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Don't Let Sales Outweigh Service - Managing Service Pricing

15 May, 2002 By: Ronelle Ingram imageSource

Don't Let Sales Outweigh Service - Managing Service Pricing

do you draw the line? Your voice-mail message starts out, “It’s a very
competitive situation right now. The IKON and Danka dealer is offering similar
equipment below my transfer cost. The delivery requires two flights of stairs,
and we would need to return their current piece of leased equipment back to the
Midwest. Can you work with me on the service agreement pricing?”


have heard it all before. The rep tells me, “There is no money in the deal on
the equipment side.” After looking at the service and supply rates being
quoted, I instantly realize there will be no money for service and supplies over
the next 60-months either. My original thought about this kind of voice mail
pleading was, “If everybody is losing money, this is not a viable deal. Why
should I agree to lose money in service, because the sales rep is choosing to be
the lowest bidder, rather than the best sales (solution) rep?”


hope that I have matured a bit since thinking that way. It is tough out there.
Selling copiers, printers, scanners, multifunctionals, or solutions is not an
easy task. As a service manager, one of my responsibilities is to make sure the
company generates enough business to keep all of my techs employed. Digital
equipment is working so well at the moment; it is putting the longevity of some
technical positions in jeopardy. My focus for 2002 is to create more work
opportunities for service to receive payment at a lower overall cost. Otherwise,
my job will soon be firing techs (their only fault is doing the job well),
because there is not enough work to go around.


I focus on the care taking of my techs, I realize I must help the sales rep.
When there is money to go around, I want service to receive their fair share.
However, when the deal is truly skinny, I must do whatever I can to help my



came up with a compromise; it is called the Discrepancy Form. If a sales rep
needs to sell a MA (Maintenance Agreement) or CPC (Cost Per Copy including all
service and supplies) below the company’s listed rate, they must receive
pre-approval. This approval can initially be verbal. When the final paper work
(lease or sales documentation) is turned in, the written terms of the servicing
compromise must have a manager’s signature of approval.


It Works

Service Discrepancy Form is a structured document that requires the rep to do a
little extra work. The form must be filled out with the customer’s name and
address, as well as the equipment that is being sold or leased. Then, the sales
rep must write down the total gross profit on the sales side of the deal, the
specific type of service agreement requested, the listed transfer price of the
requested service agreement, the number of copies being purchased, and the
billing terms (monthly, quarterly, yearly). Next, the requested service pricing
needs to be filled in with the amount of the total first year monetary loss
(price difference) and a justification for the difference in the pricing.


Takes Some Getting Used To

first, when I started using this form, sales reps feigned a need to lower the
service rate, while thousands of dollars of commission and lease bonus points
were being made on the sale; this repulsed me. Commissioned sales people were
hard pressed to explain the need for compromising the service rate on a CPC,
while the bottom line was thousands of dollars in the green. I had a few
enterprising sales reps explain to me, “The Company is making so much money on
the hardware, that service and supplies can be given for free.”


concept of the service department’s profit and loss never entered into the
sales reps equation. On the other hand, I could rationalize part of what the
sales reps were trying to say as being true. The only problem is that, the
industry benchmarking of cost and profit allocations, reflects how the service
department generates the lion share of the company’s profits. The going rate
of the profit margin required by the service department is 20 to 40%.
Additionally, most company’s controllers and owner(s) expect the service
department to provide a higher margin of profit than is required by other



Is A Respectable Service Manager To Do?
No matter what the size of your
company or the products you sell, your dealership requires a steady cash flow to
grease the wheels of commerce. Even bad deals are sometimes necessary to keep
the business flowing. Your goal should be to understand your cost and make sure
there is parity. Webster’s Dictionary defines parity as: “equality; equal
status or pay.” This word is more often used in the political word. Tit for
tat, quid pro quo, give and take. Parity is a principle of equality and


Discrepancy Form is a diplomatic way to establish parity.
For example the situational,
I know, that you know, that I know.
If the deal truly is skinny, we will
tighten our belts together. If there is money in the deal, it will be shared
according to the pre-established rules of the sale (equipment price list,
standard service rates). If there is still money in the deal, the sales rep has
earned additional commission.


days when sales made plenty of money and service did not make anything, are
gone. We share the good deals and the bad. Parity is being accomplished. My
secondary goal, with the Discrepancy Form, is to limit the reduced service
pricing to the first year only. A well-managed service department can survive
providing the first year’s service at a reduced price, because that still
allows additional increases of the service (and supply) cost. Many think
“additional” is tantamount to yearly. Why must increases be only allotted
once a year? 



the olden days, service agreements were paid on a yearly basis, up front. A
yearly increase made good business sense. Pay once a year; have your price
reviewed once a year. Now that most customers insist on monthly or quarterly
billing, why do dealers stay with the once a year review?



of our vendors, including the manufacturer we represent, have no aversion to
(seemingly) random price increases. The cost of parts, supplies and equipment,
often is increased more than once a year. Sometimes we must loosen up our
mindset. When a customer forces us to lower a price below our actual cost of
business, something must be taken away. or your
business will go away.


agreeing to sell service and supplies below our lowest listed transfer price, I
require a maximum of first year only pricing. If a customer insists on a
multiple year guarantee of a set price, the sales rep is charged back for the
average yearly increase that will be lost.


of the Service Agreement Discrepancy Forms helps to keep sales and service at
parity.  In turn, the company gains
flexibility without animosity. The sales rep will think twice before low-balling
the cost of the service agreement. Service Management can help the sale rep
achieve additional sales by lending a helping hand. Together, the sales and
service department, work toward additional revenue for both departments. Parity
has been achieved.

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