Computer service agreements are fascinating arrangements – from a business standpoint, an IT standpoint, and an interpersonal relationship standpoint.
For non-technical small business owners who don’t have in-house IT departments, service agreements represent a cost-effective way to ensure there’s true professional oversight of IT needs and rapid response to IT emergencies.
On the other side of the equation, for computer consulting firms, VARs, integrators, system builders, and PC repair businesses, service agreements create recurring service revenue, so there’s a big, running head start every month when the calendar flips over to the first of the month.
Plus, service agreements act as a weeding-out process of sorts that helps you rapidly figure out which clients are really committed and so need prioritizing, and which clients are cherry-pickers and time vampires that potentially you have to send packing.
No matter how you look at it, a well-designed computer service agreement program formalizes the client/technology provider relationship and, in a lot of ways, represents a marriage of sorts. The key, however, is making sure that most of these relationships celebrate 5-, 10-, and 25-year anniversaries, rather than ending in bitter divorces.
In this blog post, you’ll learn five ways to use computer service agreements to attract great clients, create highly-profitable recurring service revenue, and grow your technology provider business.
So the basic question is, “What are some methods I can use in order to create residual income from service agreements?”
Now, when you say “residual,” let’s first get on the table that we are not talking about passive income, royalty income, or anything like that.
Computer service agreement revenue is all about providing billable IT services to your small business clients.
(1) Scale Your Computer Service Agreements Through Smarter Size-Targeting and Client Retention
So, the first area to consider is client retention within the context of providing outsourced IT services to local small businesses. This is really critical because in order to grow your small business client base adequately, you need to invest considerable time and resources in client acquisition costs. One of the places that people get stuck and stall is if they have a lack of focus in this area.
For example, if you’re tracking your time and expenses really carefully, let’s say it takes you $400 in customer acquisition expenses to get a new customer. However, most of your customer list is comprised of home business users who call you once, spend $200, and maybe you might hear from them again a couple of years down the road.
So that math doesn’t make sense: $200 in revenue vs. $400 to acquire the customer.
However, let’s look at it a little differently by not focusing on home-based businesses. Recognize that home computer repair is more of a charity to many startup IT companies than a business.
So let’s focus instead on the B2B space, on more solid small businesses with at least 10 employees, at least 10 to 50 workstations, a few different locations, and a few on-premises servers.
At this size, these small businesses really need someone to fill the gap between doing things themselves and having a big in-house IT department. Many small businesses like this will decide to outsource to small IT companies like yours.
That’s the kind of situation when, at the absolute minimum, they need to see someone once or twice a month. But in many cases, they need to see someone on-site just about every week of the year. Plus, there’s probably some off-site project work in between and remote proactive management and things like that going on.
Those are the situations where you have clients that are good for anywhere from $500 to $1,000 per month (or your local currency equivalent), up to a few thousand dollars a month in recurring service revenue.
(2) Don’t Just Manage Expectations…Exceed Them
Always try to go above and beyond. Managing expectations is just the price of entry, but client retention is really about exceeding expectations. You’re constantly wowing them, constantly delighting them by showing you’re really on their side. You’re looking out for their best interests all of the time. You’re continually figuring out ways for them to get more out of their IT systems.
You’re driving additional sources of revenue. You’re helping them grow without having to take on additional overhead, allowing clients to expand their products, services, and geographic regions by leveraging IT a lot more strategically.
If you’re just thinking break/fix and you are operating more like a systems engineer, you’re missing the point. Think like a CIO and look at all your clients' different business challenges and problems. Figure out ways to apply IT to all of that.
To drive greater client retention on computer service agreements, constantly survey and constantly follow up to make sure you’re continuously meeting their needs. Focus on the lifetime client value, which is really what builds the value of your business.
A lot of people who write a business plan have an exit strategy section. However, to have an exit strategy you can monetize and use to make your business valuable, you need to have a list of clients you see regularly. Recurring service revenue, in the form of well-thought-out service agreements, builds a tremendous amount of equity value in your business.
So make sure you’re putting a lot of energy into exceeding expectations and client retention.
(3) Get Proactive as a Virtual CIO
A computer service agreement done right is largely about being a proactive virtual CIO. So, you need a project plan for all of your clients. This plan should cover anything and everything having to do with their IT needs.
Start the project plan for each new client during the very first conversation, probably over the phone, when you’re going through basic lead qualification. Take more notes when you go out on sales appointments.
Take even more notes with each client’s first initial proving ground project when you’re helping to distinguish between the good, the bad, and the ugly among their existing IT systems. Help new clients set priorities about which kinds of things need to be fixed “yesterday” and which are some nice things, but could wait a few weeks, a few months, or even several months. If there’s no in-house IT person, a big part of your value is helping small business clients make those kinds of decisions and prioritize.
