I'm writing this article on the way home from speaking at a conference of IT professionals who are trying to figure out how to sell service contracts (something technology companies call "managed services").

Instead of offering to be your IT guy when you have a problem, the Managed Service Provider (MSP) offers a standard set of technology services that most companies need. For example, an MSP might offer to proactively manage your computer network, install new software when updates become available, and check for viruses.

The difficulty for many MSPs is persuading customers who have had the luxury of calling only when they had a problem to commit to an ongoing relationship focused on a standard set of services. But for businesses who do commit long-term to their service provider, there are a number of hidden benefits. In my last company, we made the switch from generic service provider to offering standardized service contracts. Our customer base included more than 100 of the Fortune 500, so we got the hang of making the case to our customers that a standard service contract was better for them than hiring us on a "one-off" basis. Here are five reasons why a standardized service contract will make your business better:

1. Specialists Are Better Than Generalists

Would you ask your family doctor to remove your gallbladder?

When you standardize around a predictable set of services, the service provider gets very good at delivering those services. Unlike a traditional service model where the provider develops a custom solution for each client or offers a broad array of services, standardized service means the provider's employees repeat the same process many times. And with that repetition comes increased competence.

2. Faster Service

Offering a standard set of services on contract means customers get served faster.

There's a world famous hamburger stand called Webber's on the way to the cottage country two hours north of Toronto. For my money, Webber's makes the best burgers in the world. They've shunned the current trend towards exotic toppings on your burger in favor of sticking with a standard set of basics. You can't pollute your burger with kale leaves, alfalfa sprouts or chipotle mayonnaise. At Webber's, they offer just ketchup, mustard and relish. That's it.

Do some customers want sprouts? Sure, but offering a litany of toppings would slow the service down to a point where hungry drivers would stop elsewhere. True Webber fans get amazingly fast service.

3. Shorter Turnaround Time

Not only will customers get to see a service provider faster when that service provider specializes in just a couple of services; they will also get their issue fixed faster.

At Southwest Airlines, they only buy 737s. That means the repair crews are trained to service only 737s. The technicians always carry replacement parts, and they turn planes around faster than any other airline.

4. Economies of Scale

Not only does Southwest turn their 737s around quickly; as one of Boeing's largest customers, they also get a good deal on the hardware. Service providers often need to buy the raw materials that go into providing the service you buy from them. The more the service provider can specialize and standardize their service, the better the pricing they get and the more savings they can pass on to you.

5. Fixed, Before It Breaks

When there's an ongoing relationship, a service provider start to know what you need--even before you do. That will go a long way toward fixing problems before they start.

Mosquito Squad, which helps homeowners eradicate mosquitoes, is a good example. The problem with mosquitoes is that they are much harder to deal with once their eggs hatch. The trick to dealing with mosquitoes is to spray before their eggs hatch. That's why most of Mosquito Squad's business is set up around a standard, yearlong contract they enter into with a homeowner. The value proposition is simple: We know you want a bug-free backyard so commit to an ongoing relationship and we'll spray proactively so the mosquitoes never become a problem in the first place.

 

Published on: Sep 12, 2014
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