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Service Maintenance Contract
Posted: 27 March 2012 09:26 AM   [ Ignore ]
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I have an opportunity to provide a service maintenance contract for a commercial project I have just completed. This is admittedly a new animal to me and I wondered if anybody has a boiler plate design and or knows any of the equations which are calculated to come up with an accurate estimate for such a contract based on warranty, uptime desired, etc. Project replacement cost is approx 160K (without labor or programming).

I have Googled and even looked within CEPro pages and haven’t found anything. Seems to be a “bestkeptsecret”.

I would appreciate any insight into this.

Thanks!

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Timothy J. O’Connor
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HomeTech ::  Your Technologies Solutions Resource Company
Electronic Systems Architecture & Integration
30 Years in IT * 20 years in Automation * 12 years in AV
V: 863-496-1611| W: http://ihometech.net

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Posted: 27 March 2012 10:01 AM   [ Ignore ]   [ # 1 ]
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I have usually found that dealers come up with a more basic setup for providing this type of service.  As an example:

Sell blocks of time with certain restrictions based upon hours of the day or day of the week service is requested, as well as how quickly the response is.
Like $1000 per month gets you X number of hours 9-5, M-F with a 24 hour response or Y number of hours after hours or 4 hour response.

You can also have a rate for remote support.  Think of it as a carnival type setup - buy your tickets first - then redeem them as you use services.  Regular hours is 1 ticket, after hours is 2 tickets.  You get the idea.

You mention the project replacement cost - not sure how this comes into play.  Other than the more equipment there is probably increases the amount of service they are likely to need each month.  So you could even have levels of plans.

$1000 gets you 20 tickets
$2000 gets you 50 tickets
$5000 gets you 200 tickets

Or something like that.  I would advise coming up with the simplest system you feel comfortable with - it will make it easier for everyone.

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Morgan Harman
Volutone
http://www.Volutone.com

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Posted: 27 March 2012 02:01 PM   [ Ignore ]   [ # 2 ]
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Tim,

Great question. Here’s a link to all CE Pro’s recurring revenue coverage (http://bit.ly/GUKwoD). Our sister site, Commercial Integrator, has also covered service contracts quite a bit (http://bit.ly/GU064N), including a webinar that covered service contracts with digital signage solutions (http://bit.ly/gGWvH9). Not sure if your install was digital signage-related, but maybe there are some pointers that will help.

[ Edited: 27 March 2012 02:08 PM by Steve Crowe ]
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Posted: 27 March 2012 02:04 PM   [ Ignore ]   [ # 3 ]
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I’ve also reached out to our friends on Twitter to post a response on this Forum.

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Posted: 29 March 2012 11:31 AM   [ Ignore ]   [ # 4 ]
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Tim:
Please give me your e-mail. I’ll send you a file that could be useful to you.

Regards

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Octavio Rodriguez G

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Posted: 03 April 2012 10:32 AM   [ Ignore ]   [ # 5 ]
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Hi Tim and Morgan :

I uploaded a file at the following link:

http://www.mediafire.com/?inff98b9xxu9opp

This file may be useful for you. Try to fill only the gray cells.
It will help you to estimate labor for a new contract.

As you know, some companies do not take the time to quantify previously the work, so they take as reference the invoice amount of electronic equipment. Then, they calculate an estimated cost of services, some of them use 10% to 15% of the total amount of electronic equipment.

Anyway, everyone uses a unique method that works best each one.

I hope this file will be useful to any of you.
If so ... you owe me a beer!

Octavio RG

[ Edited: 03 April 2012 10:40 AM by 8avo ]
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Octavio Rodriguez G

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Posted: 10 April 2012 01:26 PM   [ Ignore ]   [ # 6 ]
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Thanks for all the feedback Morgan, Steve and Octavio.

Morgan…while I had waited for a reply (just checked again on April 10th, 2012 - today), I had come up with a scenario very close to what you’ve reasoned out. Looking at my standard working hour rate, my after hour rate, my weekend/holiday rate, my programming rates plus the ever negotiable trip charges, I came up with a spread sheet that showed those figures based on warranty of equipment and desired term of services. This allowed me to take a good, realistic look, at the monies which were possible on the table. You hit the nail on the head with the $1000 per month (for standard rates). I took it another step and thought up (from my insurance days) a couple of “rider” provisions ($250-$500 a month) which would add/save the customer this or that “service” if they agree to “X” number of years of such an agreement.

As for the project dollar value, that was in reference to the type of contracts which seem to be available for “any” industry on the market.

1.  Full-coverage,
2.  Full-labor,
3.  Preventive-maintenance,
4.  and Inspection contracts

A full-coverage service contract provides 100% coverage of labor, parts, and materials as well as emergency service.

A full-labor service contract covers 100% of the labor to repair, replace, and maintain most mechanical equipment. The owner is required to purchase all equipment and parts.

The preventive-maintenance (PM) contract is generally purchased for a fixed fee and includes a number of scheduled and rigorous activities.

An inspection contract, also known in the industry as a “fly-by” contract, is purchased by the owner for a fixed annual fee and includes a fixed number of periodic inspections.

