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Why Services Need to be Part of Your Business

A collection of hot air balloons taking off, meant as a representing services business that takes flight

Why should Services revenue be part of your business? For many companies, the margins on their product business have continued to decline over the last 10 years.  This has been driven by increased competition, more VAR’s selling a particular manufacturer’s product and more quality product choices available from other manufacturers.  The distributors are being asked to sell at lower margins of ½ to 1% and even sometimes at or below cost to win the VAR’s business, particularly on large orders.  The VAR’s are being squeezed by the end customers for lower margins or they take their business to another VAR.

So how do I retain my current and new customers and increase my profit margins?  One answer is to add services to your portfolio mix.  The addition of services can help your business in the following ways.Increase the profitability of the solution you are selling.  Profit margins on services can range from 10% to 45% on average.  Your profit margin is dependent on the complexity of the service you are offering, the skills required to provide the service, and the availability of competitors to provide the same service.   A customer would rather do business with one partner for their project rather than contract with multiple providers for a solution.  The overall profitability of your solution increases if you can add services to the deal.

  Elevate your business above the commodity pool.  

Many products have become a commodity sale so the primary driver of the sale is price.  By adding services to your offering, you bring more value to the end customer.  While some of the low end services are becoming a commodity, high end service requires more skill and training as determined by the manufacturer.  Not all VAR’s have the staff or resources to deliver the high end services.  Nor can many VAR’s deliver services for the many manufacturers selling products to a specific market.  There are strict requirements imposed by the manufacturer that must be met in order to sell services with their products.  To be successful in selling services, you need to pick the products and markets where you want to add services and invest in those areas.  Adding services allows you to compete on a higher level and against larger competitors  

Services Adds Stickiness with your customer.  

If you can provide quality service with your product sales, your customer has no need to shop their projects around.  Build a good relationship with your customers, deliver what you promise, provide quality, timely service, and support what you sell.  This will create stickiness with your customer that will enable you to understand their business needs better and enable you to sell new products and services.

Leads to Increased Customer Satisfaction.  

The goal of most successful businesses is high customer satisfaction.  Satisfied customers come back and sometimes send new customers.  By offering more than just product, you increase the value of doing business with your company.  Keep in mind, that when you choose to offer service, it becomes an ongoing journey to deliver service excellence.  Your customer satisfaction is dependent on continuing to perform at a high level of service.   

Looking for more information on building service offers for your business? Contact us to set up a 30 minute phone call to assess your needs and current situation. 

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  1. Pingback: Building a Services Business Episode #12 - Tim Kubiak

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