Where is the lowest-hanging fruit for service organizations to grow their bottom line? The answer lies in selling service contracts at the point of product sale.

shutterstock_206161729Think about it: You already have a customer who trusts your organization enough to purchase its equipment. So, if a service contract is designed to bring genuine value to the customer, what better time to sell that agreement than when the customer is already making a product purchase?

These agreements provide a recurring revenue stream, which allows field service leaders to more effectively plan the organization’s budget and forecast income. It’s a win for both customers and service providers.

So, how can you sell more service contracts? The most important starting point is to track your organization’s service contract attachment rate.

What is Service Contract Attach Rate?

The attach rate is simply the percentage of product sales transactions that include a service contract at the point of sale.

“You want to get a customer on a service contract as soon as possible because it’s a surefire way to bring predictability that improves profitability.” — Patrice Eberline

According to Aberdeen Group research, a mere 5 percent increase in the attach rate can yield a 9 percent bump in overall service revenue. Imagine how much more income you could generate by increasing the attach rate by 10 or 15 percent.

The attach rate is a powerful lever field service leaders can pull to boost profits.

What Causes Low Attach Rates?

Here are the most common culprits:

  • Lack of focus: If you’re not measuring and tracking attach rate — and if no one is accountable for it — the number will likely be low.
  • Lack of sales incentive: Are your sales reps or service techs given sufficient motivation to offer a service contract at the point of sale, either through pay bonuses or extra recognition?
  • Lack of training: If your reps or technicians don’t know how to effectively articulate the value proposition of a service contract for customers, they’ll struggle to sell it.
  • Lack of preparedness: When the service tech is not prepared to upsell at the point of sale, the odds of ultimately selling the service contract drop considerably.

What’s the Impact of Low Attach Rates?

Selling products without an attached service contract takes a chunk of your potential revenue.

“As a service organization, you don’t want revenue that’s largely derived on a time and materials (T&M) basis, because you can’t plan a cost infrastructure based on uncertain revenue,” says Patrice Eberline, vice president of global customer transformation at ServiceMax. “You want to get a customer on a service contract as soon as possible because it’s a surefire way to bring predictability that improves profitability.”

How Can You Improve Attach Rates?

Follow these three steps:

  1. Track your attach rate. Make service contract sales a strategic priority and use attach rate to determine your baseline performance and measure progress.
  2. Incentivize contract sales. Give technicians extra incentive to capitalize on upsell and cross-sell opportunities while onsite with the customer.
  3. Empower service technicians with mobile technologies. Make it easy for service techs, using iPads or other mobile devices, to present customers with service plans that offer a range of pricing, discounting and SLA options. Once a customer selects a service plan, the tech can create a service contract on the spot to close the sale.

The Bottom Line

Service contract sales are a powerful way to generate more revenue from service, a common pressure felt by service leaders. That’s why the attach rate is such an important metric to track. It gives service leaders the insight necessary to take service contract sales — and overall profits — to the next level.

ABOUT Sean Lyden

Avatar photoSean is CEO of Lyden Communications LLC, a content strategy and editorial consulting firm, and also serves as editor for Utility Fleet Professional magazine. A nationally recognized feature writer on sales, marketing, technology and transportation topics, Sean is also a contributing author to "The Ultimate Small Business Marketing Guide” and “The Great Big Book of Business Lists,” both books published by Entrepreneur Press.