very, very diligent watching your numbers because if you forgot to invoice something and then you waited, you know, 90 days to send it and then you have to wait another 30 days to get paid for it. You’re out 120 days and it could be a couple thousand dollars that you’re waiting on. And that could really damage your cash flow.”
Taking a strategic approach to service contract management ensures that your invoices are sent out automatically by your software when a job is done, defer sums when it comes to spare parts that are not included in the SLA, and set-up penalties for late payments.
2.2 Upheld Deadlines
Another major aspect of service contracts is upholding deadlines, where the provider takes it upon themselves to ensure that relevant appliances are serviced at a certain point in time.
When it comes to the commercial sector, it’s often a matter of safety and respecting regulations rather than simply best practices.
For example, an elevator has to be assessed regularly and awarded a certificate of safety by an accredited professional for it to be deemed suitable for use. If a business operates an uncertified elevator, they’re liable for steep penalties, both legal and financial. This means that when your field service company gets contracted to maintain appliances, you have to schedule these check-ups and make sure the right technician is available for each.
A good service contract management strategy should cover how you plan to handle the additional workload and provide the customer with proof that you can uphold a strict schedule.
2.3 Managed Inventory
Similar to the strain that contracts put on your scheduling capabilities, you’ll also find that inventory management can become more difficult to manage for your admin team or warehouse manager.
Whereas with residential work, you can rely on a small set of items that every tech can carry in their truck with an additional range kept in storage, you’ll now find yourself needing a wider variety of parts, as well as larger quantities.
Field service companies who don’t have a strong service contract management strategy can find themselves with poor cash flow or unable to meet the aforementioned deadlines due to overstocking or, respectively, understocking spare parts.
2.4 Build a Strong Field Service Proposal
This section will also answer the “when” in regards to forming a contract strategy and that’s before you start tendering. Most tenders these days require you to send in a detailed proposal outlining how you plan to manage the schedule, handle preventive maintenance, respect the service level agreement, and keep the customer in the loop.
Most customers aren’t looking for you to brag about your accomplishments or the level of experience your techs have, they’re simply looking for a company that can prove they get the job done, on time, every time. This is exactly what a service contract management strategy proves to potential clients and businesses alike.
Even if you’ve been working as a manager for a long time and have a reliable team, you shouldn’t assume your business is automatically ready for commercial contracts.
It’s true, these can often be less of a headache than dealing with surly homeowners and confused residents, as well as being a reliable source of income, but commercial jobs have significantly higher stakes.
A botched job can lead to legal liabilities, both for you and your customer. Additionally, a missed appointment caused by a lack of parts can mean expensive penalty fees. These can all be prevented by an organized service contract management. This takes us to…
Getting a head start on your strategy is essential.
As mentioned before, service contract management is so important, because it allows you to build powerful service proposals. This increases your chances of winning the commercial contracts you want most. After all, commercial customers value organization most of all,
Furthermore, reliability is worth its weight in gold in the business-to-business world.
To build a reliable strategy, however, there are a couple of things you need to take into account:
- Property maintenance trends
- Customer perception
- Planned preventive maintenance
- Service level agreements
- Performance reports
Let’s get started!
3.1 Property Maintenance Trends
Before you start stockpiling spare parts for your commercial maintenance responsibilities, be sure to look into property maintenance trends. You can attend a trade show or research some relevant publications. But whatever you do, take the experts’ predictions for your industry to heart.
Property management companies are quicker to invest in new trends that promise savings in the long-term, increased efficiency, and better safety standards. This means your business should be prepared to handle all aspects of maintenance for their systems and appliances.
When looking to streamline their tendering process, a strong trend is interconnected appliances. Bethany Fagan, from PandaDoc, discusses tools field service companies often turn to when they require creating high-quality proposals.
“As more tools like Google Home and Alexa come onto the market, businesses will find more ways to connect with people and make things easier. I think that will potentially help the field service industry.
If they can just notify a manager when their maintenance is up on an appliance via Alexa or Slack, they can figure out a way to automate the process. I think this will be a big trend. There’s gonna be more devices that people use to just keep their lives organized.”
While this touches upon the more residential side of the game, it applies all the same to property managers and other business customers (they’re people too, right?).
The more interconnected devices take over both professional and personal lives, the more they’ll expect companies to use these tools and provide a smooth, digital experience in addition to high-quality service.
This trend will follow the disruptive effect that companies like Uber had on the taxi industry, where the experience is worth more than the product. At the end of the day, Uber did not come up with anything new – taxis have been around for centuries – but they did revolutionize the experience to make it as easy as possible for the customers.
