Grow Service SalesWritten By: Matt Di Iorio
Article Date: 01-01-2007
Copyright(C) 2008 Associated Equipment Distributors. All Rights Reserved.
Increase service revenue by managing consumption.
It's January 2007, and service department managers are scrambling to beat January 2006 sales results. The fact that service sales forecasts are more optimistic than total dealer forecasts comes as no surprise to industry veterans. Customers repair (rather than replace) equipment when work slows. It's true that customers tend to keep machines longer when work is uncertain, and older high-hour machines break down more often than new. However, contractors don't have to bring repairs to their dealers.
Although 93 percent of end users are likely to purchase new equipment from dealers, up from 90 percent in 2003, service trends are less impressive (AED's 2006 Construction Equipment Market Study). The last comprehensive study of service trends suggested that 44 percent of North American contractors are using dealers less often than they were five years prior. The percent of recommended maintenance and 15 percent of tune-ups on the equipment they sell. The response to these statistics is often, "Who cares? We barely have enough technicians to keep up with complex proprietary repairs."
There are obviously a lot of pros and cons relating to providing smaller, less complicated services to end users. However, the frequent touch points afforded through maintenance agreements embed the service provider in the consumption process of the end user.
End users in similar industries are demanding that dealers solve their equipment needs "completely" (Lean Solutions, 2005). Solving the user's needs completely may necessitate becoming efficient and profitable at processes that we've traditionally left to less sophisticated service providers. Providing service agreements has the potential of positioning dealers in the fleet/asset management business, which is increasingly the end game in like industries.
Although variability and uncertainty are a fact of life to those employed in construction equipment distribution, service technicians often pay the ultimate price when demand for their work diminishes. Many service managers find themselves in the unenviable position of having to reducing employee hours, lay technicians off, or terminate staff every time the economy cycles.
Not surprisingly, institutional memory leads to a conservative approach when it comes to adding technicians. This is particularly true when it comes to hiring an inexperienced entry-level technician that takes years to develop into a full-fledged journeyman.
Quality technicians and service customers are both scarce resources these days. Therefore, a strategy to grow service revenue must balance demand and capacity in the context of technician recruitment and retention.
The truth is that the equipment maintenance business is nearly as different from the repair business as daily and weekly equipment rental are from sales. The structure and culture surrounding the successful delivery of short, fast-paced, high-touch, low-tech, low-cost services are fundamentally different from traditional core competencies of many dealers.
Whether or not maintenance is part of your growth plan, gathering more actionable information related to equipment population, utilization, and condition is a must. Increasing service revenue relative to overall sales mix will depend upon the dealer's ability to plan and accommodate customer repairs while maximizing utilization of dealer resources.
Repairs must be scheduled in such a way that a significant percentage of service events occur in a manner that allows for sustainable improvements in capacity and efficiency simultaneously. Organizational structure that levels, or otherwise, manages work flow will be the key to sustainable growth.
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