Ambition Mission

Here in NJ, the slogan goes… “NJ and you, perfect together.” 

While I can practially hear the snickers through the Internet (especially from you folks out West), hopefully one we can all agree upon is the title of this post:  “Projects & Service Contracts - Perfect together!”

Service contracts = recurring revenue.  Projects are (by their nature) transactional sales.  BUT, if we can somehow marry a project sale with a service contract, then Projects (can) equal recurring revenue. 

Here’s how to do just that:

First, understand that the project is what the customer has a perceived need for almost in all cases.  Rarely does a customer complain that they need a monthly IT service contract.  They do, however usually agree with and understand the need for a new server, new equipment, or even new software - it’s easier for a customer to grasp.

 Thus, it is necessary to do a good job demonstrating value for & selling the project.  REALLY addressing the customer’s needs (both perceived and otherwise) as it relates to the PROJECT, will lay the groundwork for the service contract sale.

The problem:

Most IT providers see the project and service contract as two separate sales.  Furthermore, if the IT provider is seeking recurring revenue, the focus is therefore shifted from wanting to make project sales to wanting to make service contract sales.  (the opposite of what the customer thinks they need).

The solution:

Marry the two sales.  Act as if the project is a student sky-diver tethered to an instructor.  Regardless of how much the project may feel the most important, the instructor is in charge.  The service contract (and recurring revenue that goes with it) is always there - an integral part of the sale.  To remove it will… well only the instructor has a parachute. 

Even if not asked for directly, every project proposal should be accompanied by a service contract proposal.  Remember that the real SOLUTION to the customer’s pain is NOT Small Business Server, a new firewall, or even a great line of business software application.  The real solution is YOUR SUPPORT OFFERING!  Would the customer be in the situation they’re in now if they were already on your support offering?  No.  Would they be able to focus upon their business and its growth and sustenance if they were not on your support?  Likely not.  Your offering is the solution.  Presenting your support offering with every project proposal is as critical as having a parachute when skydiving - it simply doesn’t make sense without it!

This is why I advocate a very thorough proposal for the project.  Since that is the part the customer wants to hear about, I would spend the majority of the time presenting the details, options, and scheduling of the project.  All the while demonstrating through “picture painting” and “seed planting” that the company is thorough, has attention to detail, has considered the business’ needs and recommended an APPROPRIATE solution.  These emotional qualities will then be translated by the customer to the support offering and make it an easier sale.

The last critical tethering is that of a discount.  The desired outcome (best for the customer & best for the IT company) is for the customer to go ahead with BOTH the project and the support contract.  So the “carrot” needs to be placed to incentivize that outcome.  This is done, most easily by presenting a built in discount if the customer says yes to the project and yes to try out the support contract. 

The way I used to do this (with greater than 95% success) is to offer the project with two prices A) T&M estimate and B) reduced, fixed price.  The “A” price was really an inflated premium price I would charge the customer because a customer that only wants a project took us outside of our desired business model and therefore had to be charged a premium.  The “B” price was the price I really wanted to charge to be profitable on the project.  The difference between “A” and “B” was usually NO GREATER than one quarter of the support contract.  I then presented this difference as a discount the customer would receive if they “went ahead and gave our support a try.”  The result:  Most customers felt silly to NOT try out the support and of course not one ever cancelled after a quarter, because the customer realizes by then how integral our service was to his business and has trouble contemplating how his business survived without our service for this long. 

 Happy Hunting!

~Matt

This entry was posted on Thursday, October 30th, 2008 at 11:55 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.