The proactive project plan is an extremely important part of the process. When it comes to taking care of all their IT needs, pretty much everything is on the table. They really should never hear from you, ”Hey, that’s not my job.” It should more be like, “Well, we don’t have someone in-house who can take care of those needs, but let me make a few phone calls and see what I can come up with. I think I know someone who knows an expert who would be just perfect for this.”
This is part of what clients are paying your firm to do. Clients are paying your firm to be very resourceful and recognize you can’t possibly know everything there is to know about every particular facet of all of their IT systems. But, along the same lines, clients really need that single point of contact. Clients don’t want five tech companies pointing fingers and blaming each other.
Small business clients need you to come in and take charge. It’s not so much that you’re the referee, but more like a single point of contact, a single point of accountability, to shield non-technical small business clients from all of the blame-game nonsense. Clients don’t want to feel like a human Ping-Pong ball.
There are a lot of different ways to organize all of those project plan tasks. The software isn’t nearly as critical, but some people use Microsoft Project or Excel, Google Spreadsheets, Zoho Projects, Basecamp, or something along those lines, just to keep track of project tasks.
The software mechanism isn’t nearly as important as having a strategic approach, creating their IT vision, and dealing very proactively with issues.
So to get that residual income from your computer service agreements, think about lifetime client value and client retention. Then make sure you’re a true, proactive virtual CIO and not just acting as a glorified systems engineer.
Again, all of this should start with your very first contact. You get tons of great data during sales appointments and technology assessments.
Help your small business clients figure out what needs action now, as opposed to what can wait until next week, next month, or next quarter.
How do you decide all of this?
It’s really about learning a little about their business needs, what you’ve done for your other similar clients, what they have coming up with new hires, new locations, possible mergers and acquisitions, and things that are going on within their industry. Think ahead – even a few years into the future. This approach benefits clients tremendously, and it benefits your firm enormously. It gives you predictability and stability with your clients on service agreements.
Helping clients ultimately helps your firm. There’s an old saying: If you help enough people get what they want in life, eventually, you’ll get what you want, too. Think about how you can apply that to your own business.
(4) Spearhead Quarterly Review Meetings
One more thing to consider about being proactive is to meet quarterly with the main decision-makers on each client account, the owners, the managers, and the senior managers, and talk about, what’s been accomplished in the past 90 days. “These are the projects we’ve been working on and the results you got.” You kind of have to toot your own horn a little.
“What I want to find out from you, though, is before we set priorities for the next 90 days, what are some of the big things we should know about your business? Are there any big changes going on in your industry? Is there an expansion plan? Are there any mergers or acquisitions on the horizon? What should we really plan for and take into account with all of these different issues?”
Review and recap what you did in the last couple of months. Think about what’s going on in their businesses and ask for their input and feedback. Then, you can decide what you should focus on for the next three months.
Then everything else on the “list” gets pushed back to a quarter from now, two quarters from now, or maybe even a year from now.
These quarterly review meetings are extremely important to the success of your computer service agreement program, not just because of the relationship-building, the bonding, and the sharing of ideas. These meetings really solidify and position you as a true virtual CIO. They show you’re working on the business value of IT, which makes such a huge difference to client retention.
In other words, being a true virtual CIO gets more residual value from your service agreements.
(5) Systematize for Your Own Business, Not Just Your Clients’ Businesses
Finally, to make all of this scale profitably, as you grow your business, think about your ability to distill these things down into repeatable systems and processes you can train employees and contractors on.
While not every hire has the leadership potential to take on the role of a virtual CIO, systems engineers, help desk staff, project managers, account managers, and developers could all potentially get groomed and mentored to fill out your team and eventually get promoted into the lead role for each client account.
Put All of the Pieces Together
So, when it comes to getting more residual income from your service agreements, it’s largely about the lifetime client value, client retention, and being a true, proactive virtual CIO.
To recap, in order for service agreements to create recurring service revenue:
Scale your computer service agreements through smarter size-targeting and client retention.
Don’t just manage expectations...exceed them.
Get proactive as a virtual CIO.
Spearhead quarterly review meetings.
Systematize for your own business, not just your clients’ businesses.
What’s your experience with service agreements and recurring service revenue? What worked best? What hasn’t? Please share your tips, hints, and war stories in the Comments area below.
And if your agreements also support SaaS and IaaS, be sure to enroll now in our free 7-day eCourse: Go-to-Market Strategy 101 for B2B SaaS Startups and Scaleups.