VALUE BASED PRICING TO BOOST SERVICE REVENUE

February 26th, 2010

This post has recently highlighted that service and support have become increasingly significant contributors to corporate top lines and profit margins (Service & Support Management Has Earned a Seat at the Executive Table).

The TSIA survey which provided data for that post, Maintenance Pricing Practices Survey 2009, also revealed that many service and support organizations either already have, or are planning to add new service offerings to their service portfolios. Examples of such new services include:

  • dedicated support resources and technical account managers (TAMs),
  • best practices consulting,
  • customized software support,
  • specialized training to help customers get the most value from the vendor’s product or solution,
  • and a wide variety of other services that companies may not have previously offered.

Companies are adding these new services primarily for either, or both, of these reasons:

  1. to protect and preserve the maintenance revenue stream that has become so vital to their organization,
  2. to grow services associated revenues and the resulting margins.

One challenge many companies face in adding these new service offerings is how to price the services once they are decided upon. Fortunately, a TSIA partner company specializes in pricing strategies and may be able to provide some thought provoking and valuable advice along these lines.

Our partner, Value and Pricing LLC, has just published a white paper that touches on this very topic. The paper, titled “Pricing Strategically in the Complexity Avalanche” can be downloaded for free here.

I’m struck in particular by a couple of sentences in this report:

“In the current environment, the simple definition of (maintenance) pricing success is to capture as high a percentage of the license price as possible. In the digitized future, the business objective will be to maximize margin across a portfolio of service offerings consumed by a variety of customers.”

I think many service organizations are today struggling with this very thought. The Value and Pricing paper may provide some insights into new ways to think about pricing future service offerings to both yours, and your customers’, best advantage.

Thanks for your interest – IT MATTERS!

Michael Israel

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Posted in Maintenance Pricing, Service Profit Margins, Service Revenue | No Comments »

COMPENSATION PRACTICES and SALES TRAINING FOR MAINTENANCE CONTRACTS WILL BOOST SERVICE REVENUES and MARGINS

February 2nd, 2010

In last week’s post, Service & Support Management Has Earned a Seat at the Executive Table, I highlighted some findings from our recent Maintenance Pricing Practices survey. Those highlights underscore the importance of placing a senior executive in charge of maintenance and support operations. The data from this broad based survey clearly indicate that profit margins from service operations benefit when a senior vice president or higher level exec is in charge of service.

A few more tidbits of information from the survey and the subsequent in-depth report.

- Compensation practices matter. When service management compensation is based at least in part on service profitability, average profit margins on service revenues can rise by an average of 2.7%.

- Training matters. When those responsible for selling service contracts receive training in these three fundamental areas: negotiation skills, sales training, and service & support value proposition, average service revenues can rise by as much as 3.5% and average margins can improve by more than 2%.

- Enterprise hardware companies are more likely to consider service operations a profit center than are enterprise software companies. More than three-quarters of all enterprise hardware companies claim to operate service as a profit center. Only about half of software companies see service and support as a profit center, which is somewhat surprising given the high margins service yields for those software companies that do operate service as a profit center. This might have something to do with the fact that many software companies now embed support as part of their Software-as-a-Service (SaaS) or cloud computing solutions and don’t charge customers separately for support under their subscription or edition agreements. TSIA will gather more information about this in our new benchmark survey.

The full report, Maintenance Pricing Practices, is available to TSIA members and is available to non-members for a fee.

Thanks for your interest – IT MATTERS!

Michael Israel

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Posted in Hardware and Software Support, Maintenance Pricing, Service Profit Margins, Service Revenue | No Comments »

SERVICE & SUPPORT MANAGEMENT HAS EARNED A SEAT AT THE EXECUTIVE TABLE

January 25th, 2010

I’ve worked in or been associated with field service and customer support my entire adult working life. I started a few decades ago in what was called the field engineering division at IBM as a night dispatcher and parts room clerk while going to school. Back then, and for many years to follow, service was considered just an afterthought, a necessary evil. It wasn’t seen as a significant revenue generator by most companies, and it certainly wasn’t regarded as an important contributor to overall profit margin. Product sales ruled, and so did product sales management. The service manager where I worked even reported to the branch office sales manager, a scenario that was typical in many organizations at the time; unfortunately, still is in a few.

My, how times have changed. Service has advanced in significance and is now a crucial contributor to revenue and margin in most organizations. Likewise, service management has advanced in importance, influence, and stature.

