Service Contracts That Make Sense

For years, this publication, its founder and many others have been all but begging companies to get into the service business. The days of selling boxes and making margins that can support a business have been over for years. Every now and again you will hear of firms that have managed to make this switch and are now reaping the rewards. I still believe that too many firms are stuck in the design, sell and install cycle.

Recently, however, I received an email about a company who has developed a very interesting service model that will benefit them and many other integration firms. Herman Integration Services has launched a new product they call The Flex Plan and The Prime Plan. The goal of the plans is to help integrators purchase service hours and use them as they are needed. I reached out to the company to find some details about the products and much of what is described here comes directly from the company.

Customers, who at the moment are only integrators (they don’t deal directly with end users or educational institutions), purchase a block of hours. According to Herman, the hours are yours to use as you wish for break/fix, preventative maintenance or on-site meeting support. The annual purchase allows you to use these hours in any way you see fit. It can be a break/fix situation, install need or to do preventative maintenance.

Some significant benefits of the plan are that they guarantee a 24-hour response time, and a 48-hour onsite presence if required. Additionally, you have the ability to purchase these hours up front and don’t need to worry about separate purchase orders or more spending. Herman provides you with quarterly statements with reports on service calls completed and number of hours left on the plan. You can use this to be sure you are making an adequate margin on the re-selling of the services.

Cost of the plans are as follow:

  • Purchase Flex 100 hours — $105/hour
  • Purchase Flex 250 hours — $95/hour
  • Purchase Flex 500 hours — $85/hour

A second plan, the Prime Plan, is based on room type. With this plan they offer 48-hour on-site service, twice annual health checks and unlimited break/fix calls. The cost of this plan is dependent on the room type and the equipment in that room. There are discounts if you sign up for more than a single room.

I believe these plans are tremendously exciting for the mid- to small-size integrators. They allow you to offer services as though you are a much larger company. For example, for a company to be able to offer a service contract to Bates College, they would need to take on additional staff in order to meet our required service level agreements.

However, if they purchase 100 hours from Herman (or another company offering a similar service) they can provide these services, at an expense to them much cheaper than a full time employee. Additionally, with the response times that Herman offers, the local firm has more flexibility than they would with a full-time employee. On Herman’s website, they have a map of the United States that shows where they have various technicians available, either locally or via driving distance. It appears they have pretty decent coverage around the country.

This time of year, such a program hits those of us in education as a particularly great idea. As we scramble to get rooms finished, service all existing classrooms and show new users how to use the system, we start to think about how to get some extra help in place. Of course, the local integrators’ schedules are also packed full. They can’t provide a technician within a couple days notice. The ability to call my local integrator and get someone on campus in two days would be worth the cost. All the integrator has to do is essentially duplicate the contract they have with Herman with me, at a markup. I think many tech managers would happily sign a contract for 10 to 20 hours at a cost of $200 per hour. From the integrator’s perspective, this seems to be a pretty simple way to fill the till.

The only challenge I envision for integrators is the potential of companies like Herman offering this service directly to end users. I don’t see it happening it immediately, because that would be a lot of relationships for Herman to manage. Additionally, I do think many educational institutions would have a hard time signing up for the 100-500 hours that Herman offers now. But soon Herman may find they could be pocketing the 10-20+ percent that the integrators are adding on to the base charges. The best way for integrators to combat that is to continue to develop your relationships with your customers. This service should be ONE of MANY that you offer to them, so they continue to see the value in working directly with you.