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Financially balance your service business


For me, a service business is made up of obsequious hoop jumpers on one side (service) and a contract based annuity stream (maintenance) on the other side. While many may agree, the act of building a strong annuity-based business is not a walk in the park. Imagine selling something every day that was completely intangible. Add to that a layer that in many cases your end-user has no idea whether you have performed the service or not. Yet as many studies have shown performing preventative maintenance on equipment is well worth the investment in the long run if your objective is to preserve the value of your assets. Years ago on one of my first trips to the Middle East I clearly remember having this discussion with our local representatives. They looked at me in pure bewilderment as they had no idea what I was even talking about because at that time when a building got 5 to 7 years old they would simply tip it over and build it again with all new equipment. What is the value of maintenance if the asset is not going to survive for multiple years?



You can take that to the bank. Building an annuity-based service business is a direction that can only yield positive benefits. Like many things it is a balancing act. Depending upon your financial situation odds are you will need to maintain a revenue target for the short term and long-term and continuously dedicate yourself to building a strong financial foundation (contract based annuity business). Project work is always good to bring in revenue; however, can be a very slippery slope as when not managed properly can end up being high revenue and single digit margins.  So a healthy service business, from a financial perspective, is really a good mix of all project, service, and contract based maintenance. If you agree than consider these directives and look at your own businesses;

  1. each project sold should have a maintenance contract tied to the project
  2. every service call made should be looking for opportunities to sell and promote maintenance
  3. all maintenance visits should be looking for opportunities to pull through additional service (unless full responsibility contracts) and project work.

A service organization which embraces this "financially balanced" way of thinking and propagates this logic through the ranks, field, office, sales will be successful.  The trick is to take the time to step "out of the business" and assess the level of balance within your operation.



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Next post:  how can I differentiate myself?

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