The Technology Services Industry Association (TSIA) just completed a report on Maintenance Pricing Practices, which underscores these developments. The report is based on a survey the association conducted in late Q3 and early Q4 of 2009. According to this comprehensive TSIA research, when companies treat service as a profit center today, they can expect the following key margin contributions from service and support revenues:

  • Average margin contribution from service for all industries = 52.4%
  • Average margin contribution from service for enterprise hardware companies = 53.7%
  • Average margin contribution from service for enterprise software companies = 60.3%

In fact, margin contributions from service exceed margin contributions from product sales in both enterprise hardware and enterprise software. See chart below:

Moreover, service interacts with customers far more often than anyone else in most companies. Some years ago in fact a large consulting firm released a study showing that field service technicians had face-to-face contact with customers approximately five times more often on average than the customer’s sales person. Telephone support’s contact with customers may exceed that ratio, and electronic and web self-service interactions will almost certainly outpace the number of times a customer talks to a sales person. In short, service can have a greater and more frequent impact on a customer’s brand perception and their propensity to re-purchase than can a sales person.

For that reason I, and many others in the service business, have long advocated that customer service and support management should be given a seat at the the senior executive table. And there’s sound financial justification for this position as well according to the report. The survey results reveal that when a senior vice president (SVP) or higher is at the helm of service operations, profit margins from service revenues go up across the board:

  • the average margin jumps nearly 5% across all industries combined
  • it’s up a healthy 4% in enterprise hardware
  • the rise isn’t as dramatic in enterprise software, but it’s up nonetheless, by about 1/4 of 1%.

So it’s not a matter of opinion, service and support do matter from a profit margin perspective, and the level and stature of the executive heading up service operations positively impacts that number.

Thanks for your interest – IT MATTERS!

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Posted in Customer Service & Support, Hardware and Software Support, Maintenance Pricing, Service Revenue | 4 Comments »

IT SEEMS SO OBVIOUS, BUT NEVER DO THIS IN TELEPHONE SUPPORT . . .

December 23rd, 2009

I use a MacBook. I also run Windows in a Virtual Machine on my MAC. I do so because I need the more robust functionality in the Windows version of Excel not available in the MAC version of Excel. A few days ago I noticed the “control key” in the Windows version of Excel wasn’t working as it should. Specifically, I could no longer select non-adjacent cells, columns, or rows while holding down the control key and clicking the left mouse button. I briefly researched the Microsoft support site and Google to see if I could discover a setting that had gone awry, or some other cause for this never before seen problem; I found nothing.

I use this “control key” feature frequently in my analysis and research work at TSIA and couldn’t see getting along without it, so I decided to part with 49 bucks and buy a Microsoft support call to resolve the issue. I told them I was having a problem with Excel, so they directed me to Excel support. The person with whom I first spoke ran me through several diagnostic steps, which identified that the problem was in fact not isolated to Excel; the control key/left click combination was not working correctly in internet explorer, my computer, other apps – everywhere. He determined that he needed to transfer me to someone who could help me from a broader perspective than that of just Excel support. This is where the “fun” began.

He transferred me to operating system support and stayed on the line to explain the issue to the new support person. But now they began to debate – with me on the line listening to every word – about which of them was going to have ownership of the case and whether it should be a “child” case or not (as if I know or care what that is). Apparently this new support person became angry or frustrated at the conversation and hung up on us at some point because the line seemed to go dead. By now I’m somewhat exasperated, but I wait.

Hat’s off to the initial support guy – he doesn’t give up easy. He came back on the line several minutes later and with a new operating system support person to whom he again explains the situation. But again they argue about who should own the case and whether it should be a “child” case or not. At some point one of them – or both, I don’t really remember at this point – demanded to speak with the other’s manager. (I’m still on the line listening to this!) Mercifully, they then put me on hold. Now I’m beyond angry and exasperated; I’m intrigued, I have to see what’s going to happen next. A few minutes later the newest support person comes back on the line to tell me he will be taking over the case from now on – I guess they figured out who should own the case without my help!

After several more diagnostic steps with no resolution this 2nd OS support person decided to transfer me to level two. The level two technician said he would need to look into it in further detail and would call me back within two hours. That’s exactly what the first two technicians should have done instead of arguing or debating the internal issues with me on the line.

Never air internal issues like those described above in front of your customers. Customers don’t give a damn about your accounting procedures, your internal policies, or your inner politics. They just want their questions and their problems handled quickly and professionally. I have two impressions of this experience. One is of the tenacity of the initial support rep in trying to get me the help I needed. But the overriding one is of the support reps arguing, with me listening to every word, over internal matters that had nothing to do with my problem. The second impression will be the more lasting.

(In the interest of full disclosure I must tell you that the problem ultimately turned out to be a setting in the virtual machine, not in Microsoft or Excel. The setting had apparently gotten changed during a download or an update. I have advised the Microsoft support technician of the details. I do not believe this diminishes the point of the blog however, that is, don’t lose focus on a customer support issue because of  your own internal squabbles.)

PS – Happy Holidays All! And thanks for your interest – IT MATTERS!

