When the final camera, intrusion detection, or integrated solution is installed and the security system is commissioned, what comes next? Do you simply collect your final payment and move on to the next project?
No. There has to be more. Today, unless you are installing a massive enterprise solution and multiple location system, your profit margins are noticeably slimmer from the specification of hardware alone. This conundrum has affected nearly every contracting sector: design/build specifications aren’t bringing in returns companies need to stay healthy and establish streams of predictable cash flow, often referred to as recurring monthly revenue (RMR). That’s where services come in.
Not only should electrical contractors with low-voltage and security divisions develop and provide service and maintenance contracts for their customers, but they also need to adopt new digital technologies that deliver network intelligence, customer data, and business and operational information.
The shift to services is cultural and philosophical within the company, necessitating the buy-in of everyone from upper management to administration. It also takes into account sales strategies, deployment tactics, pricing and contracts. ECs who can succeed in adopting this mindset and operational charge to lead with service will find it a critical differentiator in an often-crowded contracting space. Finally, customers are willing to pay more for good service and stay with these companies, a concept called “stickiness.”
Mark Sokol, vice president of marketing for ConnectWise, Tampa, Fla., said that it is critical for security contractors to move to services in every aspect of their business, as opposed to simply trying to garner revenue from projects and hardware. Designed for companies that sell, service and support technology, ConnectWise offers a software platform that fully integrates business-process automation, help desk, customer service, sales, marketing, project management and business analytics to streamline a company’s operations.
Sokol said service revenue produces more predictable cash flow.
“When business is good and the economy is growing, it’s easy to get the big projects,” he said. “During the last recession about six years ago, contractors who followed a project model for revenue alone found those jobs dried up. Many had to pare down the company, and some went out of business. The ones who survived not only had diversified customers in different markets, but focused on service. If you focus on a couple different industries and services, you will have a viable business.”
In addition, Sokol said that companies with service contracts not only had a higher level of cash flow predictability but were building more value in the company, which is especially important when it’s time to sell or hand down the business to family members.
“Companies have little additional value if they simply move from job to job and customer to customer,” he said.
Varied approaches and tactics
There are many ways to add services, including providing warranties and monthly or quarterly maintenance agreements, sometimes referred to as proactive service or customer care plans. Sokol said it’s also important for contractors to diversify their services portfolio, perhaps extending into areas that make sense, such as information technology, networking, voice over Internet protocol (VoIP) phone systems or other technologies that are becoming increasingly integrated with security solutions.
“Those companies who can add services or partner with others to do so are the ones who are more successful,” he said. “Their customers are stickier, and it’s harder for the customer to pick and go elsewhere. It’s a good idea for contractors to sit in with customers at some point to get an understanding of their daily challenges and pain points. When you do that, you often find a natural alignment with the services you currently offer, or you may get a sense of new services you might be able to offer or diversify into.”
ConnectWise offers a variety of support materials in its online resource center, including the e-book, “The Ultimate Guide to an as-a-Service Business,” as well as videos and information on sales compensation and sales strategies. One area Sokol said many contractors have difficulty with is compensating sales personnel for service contracts. Those guidelines have to be established early in the process, whether it’s a percentage of the contract or a one-time additional payment based on the additional RMR.
“It does take a certain type of person to sell services,” he said. “It’s all about their personality. You have to know how to look for the kinds of people who can ferret out opportunity.”
Proactive, remote monitoring
One specific area seeing a flurry of activity is remote monitoring of customer’s systems and IT networks. In addition, there is a heightened sense of a need for cybersecurity for networking, including blocking hacking attempts and averting malicious takeovers. With new hardware and technology, contractors can offer services that proactively monitor their customer’s power solutions or networks in the home or office, providing a predictive assessment of sophisticated equipment and components. Such remote monitoring is possible through laptops, tablets and smartphones, often eliminating a site visit.
“There’s a definite shift to services in the contracting world,” said Michael Maniscalco, vice president of product, Ihiji, Austin, Texas. “Electrical contractors with low-voltage and security divisions can now earn additional revenue from remote services conducted from their offices or even the technician’s mobile device, avoiding a costly truck roll in many instances to reboot devices and provide proactive services.”
Industry estimates put a truck roll at about $250 per service call, and that rate can vary depending on geographic areas and loaded labor rates, which include all of the costs of having a technician (e.g., healthcare). Ihiji products offer remote management of Internet protocol-enabled devices.
Maniscalco said the service approach keeps the customer closer to the contractor and allows them to efficiently manage their customer’s networks, potentially eliminating up to 90 percent of service calls while increasing RMR and boosting profits.
“Creating a strong contracting business is all about offering value-added services,” he said. “The customer appreciates these types of services because they offer better system reliability and uptime.”
Services also help companies differentiate themselves in a crowded space. Customers will be more inclined to pay for effective service and stay with the EC if the service is superior.
“That’s just the beginning of the value-add proposition,” Maniscalco said. “Contractors can add service and maintenance agreements with a higher price tag and boost their profitability.”
Maniscalco offered the following suggestions:
- Define best practices for the process and sales incentives/compensation. Ensure this is a companywide objective, and bring technicians in on the plan with monetary incentives and referrals. Let service installers get a piece of the action, offering a reward if they provide referrals that end in a signed maintenance and service agreement.
- Offer service plans with every customer contract and project specification. Provide details on what’s covered, what’s not and the prices the customer will receive if they decide not to select service contracts. The monthly pricing of the agreements will vary, depending on the market and other factors.
- Continue to add value and provide reports and other documentation on what systems were monitored or services provided even if no action was necessary or taken. Visit with the customer at least quarterly, not necessarily to sell but to stay front and center. Offer software updates for security cameras or video management systems as well as extended warranties or product discounts in the plans.
- Understand that moving to services doesn’t happen overnight and without an investment. Contractors may need to replace and install new equipment or a more robust network infrastructure to capitalize on remote monitoring and connected devices. Staff will need training and ongoing assessment. It’s a work in progress, but the result will be additional revenue and profitability.
Product warranty programs
Rusty Bryan, founder and chief executive officer of DWC, Alpharetta, Ga., said that future viability for contractors is in service models, including product warranty programs. DWC began its hardware warranty program in 1992, backed by sales training, marketing support and total hardware system protection.
Bryan is focused on recurring monthly revenue and believes the DWC Bronze Warranty program helps contractors and their customers move from the reactive, break-fix, and time and material service to a proactive program that takes the worries of hardware failures away from users.
“Anyone can sell hardware, but there needs to be intrinsic value for the user and the solutions provider,” he said. “The reason security contractors sell solutions is to gain a customer for future business. The initial transaction has a low margin and if the customer does not see the value in the offering, the customer is at large for another contractor to pick them up for future service calls. All service providers want their customers to be loyal to them and service/support programs provide the method to demonstrate the loyalty. A product warranty is a huge benefit. Even if the customers do not choose the contractor’s service/support offering, the warranty provides a five-year sticky factor with their customers.”
Product-warranty programs provide value the customer understands.
“When the contractor elects to provide a unified 60-month hardware warranty regardless of the manufacturer’s warranty, which range from 90 days to lifetime, the customer understands the benefits,” Bryan said. “Simply, the customer has 60 months of hardware coverage and knows they will not have unexpected repair cost during that time. It is a strategic decision the contractor makes for his company and the well-being of his customers. Building loyalty leads to building RMR.”
Providing tangible services to customers is a differentiator that helps maintain customers for life, while boosting the profitability of the company in the process.