The challenge then becomes crafting a strategy that not only ties your customers to you going forward but also increases the rate you’re able to respond to their issues. Performance-based service contracts offer a solution, and restructuring your company to deliver on those promises can sharpen your team back to a competitive edge.
At the recent Field Service Po50, Roger Durham from the Norican Group spoke about his company’s shift towards performance-based service contracts. He walked through the considerations they had to make and outlined how it has affected their operations.
What is a Performance-Based Service Contract
In order for us to break down how a performance-based service contract can help create a sustainable business model, we first need to understand what exactly a service contract would entail.
- A Longer Term Contract – You will want to get a commitment from your customer. This could mean anything from 6–12 months to 15 years depending on your industry
- Diversification – The contract should bundle technical service, spare parts, and more
- Benefits – What value does this contract bring that will convince consumers to move from an ad-hoc system to a full-service contract?
As soon as you include a performance-based level in your contract, it includes a few extra considerations. The goal will shift towards ensuring technical performance and understanding risk management.
A performance-based contract allows your customers and your team to agree on a set of expectations and KPIs beforehand. This could be anything from uptime guarantees to maximum response times. For each metric, you build into the contract, your customer pays an agreed-upon rate if you meet, exceed, or don’t meet the agreed-upon expectations.
Performance-based contracts allow your customers to feel much more secure in their investment, and they’ll feel much more comfortable in understanding the costs associated over the entire lifecycle of an asset.
It will also allow your team to tie their success to every little step and detail, and it will encourage them to act with purpose in the hand-off between departments.
The Customer Journey
When you look at the path your customers will take from buying new equipment to decommissioning it, it’s easy to see how much easier and more succinct a full-service contract will be.
One of the biggest challenges when it comes to the traditional customer journey is that you will be working with two different departments. The point of contact who is responsible for choosing the product and getting it installed will likely be different from the one who works with you through maintenance.
As you create a rapport and an understanding of what a customer needs, it can be challenging to shift to a new perspective and still hold the same expectations and level of success. Any conversations about costs across the lifecycle of the product need to be had upfront.
X as a Service
There are a growing number of tech companies who are offering their software and experience as a subscription-based service. This model keeps customers tied to your company and allows for much greater control and consistency.
When applied to field service, this structure simplifies the customer journey; they only need to contact your team once, at the onset of their purchase. You can then handle their maintenance and service needs throughout the lifespan of their product.
Your customers are essentially subscribing to a certain amount of uptime, and they can trust that you’ve created a line of communication to anticipate any issues and ensure they can reach you should something go wrong.
No Harm, No Foul
Chances are when your customers talk about your machine reliability, they’re actually talking about the uptime of their entire plant. At the end of the day, your team is only responsible for a small part of their operation.
This is why when you’re guaranteeing a level of performance, you are extremely specific about what that means. In calculating the total promised availability and potential price brackets, you must consider the following.
- Is Your Machine Available – Could it be running if it was needed?
- Is the Rest of the Plant Available – Is there an issue with equipment outside of your own that is preventing continued uptime?
- Is the Plant Needed – Is it a time when the rest of the plant is not needed due to a break or holiday?
Only if the plant is held up specifically by your machine malfunctioning should it affect your pricing and ultimate uptime. Otherwise, it can be helpful to enact a “no harm, no foul” rule. This prevents your company from being held responsible for issues outside your purview.
Capability to Deliver
As soon as you open the door to performance-based contracts, you may be tempted to offer guarantees like 99% uptime. This will get your customers excited, but it requires an entirely different mindset across departments.
Ad-hock service usually leaves quite a bit of time for ordering parts, planning visits, and long timeframes. On the other hand, 99% availability means that your team will only have 87 hours out of the entire year to deal with issues and schedule routine maintenance.
You can build up to this level of specificity by starting your promised uptime at around 90% and building your way up. A true 99% uptime operation needs to run like a high-performance pit crew, identifying and solving issues as quickly as humanly possible.
This requires you to have an objective look at your back-end processes, systems, and staff. They must be up for the challenge before you promise results you can’t deliver.
The Bottom Line
If your field service company wants to remain competitive in a world of consistent uptime and interconnected systems, crafting performance-based service contracts could be the best solution. These contracts can help your business provide better, consistent service, satisfy customers, and drive revenue.
When deciding to move forward with service contract performance-based pricing models, it’s important to take into account all the associated factors that may influence the deployment. Doing so will ensure that you have appropriate and workable contracts that will create long-term success for both your business and your customers.
If you want to learn more about the future of field service, and how you can stay on the cutting edge of the B2B market, be sure to explore Copperberg’s site. With countless articles and resources, along with networking opportunities, they’re dedicated to giving companies just like yours a leg up.