service contract management guide

Services are complex by nature and providing them has little in common with selling a simple product. Particularly 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.” 

Tersh made a point of highlighting that his own 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 documents enforcing 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 0 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 contractors or fire and security installers can have a fixed contract price, a subscription, or a tiered system, all depending on the range of services they provide.

For example, if a company has technicians with different qualifications, they can reasonably sell themselves at a premium rate since they have the capacity to provide an “all-in-one” solution for the customer.

The same can be said if a company is able to 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.

2.1 A healthy cash flow. 

As with everything else in business, 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 Tersh 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 will ensure 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, as well as 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 in order 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 Manage 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. And this is exactly what a service contract management strategy proves to potential clients, on the one hand, and helps a business with, on the other.

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 and a missed appointment caused by a lack of parts can mean expensive penalty fees. These are all things your service contract management strategy should prevent. Which takes us to…

3.1 Property maintenance trends

Before you start stockpiling spare parts for your future commercial maintenance responsibilities, have a look first at some property maintenance trends. You can attend a trade show or research some relevant publications but whatever you do, make sure you take into account the experts’ predictions for the industry.

Property management companies are quicker to invest in new trends that promise savings in the long-term, increased efficiency, or better safety standards. This means that your field service company should be ready to deal with the maintenance and issues of these appliances and systems. 

According to Bethany Fagan, from PandaDoc, a tool that field service companies often turn to when they’re in need of creating high-quality proposals and looking to streamline their tendering process, a strong trend is inter-connected appliances: 

“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 domestic 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. 

The 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. 

Read more about winning property maintenance contracts!

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 these days expect field service companies to be innovative and open to learning, as well as up-to-date with the 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. Nick continued his thoughts on the matter: 

“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 domestic 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 we’re talking hundreds, you either need to hire many more operational managers, or (more sensibly) invest in software that can automate the process for you.

Since they’re mostly repetitive tasks, 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.

Learn more about PPM challenges and how to overcome them here!

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. 

If you need help writing your service level agreement, PandaDoc has a great free template here!

It’s tempting for managers to put as many services as possible in the proposal in order 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

Learn everything you need to know about SLAs here!

3.5 Performance reports

If you can’t measure it, then you can’t manage it. Sounds harsh? That’s because it’s true and field service companies are often 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. 

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 field service management software and you have to copy the data from the former into the latter in order to create invoices. 

From a service contract management perspective, this lowers your efficiency and obliges you to hire more admin staff in order 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.

Domestic customers like to be in the loop, but commercial customers need to be up-to-date with processes and costs in order 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 but they do need a certain level of financial intelligence in order to bring in the best results.

It’s essential to factor overheads into your service contracts because you can easily focus either on the increased value of the contract, compared to residential jobs, or on lowering the price in order 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 inquires fines, disorganized inventory management, and a poor cash flow, in general, can lead to a flawed service contract management strategy that leaves your business spending a lot more money to keep up than earning reliable repeat income.