3.2 Customer Perception
Speaking of customer experience, another aspect of building a good service contract management strategy is to understand the first impression you make on a customer. Their perception of your brand will have a decisive role in whether you’re awarded the service contract or not.
It’s important to come across as professional and experienced, but that’s not all there is to it. Many facilities managers expect field service companies to be innovative and open to learning, as well as up-to-date with the latest industry tech.
According to Nick Garrett, from naturalForms:
“Customers today expect businesses to be using the latest technology, […] technology where they’re getting their mobile device and everything is done on the spot. They expect it because it’s becoming more and more the norm.”
Therefore, you want your customer’s perception of your company to be positive, but projecting this and falling short of their expectations can also lead to failure.
“So by not offering that to their end customers, it leads to a negative experience or a lack of good perception, if you will. And then, the other thing we see is [field service] companies using it as a competitive advantage.
So if I’m a company using some digital tools like naturalForms or Commusoft, and my three competitors in the area are not, that I have a competitive advantage.
The end customer sees me as someone who looks like they know what they’re doing, like they’re using the greatest technology. So we definitely see that there is an impact.”
Learn more about customer perception and how to improve it with online portals!
3.3. Planned Preventive Maintenance
If you compare residential to commercial, you can easily see that the main problem, when it comes to preventive maintenance, is scale.
It’s easy to keep track when it’s an asset or two at a single address, but as soon as you’re working with hundreds, you either need to hire many more operational managers or (more sensibly) invest in software that can automate the process for you.
Since these tasks are mainly repetitive, a software solution makes the most sense, letting you tackle these with ease. Furthermore, you can even segment them by work order description to ensure you’re using the correct rates.
You can also add pricing, parts, and fair usage terms, as well as select which assets the contract covers. With the right tools, even complex service contract management won’t be much trouble.
3.4. Service Level Agreements
The service provider is the one that writes and proposes an SLA in the initial negotiation phase.
Some field service companies might even have different SLAs with tiered prices, where 24/7 availability, for example, means an increase in the cost of their services. In turn, they also have to agree to more severe penalties in case of a breach.
A good service contract management strategy will cover the range of options you can offer in an SLA and ensure that you can keep up with the demands and still make a profit.
It’s tempting for managers to put as many services as possible in the proposal to impress the customer, but then they have to deal with the consequences of not quite knowing how to manage those when the time comes to walk the walk.
The basic principle should be “Don’t bite off more than you can chew”. “Under-promise and over-deliver” is perhaps the more professional way of putting it. But it’s not always as easy as it sounds. To ensure compliance and make the most out of your SLAs, keep the following best practices in mind:
- Understand how to measure Service Level Agreements and how to track the right metrics
- Make sure there are protocols in place to prevent breaches
- Invest in software that’s designed specifically for SLAs
- Understand the risks of breaching SLAs and how much it will cost you
- Take advantage of marketing your SLA compliance rate
3.5 Performance Reports
If you can’t measure it, then you can’t manage it. Sounds harsh? That’s because it’s true! You’re not alone; a majority of field service companies are guilty of not measuring their performance well, if at all.
When it comes to service contracts, however, they don’t have a choice anymore. Any commercial customer worth their salt will ask for performance reports, either quarterly or annually, and if your company can provide statistics of their previous projects in the proposal, all the better.
Even failure to reach a goal can be an important lesson but if you don’t know what went wrong, then how can you hope to fix it?
Performance reports are a quintessential part of your service contract management strategy and you need to make sure you have the necessary tools to create them in place.
Whether it’s real-time tracking for your vehicles or an intelligent inventory management system, numbers such as your first-time fix rate, fuel costs, technician performance, etc. are valuable insights into your business – both for yourself and for prospective customers.
Even experienced operations managers make mistakes, especially when it comes to service contracts. As the industry evolves, customer demands change and expectations increase.
At the same time, there’s a lot more competition in the field service industry, whether you’re HVAC, plumbing & heating, electrical, or any other specialization, and this means that you need to stay on top of trends and audit your business regularly to identify what can be improved.
Below, we’ve highlighted some of the most common mistakes:
- Relying on printed paper
- Double data entries
- Lack of traceability and transparency
- Lack of knowledge about associated costs
- Using inconsistent contract templates
- Not providing adequate training to team members
- Insufficient communication with clients
Let’s get started!
4.1 Relying on Printed Paper
Nick Garrett has his numbers straight:
“Right now, just for example, there’s about 3 million small businesses in the US and 90 to 95% of those are still using paper, no technology.
