Here’s last week’s blog in case you missed it. Today will be a continuation of the roadmap for sustainable service income growth (SSIG), and a deep dive into the first of the three core strategies to drive SSIG:
- Improve Contract Retention
- Increase Contract GP
- Grow New Contract Sales
Improve Contract Retention
This is all about your relationship with your customer, which is built through accountability and impact. These are the constituents of establishing trust, which will be the make-or-break factor when renewal time comes and external forces are applying pressure.
Earlier this week, I posed a question about losing renewals to over 40 of my colleagues in Service Ops leadership roles. Here are the results:
The results clearly indicate one painful fact about mechanical service: It’s often too invisible.
Even many of the comments related to “Other” votes were indicative of lack of visibility as the underlying issue.
Mark Pieper, Service Manager at Nasseff Mechanical Contractors, said,
New management company comes in and brings their people on to do the service.
We hear this one a lot at nClarity. One of our partners had a customer whose ownership/leadership changed, and the renewal came into jeopardy due to scrutiny on costs. No one "remembered" how well our partner maintained the equipment. Thankfully, they DID get the renewal plus $300k in RTU upgrades after installing nClarity.
Aaron Spencer, Senior Project Manager at U.S. Engineering, cut right to the heart of it:
Your customer sees little to no value in retaining your company as a contractor.
And Rick Yelley, Director of Operations at ABM Industries, dug into the visibility issue a little deeper:
Personally, I think the lack of tangibility and not delivering what was sold are the key factors to losing contracts. From a HVAC Maintenance standpoint it is very intangible, and the customer thinks everything is great if nothing breaks. We are starting to see a shift in that mindset and customers want to see more documentation and proof of, ‘What are they getting for what they are paying for?’…It's important if we go to the customer for a project, renewal of a contract or billable work that we have all the information ready to make their decisions really easy…
He highlights an important reality with customers today: They want data. Other disciplines that incorporate data into their delivery are well ahead of us. It’s time to bring, as Rick puts it, some “tangibility” to mechanical service delivery.
(P.S. Once again, thanks to everyone who chimed in this week! The goal here is to spark meaningful ideas that can potentially drive action in your organizations that result in growth. Looking forward to continuing the convo next week.)
Service visibility is certainly not the only thing that drives renewals. Here are the three factors:
- Improve Service Visibility
- Increase Uptime
- Drive Measurable Financial Impact
These strategies apply to both the “Full Service” Model (Contractor holds risk, covers failure cost, contract GP-focused) and what I call the “Best Effort” Model (Customer holds risk, generally secures the PM to get the add-on work).
Strategy 1: Improve Service Visibility
With a regular PM model (Full service OR Best Effort), the issue is the same: It’s often invisible.
In a Full Service Model, it’s possible to become a victim of your own success. You’re motivated to deliver stellar PMs and eliminate failures that could crush contract GP. When your customer can’t remember the last failure, they might start asking, “What exactly are we paying for here?”
In a Best Effort Model, the customer may start asking the same questions when renewal comes, but for the opposite reason. If/when they experience failures they may begin to question the value of your PMs.
Regardless of the model, customers need and demand data.
Incorporating Predictive Maintenance technology will make the previously invisible aspects of your service visible.
Identified energy waste that will save them money on their energy bills? Show them the data.
Improved the efficiency of their aging equipment over a year of quarterly PMs? Show them the data.
The nClarity RTU Scorecard exemplifies the idea of service visibility. This example is comparing the current state of the machine after 5 months of PMs. It shows improvement on some machines and demonstrates need for replacement on others.
- Bruce Fibbs, Senior Vice President of ABMFG
If you deliver your annual/Semiannual CARE report to the Client, your chance of retention grows exponentially.
In a full service scenario, a Predictive Maintenance Platform gives you the data to prove your impact on eliminating failures.
If a best effort scenario, a Predictive Maintenance Platform helps you not only prove the impact of your PMs, but also to quickly respond to emergency situations (often before the customer even picks up the phone) thanks to predictive analytics.
Your customer’s buying criteria will begin to be driven by the standards you’re setting, creating a competitive moat around your contract base. Don’t be surprised when at-risk contracts turn into eager renewals.
Strategy 2: Increase Uptime Assurance
In environments where uptime is critical and you’ve got a full service contract, one failure can cause a “lack of trust, or broken relationship,” as Roger Friedli, Solutions Consultant at Harris, put it when responding to the poll.
In a best effort model, failures can be the source of additional revenue opportunities. However, contractors have to balance this against a customer’s perceived value of their services and may become skeptical of proposed future upgrades.
During your scheduled PM, catching upstream issues can be a bit like finding a needle in a haystack. The key to preventing costly disruptions for your client while maximizing your labor efficiency is remote access to real-time RTU data. This is what a Predictive Maintenance Platform is all about - Predicting potential sources of failure through remote diagnosis, before dispatch.
The nCarity Dispatcher Dashboard gives a birds eye view of every building and alerts of potential sources of failure. Issues can be prioritized and teams can dispatch intelligently.
A skilled technician can use this software to monitor equipment across multiple branches/markets. By using historical data and analytics to find anomalies, they can find early signs of degradation.
No onsite guesswork required.
This remote service work is called Virtual Services, which we’ll talk about next week. They’re the most high-leverage activity a service team can perform.
Strategy 3: Drive Measurable Financial Impact
Whether you operate under the full service or the best effort paradigm, generating a measurable ROI for your customer will make them eager to renew.
The key here is measurable, though. This harkens back to service visibility.
First, let’s focus on the largest controllable operating cost in a commercial building:
The largest consumer of energy in the building is the HVAC equipment, specifically RTUs or packaged units. They cool 70% of commercial space in North America.
They also happen to be the biggest waster of energy.
The vast majority of buildings (87%) are over-ventilated with constantly running fans and poorly managed economizers. This puts you in a position to meet an unmet need.
With a Predictive Maintenance Platform, energy waste can be easily identified in high-resolution historical data (hundreds of thousands of points per year) in comparison to the single data point a tech gets onsite.
Data collection also makes cost reductions measurable.
Be sure to check out this nClarity case study on cost reductions, where a partner of ours drove $40,000 in annual energy savings for their customer.
kW usage from an RTU that was being monitored by nClarity Pulse. Data revealed excessive ventilation (Kw Before), drawing 13kW. Correction of the issue across all RTUs (kW After) resulted in $40,000 of savings.
With a Predictive Maintenance Platform, measurable financial impact only starts at energy.
That same high-resolution historical data helps you optimize your customer’s building assets, extend aging equipment life, and work with your customer to build an asset management plan.
To summarize, the three key parts of improving contract retention are:
- Improve Service Visibility: Use data to show your impact and accountability.
- Increase Uptime Assurance: Address problems early, before they become disruptive.
- Drive Measurable Financial Impact: Improve your customer’s budget integrity.
Don’t Forget About Labor
As your contract retention rates increase and your churn goes down, you’ll find it much easier to grow your contract base, and therefore, drive SSIG.
Here’s an important caveat, though: Without a Predictive Maintenance Platform, improving your contract retention gets expensive. You could focus on hiring more techs to better manage risk, etc. but at a dramatic increase in labor cost.
Service Ops efficiency is where the money is at.
This is the underpinning to success in achieving SSIG. Without it, you won’t be able to effectively retain your contracts without draining your labor capacity.
That concludes the deep dive on improving contract retention, which is one third of the SSIG pie. Next week we’ll be discussing the second of three core strategies: Increasing Contract GP.