So again, the dollar value was to support a Full-coverage contract…which would be dependant on me, the dealer, since it would imply me taking on the FULL responsibility of the projects service, maintenance and equipment replacement over a period of years with or without warranties. Thus I would be completely responsible for the equipment, ergo my question about equations to properly quote such a comprehensive contract. 
However, it does look like we’ll be going a combo of contract type #2 - #3 after further meetings with the client. Still it would be nice to know the mechanics of such a beast.

Steve – I looked at all those links, which I appreciate you giving me, yet even after searching for “contract” and “service contract” I did not come up with any hard documentation on “how it’s done”, formulas, etc. The importance to this is if a dealer does not think things through and properly cover themselves (and their client) in a realistically fiduciary manner, they could conceivably sink the ship…especially with a full coverage contract. There should be something out there which lets us plug in replacement costs of equipment, warranties of the same equipment, our labor rates (and costs) for various days of the week and holidays, etc., and come up with various types of contract scenarios; plain English, unilateral or bilateral.

Octavio – I got very interested when I saw the link and it took me to “Labor Estimation”. However, it didn’t work. I downloaded it, virus checked it, and tried every file within the various directories which were in the downloaded compressed file. Nada; nothing. What am I doing wrong? Thanks so much!
My email address is .(JavaScript must be enabled to view this email address). So no beer yet… smile

Thanks to all of you for your support in this. There seriously needs to be some type of spread sheet which allows us to plug in our figures, so to speak, and have estimates for various types of service contracts come up. I think you might actually have a hush mouthed issue with dealers who have not tried working with service contracts as they either:

A.  Don’t know where to begin to look for information on the matter
B.  Are not computer savvy (even in our industry you’d be surprised)
C.  Are too embarrassed to mention/ask for it
D.  Are simply afraid of screwing it up and paying the ultimate price

I do know how to search and data mine…but information on the topic, the real nuts and bolts of it, is almost non-existent.

There is A LOT of MONEY on the table here. We have lost a lot of dealers these last few years. I was dumbfounded at how small our last (and literally last from what I hear) EHX was like. Dealers really do need to be asking this each and every time the sell “anything”.

Bu they need to do it right, with all the proper plain English legalize and the right figures, or they’ve done it wrong.

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Timothy J. O’Connor
President
HomeTech ::  Your Technologies Solutions Resource Company
Electronic Systems Architecture & Integration
30 Years in IT * 20 years in Automation * 12 years in AV
V: 863-496-1611| W: http://ihometech.net

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Posted: 10 April 2012 02:17 PM   [ Ignore ]   [ # 7 ]
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OK
The first file has a xlsx. extension.
Now, I save the file as Excel 2003 compatible (.xls)

This is the NEW link
http://www.mediafire.com/?r6ayjdmlx14mk1m

Try to fill first only the gray cells.
The file is not protected, you can change some formulas or values.
You must use it and change it as you think to be right.
I really hope it helps you.

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Octavio Rodriguez G

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Posted: 17 April 2012 10:08 PM   [ Ignore ]   [ # 8 ]
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Hi, I’m writing an article on this topic for an Australian mag (Connected Home) & have found very few companies here with much experience with Service Contracts and so would be keen to maybe chat to someone from the US about the issue, especially if they have been doing it for a while. My email is .(JavaScript must be enabled to view this email address). Thanks, Steve Freeth.

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Posted: 10 May 2012 01:05 PM   [ Ignore ]   [ # 9 ]
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Hi Guys,

We’re a little late to the party but I wanted to offer up two resources.  The first are some service contract templates which ihiji provides for free to dealers as an example of how to get started.  If you’re interested please email us at info at ihiji dot com.  We’ll happy send it over for free.  Our remote monitoring and support solution not only reduces operating expenses but is also a great value add to a service contract.  That being said, the resources we provide do not include much information on remote monitoring - they’re really just to help you be successful service contracts. 

We also re-sell a legal tempalte for service contracts, which can save you a lot of money if you compare it to the fees you’d have to pay to develop from scratch.  This isn’t a profit center for us but we spent several thousand developing and just subsidize by re-selling for a couple hundred dollars.  Lastly, we provide a service contract webinar on a quarterly basis but have also recored it and can send it to anyone who is interested.  Again, just email info at ihiji dot com and we’ll send the link and password.

Finally, I highly recommend CEDIA’s service contract courses.  They are offered several times each year at regional locations - one is coming up in CA at the end of this month during the Tech Summit West (http://www.techsummitwest.com).  There are also two offered at CEDIA Expo this year!  This is a great opportunity to learn and share with your peers.

I hope this helps you out some!

~Mr. ihiji

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Posted: 27 October 2012 07:20 AM   [ Ignore ]   [ # 10 ]
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Does anyone have some boilerplate stuff on this to start?

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.(JavaScript must be enabled to view this email address)
Apple Communication
P.O. Box 15765
Jersey City, NJ 07305
Phone: (201) 500-LINK (5465)
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Posted: 27 October 2012 07:21 AM   [ Ignore ]   [ # 11 ]
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Does anyone have some boilerplate stuff on this?

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.(JavaScript must be enabled to view this email address)
Apple Communication
P.O. Box 15765
Jersey City, NJ 07305
Phone: (201) 500-LINK (5465)
http://www.apple-link.com

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