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Warranties, Extended Warranties and Maintenance Agreements

technician-at-work-1113Extended warranties are commonplace with CE and computer retailers, as well as in the IT industry. However, they are less prevalent in the AV integration channel.

That’s changed somewhat over time: Back in the day it was something often suggested in CEDIA courses I attended, but ten years ago the practice of AV company maintenance agreements were more noted in their breach then in their observance.

Today more AV companies do offer either extended warranties or maintenance agreements to their clients, but compared to the prevalence of extended warranties in the retail channel, they’re still in the minority. Of those AV dealers that do, how they implement them can vary wildly. I’ve known companies who base the cost of a maintenance contract on anywhere between 5 percent to 10 percent of the project for up to five years of service from the time of completion.

Others even scale the level of support they offer, and price it accordingly, something that’s fairly standard in IT — for example, as bronze, silver and gold options that offer different levels of service and timelines for that service.

Of course, everything has both an upside and downside, and some veteran dealers have deep-seated reservations about them. For one thing, there are serious infrastructure considerations that need to be designed into the business; both in administration as well as dedicated field service personnel, separate from the install crews. That means that companies need to have dedicated resources and manpower to devote to service rather than install.

In addition, consider that in CE retail, retailers are selling warranties from a third party insurer. The dealer gets the gross margin up front, and the insurance company takes responsibility for long-term liability. In a small operation, it’s possible that administrative, labor and material costs in the long run, not to mention liability issues might be a hidden killer that is not offset by the revenue you get from selling the program.

That doesn’t mean that there aren’t solutions. One channel that has established service agreements as a standard practice the commercial fire and security channel; while distinct from the HomeAV and ProAV channels, they share commonalities in their business practices.

In my contract work for the Electronic Security Association’s National Training School, I interviewed many owners and general managers of commercial fire and security firms, and all of them maintained robust and profitable maintenance agreements. What was the key to that success? Reaching a level of scalability.

Supporting staff and resources for a dedicated maintenance division is dependent upon three things: First, it requires a large sales funnel of new projects where a maintenance contract is part of the sale, and leads to either up front revenue, recurring revenue or ideally both. Second, it requires the install team to have a level of professional excellence where those new projects are tight as a drum, so that the maintenance team aren’t fixing problem installs that should have never been a problem in the first place. Thirdly, it requires that the maintenance agreement with the client is a serious contract, one that your company’s legal counsel has worked on, not just one you copied from a Google search.

The maintenance contract needs to specify exactly what is covered under the recurring fees, and under what conditions additional charges will be billed. I’ve included with this article a sample maintenance agreement, a template that I’ve used in the past. But don’t just listen to some guy who writes a blog; discuss this with your company’s legal counsel.

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