I am sitting down with an owner, and he tells me that his business is finally growing again, but his managers are demanding more resources. “We’re all maxed out. We need more people!” When the fearless owner pointed out that the firm successfully operated with the same staff size at 50 percent higher revenue only two years ago, the response is, “Well that won’t work now. We can account for every hour and there is nothing left.”
Consider another story. A successful design-build integrator finds itself competing with bare-bones contractors for the same business. Even when the customer acknowledges that the design-build company is offering more value, they go with the lower service and lower price offer.
Two stories, one problem: over-delivering. The firm that runs at capacity regardless of revenue is using every resource to deliver the best outcome it can, instead of the outcome that was sold. The sales team that’s trying to leverage value-adds has unintentionally made them worthless by making them free. If you do both? Well…that’s truly unfortunate.
The solution is surprisingly simple. Several years ago I was helping an integrator reduce its backlog of “almost-complete” projects. We noticed three recurring problems that kept jobs from closing: incomplete “as-built” drawings, unfinished operating manuals and documentation for the customer, and client delays in scheduling their “training.” None of these items were priced separately, but all were included in the scope of work, so therefore contingent to sign-off. In addition, the integrator was having zero success selling service agreements or avoiding scope creep in user-interface programming. Sound familiar?
When we spoke with customers, few had any interest or use for drawings or manuals (who reads manuals?), but felt they must be important because—wait for it—we told them so. As for training? They were sure it was important, and since they only had one shot at it, they wanted to have all the right people there. They also explained to us that service agreements didn’t work because it was too easy to get the same level of support by simply complaining loudly. Over-delivering was the expectation, so why pay extra?
A simple change in proposal structure unbundled some expensive, unwanted work from the base project while making the value-adds more valuable (see sidebar).
Step one: We moved unlimited training into the optional service agreement, so the customer would start to see the value in both. Two: We eliminated the administrative work of building giant three-ring binders of documentation by removing it from the scope in all but the largest projects. Three: As-built drawings and documentation were itemized as an add-on separate from service, but included in the service option. The as-builts were really for our service guys anyway, right?
As a net result, we sold more service agreements, got sign-off faster (to get the service and training started), and increased overall margins. The key was recognizing value to the customer and unbundling it from the proposal with high-worth options.
Tom Stimson, MBA, CTS is an expert on project-based selling and a thought leader for innovative business processes. Tom helps owners and management teams rediscover the fun and profit that comes from making better decisions about smarter goals. Since 2006, he has successfully advised more than 200 companies and organizations on business strategy, process, marketing, and sales. Email: firstname.lastname@example.org.
The Optioned Service Agreement
I still see a tremendous amount of resistance from sales reps to include service agreements in their proposals. When we dig into this, we find that the salesperson doesn’t actually see the value in his or her own offering, which means he or she can’t successfully field customer objections. If you unbundle the service agreement and create three options of increasing value (not just longer duration), you present a more compelling offer that can meet secondary customer expectations.
Service Level 1: At project completion, the project manager will demonstrate the system for you and answer all your questions. There is 12 months’ warranty in workmanship and 30 days unlimited service on warrantied products. Reduced hourly rate for service after 30 days. Service calls will be scheduled within five business days. All included in project price.
Service Level 2: In addition to Level 1, within 30 days from project completion, we will provide in-person training for your staff on the use and care of the system. From that session, we will create a video on how to use the system and design and print user instruction cards. And at 90 days, we will provide a free service call to check out the system and provide a refresher on training if needed.
Service Level 3: In addition to levels 1 and 2, unlimited training for one year, plus two scheduled service reviews per year. All service calls will be free of charge, plus non-warranty products will be repaired free of charge for one year. Service calls will be scheduled within one business day from your request.
These options are not definitive, but note the escalating value. Concerned that bargain competitors will provide these things for free? Don’t be. Help the customer understand how hard you will be working to get them to renew the agreement for another year. They won’t get that level of attention for “free.”