10 Tips for Rolling Out Service Contracts

The overwhelming theme at the "Recurring Revenues: How to Keep the Cash Flowing" seminar at EHX Fall was that it’s a good time to be talking about this stuff.

A model that is in part based on income from service contracts provides stability. Perhaps more importantly, according to panelist Thad Glavin of managed service provider Atomoo, a service contract ties customers to companies over a pre-determined period of time.

With the economic situation as challenging as it is — the group tied in Tweeter and Circuit City’s troubles — a recurring revenue model is one way companies can ensure they’ll be around to see good times again. At least that was the sentiment during the discussion.

The integrators and panelists in attendance seemed impressed with how much Scottsdale, Ariz.-based Creative Sound & Integration earns with service contracts. The company provided a breakdown of its prices and services, indicating that it earns between 5 percent and 12 percent of total project cost for its array of support services.

Here are the tips from the session:

• A recurring revenue model translates to a tighter operations, better processes
• Assurance of revenues equal a more highly-valued company
• Recurring revenues provide steady income, which comes in handy during tough times
• It’s important to set milestones for the recurring model
• Good service areas that can lead to recurring revenues include: video monitoring, IT checkups, managing home systems, solar, PERS (personals emergency response systems) or home health technology
• Packing of services under service contracts helps dealers to compete in the marketplace
• Use of financing is an excellent selling tool, especially since home equity loans are drying up
• Don’t undervalue service; check to see what other expert professionals charge for their time
• It’s a good idea to dedicate somebody other than the president or owner to collecting payments
• In setting prices, start with affordable options and then have valuable step-up features and extended durations

Tony Smith, president of Security Finance Associates, and Bejan Amini, president of ContractorsAV.com, rounded out the panel.