How to Set Up and Profit From Maintenance Agreements
In an eye-opening NAMM U session at 2015 Summer NAMM, Robert Christie of A & G Central Music revealed the many benefits of offering maintenance agreements. He covered the nuts and bolts, from putting together a maintenance agreement to possible pitfalls.
Christie shared the obvious financial advantage of offering maintenance agreements—and added that having a deep pool of agreements maximizes the opportunity. “The more you sell, the better position you’ll be in,” he said. Christie also pointed out that the real power of the maintenance agreement lies in having satisfied customers. “By utilizing your maintenance agreements properly, you can build some very loyal customers.”
Ask yourself two questions:
1. Are our salespeople ready to promote our services with the products we offer? Your salespeople need to be trained and fully on-board to offer the maintenance agreement as an add-on sale to the product.
2. Do we have service-selling know-how in non-dedicated staff? Non-salespeople, including teachers, repair staff and anyone who interacts with customers, need to be trained and recognize the opportunity in getting the customer to the right person in your store for a maintenance-agreement sale.
Never Miss an Opportunity
• Conversion of every rental. If you’re in the rental business and have a path to ownership (rent-to-own, lease-to-buy or step-up program), consider having customers buy a maintenance agreement with their rental.
• New instrument purchase. It can be off-putting on new purchases to ask for more money and a commitment at the time of the sale. Christie shared how his store puts a twist on this, offering a 30-day check-up at no charge. He prepares customers for a break-in period and gets them to bring their instruments back to the store in 30 days, so customers can get their instruments in peak-playing condition with fine-tuning. This brings the customer back at least one more time and creates a more relaxed environment to sell the maintenance agreement. According to Christie, it’s the perfect opportunity to hand customers a zeroed-out invoice, let them know how much the service would normally cost and explain how they can protect themselves from expensive repairs in the future with the purchase of a maintenance agreement.
• Return of a repair. This is a good time to talk about the cost of repairs and how to prevent expensive bills in the future.
• Institutional customers. Government, church and school customers present an opportunity to bundle repair contracts and sell them.
Putting an Agreement Together
Christie stressed keeping a maintenance agreement simple and easy to understand. Ultimately, the customer needs to see the advantage in the maintenance agreement.
In the agreement, include necessary repairs and adjustments, unlimited repair visits, damage restored to playing condition, replacement parts, and minor case repair. (You determine if an instrument is beyond repair. You need to be the sole arbiter. Set the customer’s expectation. You’re not offering insurance.)
Don’t include replacement of accessories, finish restoration, damage from unskilled people attempting repair, malicious damage, instrument replacement and refunds.
The details and fine print:
Find the price. The price that you choose to charge for your maintenance agreement is based on your business. Figure out what it costs to operate your repair department.
Find the term. See what works for you. A 12-month agreement with annual renewal is often the sweet spot for customers and businesses.
The renewal. Christie’s salespeople call customers before the maintenance agreement expires and ask for the renewal. You can have an auto-renewal, too, so the customer doesn’t have to think about it.
Serial-numbered instruments only. You’re selling a maintenance agreement for one instrument only, so track this carefully to cover the right instrument.
Certify conditions before coverage begins. Include language that says you have to examine the instrument before you cover it under a maintenance agreement. Vintage instruments, the odd instrument and low-quality instruments that you aren’t parts-supported by the manufacturer are examples of what you may not be able to service in your shop. Tip: You may want to offer a separate agreement for vintage instruments.
Your maintenance agreement is evolving, so you can change it any time rather than just once a year.
Do’s and Don’ts
• Do ensure your service staff understands the maintenance agreement and its benefits.
• Don’t rush your service techs.
• Do take every opportunity to sell the maintenance agreement.
• Don’t spend money chasing new customers until you’ve sold the ones you already have.
• Do teach your staff to talk less and keep the sales pitch simple.
• Don’t spend pre-paid fees unwisely.
According to Christie, you need to change the way institutional customers think about the assets they own, despite the typical mindset that no funds are available. If you can do that, you can make a profitable maintenance agreement.
Institutional markets are often saturated, so a bulk maintenance agreement can help you take away market share. With an institutional bulk agreement that covers an entire pool of instruments, you get every repair, and it lets you build in price increases every year. More importantly, you’re positioned to recommend replacement sales. This is powerful, as many times institutions won’t go out for bids.
Christie suggested re-evaluating your decision-making chain if you’re working with a house of worship or school. Be relentless with your message to that audience, and build your coalition. Talk about the dollar value that they have invested in that asset and how they can maximize the service life of their asset pool. As you pitch, beware of specialized requirements. If an agreement requires being on call 24 hours, be prepared to walk away if you recognize that your costs won’t cover this requirement. Tip: Ensure that your back office is prepared and billing is in line with this type of specialized agreement.