And one reason, one thing that they tend to do is they have paper forms and documentation that they’re required to use.
So, things like faster turnaround time, reducing the errors on forms, they miss out on these because they rely strictly on paper.”
Since they’re missing out on these benefits, companies will have a difficult time managing service contracts.
In addition to an increased workload, the price of errors is much higher (as we’ve mentioned, SLA breaches are expensive and can damage lucrative customer relationships) and any commercial customer will judge you harshly if the errors are due to a refusal to innovate and invest in better tech.
4.2 Double Data Entry
It’s tempting once you invest in software, to become so convinced of how much it can improve your business processes, that you fall into the other extreme and invest in too many.
Managers who aren’t careful with the tools they choose to risk making things more cumbersome for their teams, by combining software that is not meant to go together.
This leads to double data entry when, for example, your accounting solution doesn’t integrate with your job management software and you have to copy the data from the former into the latter to create invoices.
From a service contract management perspective, this lowers your efficiency and obliges you to hire more admin staff to deal with the additional workload. This way, you also miss out on automation features that could generate these invoices and send them as soon as a job is marked as done.
Nick also touched upon this when asked about managers who stick to pen and paper:
“Right now the fact that digital forms integrate with software, like naturalForms and Commusoft, and they convert into real-time data, means there is no need for double entry.
Office staff doesn’t have to manually key in information and, as a consequence, there’s a distinct improvement in accuracy and completeness of forms. And those are the issues we’ve seen managers and business owners have to deal with over and over again.”
4.3 Lack of Traceability and Transparency
Traceability refers to your ability as a business to track the management actions of employees such as form-filling, awarding certificates, scheduling, or purchasing parts.
Transparency refers to the option of sharing this information with an interested party in a report that’s easy to compile and understand.
Neither has the purpose of enabling managers to micro-manage employees – that would defeat the attempt to increase efficiency – but to offer insight into various processes and how to improve them.
As long as managers rely on paper trails and inquiries, they won’t be able to build a comprehensive service contract strategy that can make a proposal stand out from the competition.
Residential customers like to be in the loop, but commercial customers need to be up-to-date with processes and costs to better manage their own business.
4.4 Lack of Knowledge About Associated Costs
“Our customers should always be aware of gross revenue, costs, and time to return on investment,” says James Henry, Head of Sales and Partnerships at SumUp, the digital payment experts.
Learn more about the benefits of online payment portals here!
Operations managers aren’t expected to be accountants. However, they require a certain level of financial intelligence to bring in the best results.
It’s essential to factor overheads into your service contracts. You can easily focus either on the increased value of the contract, compared to residential jobs, or on lowering the price to impress the customer into signing.
Always remember Nick’s advice:
“One thing that we have found, especially with the small and medium businesses, even some of the larger ones, is that they don’t quantify the amount of energy and effort associated with all these sort of manual processes. So they don’t really have a good understanding of the associated costs.
We try to give them some feedback and guide them towards a more quantitative mindset. It’s important to have an understanding of how much money, effort, energy, and other resources they’re using for something that can be bypassed completely with modern solutions that are often so much cheaper than the cost of buying paper and printing.”
Associated costs resulting from poor scheduling that requires fines, disorganized inventory management, and poor cash flow will flaw your service contract management strategy. This will leave your business spending a lot more money to keep up than earning reliable repeat income.
4.5 Using Inconsistent Contract Templates
Not only is it difficult for your admins to recreate contracts over and over again, but inconsistency also makes it extremely difficult to successfully fulfill requirements. This is the true value of service contract templates
4.6 Not Providing Adequate Training to Team Members
Your entire team, from decision-makers, to office admins, and field crew, plays a significant role in service contract management. Not only is team alignment a necessity, but each team member should understand how their position affects how a contract is carried out. Having a shared understanding makes it easier to wow customers over and over again.
4.7 Insufficient Communication With Customers
Your customers, residential and commercial, need to know what’s going on at their properties. Wouldn’t you feel the same? That’s why clear customer communication should be at the heart of each service contract you create. After all, your customers depend your team, your service contracts, and your systems to make their lives easier.
We’ve covered the significance of service contract management, and how the right system can benefit your trades business. Now it’s time to build a workflow to suit the needs of your customers and your business!