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Posted in Customer Service & Support, Hardware and Software Support, Telephone Support | 1 Comment »

New TSIA Field Service and Support Service Benchmark Survey Progress Report

December 4th, 2009

I am very pleased to advise that we have begun the coding of the new and updated Field Service and Support Services questions for the revised TSIA Benchmark Survey in our new survey tool. I spent the better part of this past week in our San Diego HQ office working with our technical team entering completely new questions in our updated survey tool. It’s my first hands-on exposure to our new survey creation capability, and I’m pleased to report that I think it’s going to be great.

One feature I really like is the ability to provide a very detailed explanation about exactly what we mean by the question and how it should be answered. We will provide these precise definitions for all questions that could possibly be open to multiple interpretations in the new benchmark survey. These definitions will be clearly visible to those taking survey and will help eliminate confusion and differing interpretations of what the questions mean. For those taking the survey, these detailed definitions will make the survey easier and faster to complete, and they will assure more accurate data on the back end.

As promised, we are working closely with members in updating and developing questions for the new benchmark survey.  Member companies providing support for all types of hardware and medical devices will be pleased to know that we are focusing our initial survey question development efforts on field service, specifically on service spare parts. Thus far, we’ve received valuable input and suggestions on this topic from AmerisourceBergen, GE Healthcare, and Stratus Technologies. We expect additional comments and suggestions about the spare parts questions early this month from a major server manufacturer and an international telecommunications company.

The final survey will have twenty-five to thirty questions focused specifically on service spare parts. The questions will gather benchmark data on key measurements such as:

  • first pass fill rates,
  • emergency order rates,
  • DOA and NTF rates,
  • spares inventory investment as a percent of service revenue,
  • actual to book value inventory variances,
  • and other important measurements.

The survey will also collect information about the practices companies are using to control and manage their significant investment in service spare parts. For example, the survey will gather data about how often and what kinds of software tools companies use to forecast and plan their service spare parts deployments and stocking levels. We’ll track how often companies outsource their service spare parts inventory management and fulfillment activities, and what types of vendors they use for those purposes. And we’ll be able to correlate how these and other practices impact important service spare parts KPIs, like first pass fill rates, inventory costs, and emergency order transportation costs.

Additional sections of the survey, such as depot repair, field service, financials, support operations, SaaS, channels/partners, sales/marketing, etc. will all be built and revised in the same manner, with significant input from the members who have volunteered to be part of the steering committee(s). You’ll be hearing from me. Feel free to contact me in the meantime at michael@tsia.com or (702) 562.1270.

Thanks for your interest – IT MATTERS!

Posted in Hardware and Software Support, TSIA Benchmark | No Comments »

Welcome to “Maintenance Matters”

November 25th, 2009

Hi, and welcome to Maintenance Matters, an ongoing conversation about maintenance, service, and support. I deliberately chose the word “Matters” as part of the title because of it’s double meaning:

  1. Matter – noun – a topic. Because the focus of this blog will be on topics, or matters, around maintaining, servicing, and supporting customers and the hardware or software products they lease, rent, subscribe to, or own.
  2. Matter – verb – have significance. Because service and support are important, they matter to the customers and to the companies who manufacture, sell, and service the products. The quality of service molds customers attitudes, determines what they will buy, shapes brands, and raises – or razes – companies.

In short, these matters matter.

In the coming weeks and months we will discuss many topics (er, matters) of interest to the maintenance and support community on this page. Discussion points on the radar include:

- maintenance pricing issues

- channel / partner support matters

- service and support costs

- spare parts planning, forecasting, and outsourcing

- service and support KPIs and metrics

- various field service and depot repair related topics

- etc.

I’ll also have several posts on the progress of the new Technology Services Industry Association (TSIA) benchmark survey and database as we roll that out during the first couple months of Q1, 2010.

I’ll share some customer service stories along the way as well – some good, some not-so-good. All in the interest of examining best practices and not-so-best practices in how to support – and keep – the customers who keep us all in business.

And from time to time, I’ll ask for your input in an informal mini-survey – although your comments, suggestions, and yes, even your criticisms will always be welcome – those of you who know me know I’m not a kid any more, so I’ve grown a reasonably thick skin.

I’m fortunate to work in the research arm of the TSIA. As such, I have the privilege of working with many experienced, knowledgeable, and talented people from our member companies who provide support and maintenance services to their customers every day. They ask me a lot of challenging questions, but they also provide me with a great deal of information and insight. That combination of continuing research and information flow will generate a continuous stream of ideas with which to fill these future blog pages. I’ll plan on posting at least every two weeks on average – more often time permitting. I look forward to hearing from you.

Thanks in advance for your interest – IT MATTERS!

Michael Israel

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Posted in Hardware and Software Support | 4 Comments »