For years, the interest in service contracts has been very high but the success rate is much lower than one would hope. There are a number of challenges dealers face when putting a service plan into action – time, distractions, no process, lack of marketing – the list goes on. The good news is that there is a recipe that offers the best chance for success with selling service plans, delivering superior customer service and generating that elusive recurring revenue stream.
When we created the first CEDIA service contract course in 2011, the dealers who were successful selling service plans were typically selling each plan for 2% – 12% of the total installed system price. The sweet spot was about 5% – 8% , which meant $5,000 – $8,000 per year on a $100,000 system. There are two points to consider with this:
- The attachment rate (service plans offered / jobs sold) of those systems was usually lower because dealers would hand pick customers and only offer it to those select few.
- Prices of the systems have come down as dealers are doing a lot more work on mid-market systems. The $20k – $50k systems are more common than ever.
A wise dealer recently said to me “I finally believe the timing of service plans is right. I never got into the service contract game because the revenue I could bring in, compared to the work it would require, was not meaningful enough.” He was referring to his ability to only sell service plans to his 30 big customers vs. the hundreds of mid-sized jobs each year. It was all about attachment of a service contract for 90% of his sales rather than 10%.
I think the best way to think of this is: how many jobs do you do per year, how many have you done the past few years, and what your service contracts should include? Once you have this, you can look at the different service contract options, estimate your attachment rates and do some easy math.
For example, the service contract templates we have designed are meant to be sold with your networks. The thinking is that networks are sold with nearly 100% of your systems, are truly the digital foundation of your systems and are “more important than water” to some of your clients. This means you can provide a great value to your customers, deliver world-class service and have very high attachment rates on your service plans.
Here’s an example:
You have 3 service plans, $10, $49, $99 per month. If you sell 10 networks per month and are able to have an average service plan of $49/mo on each network you’re looking at a $38,000 12 month revenue opportunity. The beauty of RMR is that it compounds, so although year one doesn’t see all that high if you look out 4 years you’ve collected nearly $600,000 of RMR over that time period!
At Ihiji we have plenty of additional resources, from trainings to templates and sales collateral. Reach out to your account manager and get ready for success!
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