Here’s 14 step to help you get started:
- Determine your primary goals
- Identify who is responsible for managing the contracts
- Have a comprehensive understanding of your service offerings
- Divide your customers into segments
- Develop standardized contract templates
- Determine pricing models
- Invest in a service contract management software or CRM
- Define a clear contract approval process
- Monitor compliance and service performance
- Automate contract renewal notifications
- Ensure contracts adhere to legal and regulatory requirements
- Provide training to your sales and customer service teams
- Establish a communication plan for engaging with clients
- Develop a process for handling disputes and changes
5.1 Determine Your Primary Goals
Naturally, each contract you offer should have a tangible impact on the business. Service contracts and service contract management software uncomplicate complex processes.
5.2 Identify Who is Responsible For Managing The Contracts
Customers notice when the companies they hire have organized internal processes. That’s why it’s important to outline how each aspect of your service contracts will be handled by each member of your team. A good place to start is defining which members of your office team will handle scheduling/dispatch, SLA monitoring, and invoicing. Additionally, you should designate which field crew are qualified to handle specific tasks outlined in your contracts.
5.3 Have a Comprehensive Understanding of Your Service Offerings
Both your internal team and customers should comprehend what exactly offering. After all, you wouldn’t want a team member misselling a contract or concession by mistake. Having everyone on the same page today vastly reduces misunderstandings in the future.
5.4 Divide Your Customers Into Segments
To understand what kind of contracts are most necessary for your business, you need to have a complete understanding of your customer base. Not only will this exercise help you identify which customers are most common, it’ll ensure you understand what services you need to offer most.
5.5 Develop Standardized Contract Templates
Templates streamline the entire contract creation process. While customization is important, many opportunities will inevitably share similarities. Having set service contract templates ensures your team can effortlessly handle any circumstance. Further, templates guarantee your team offers consistent services and expectations each time.
5.6 Determine Pricing Models
Contracts can have a tremendous impact on revenue. That’s why it’s important to discern how you expect customers to pay: cash or credit, and more importantly, when your team will be paid. You also need to determine payment options for any add-on services you provide, like emergency call-outs. Finally, don’t forget about discounts and coupons. These can push a prospective customer to choose your team over your competition.
5.7 Invest in a Service Contract Management Software or CRM
Even the best teams need support. That’s why there’s service contract management software. Automated solutions, like planned preventative maintenance workflows for commercial businesses, can make a tremendous difference for office staff and customers alike.
5.8 Define a Clear Contract Approval Process
Prospective customers, or those who are renewing their contracts, need to understand your tendering process. Furthermore, your internal expectations need to be crystal clear as well! After all, having a clear timeline smooths the process for everyone involved.
5.9 Monitor Compliance and Service Performance
Winning contracts is only half of a job well done. The other is ensuring the contract is carried out flawlessly! Meeting SLAs and going above and beyond for each appointment makes it much easier to win contract renewals. The best service contract software come equipped with SLA monitoring tools, making it easier for your entire team to fulfill requirements.
5.10 Automate Contract Renewal Notifications
Keeping up with individual contracts and their timelines is impossible using pen and paper. This is where service contract management software shines. By automating valuable workflows and internal reminders, your office team will always stay on top of renewals.
5.11 Ensure Contracts Adhere to Legal and Regulatory Requirements
Compliance is essential. Be sure your team is aware of, and obeys any local, state, and federal requirements that apply to the service contracts you build for your business.
5.12 Provide Training to Your Sales and Customer Service Teams
Team alignment is essential. Everyone involved with service contracts needs to understand how your service contracts function, and how it affects their work. Even more, alignment is crucial so customers aren’t misled about the ins and outs of the document they’re signing.
5.13 Establish a Communication Plan For Engaging With Customers
Your customers want to know what’s going on. After all, many customers, especially your commercial clients, are investing large sums of money into their contracts. Clear communication and updates result in happier customers, meaning your team will encounter fewer complaints and disputes.
5.14 Develop a Process For Handling Disputes and Changes
There will be hiccups along the way, it’s inevitable. Whether there was a misunderstanding, a sweeping change across your industry, or the off chance your team drops the ball, you need to prepare workflows for effectively managing issues when they arise. This is how the best service businesses stand apart from their competitors.
Monitor and Adjust the Strategy as Needed
Your service contract system shouldn’t be set in stone: there’s always room for improvement. It’s okay to try, test, and fail. What matters is how you get better! After all, as your industry and customer care tactics change, your business needs to keep up. Be sure to take employee and customer feedback into consideration when you update your service contracts.
Get Started Building a Service Contract Management Strategy Today!
Ready to take your service contracts to the next level? Commusoft is here to help! Our service contract management solution was built for trades businesses with customization in mind! Discover how you can transform your customer care and win the service contracts you want most today!