1. How to sustain your long term profit using Service Contract Management?
Due to intensive competition in the global market, the capability of building a perpetual close relationship with your core customers and turning one-time clients into ongoing sources of revenues is one essential perspective to the success of many firms. Service Contract Management can bring benefits to both customers and service providers in many aspects resulting to sustain long term profit. Service offerings can be tailored to meet customers’ individual needs, such as customer-specific service level agreements (SLA). High service availability and consistent SLAs (such as defined response times) can be ensured leading to the greater customer satisfaction. At the same time, for service providers, long-term service relationships would support lasting customer retention. Service providers can drive recurring revenue when customers renew their contracts and increase additional service revenue opportunities, for example, by making cross sell / up sell offers. Therefore service obligations would be turned into profitable new business.
Service Contract represents long-term outline arrangement between service providers and customers in relation to the entitlement for services and parts (including value/quantity), as well as customers’ assets coverage (for example, on-site support for network servers). In service contracts, customers are guaranteed specific services within tolerance limits for certain parameters. The promised services in service contracts are represented by service products, such as:
- A hotline (an individual simple service)
- An automobile inspection that is made up of multiple services and materials (a complex service)
- Ten free-of-charge telephone consultations after buying software, covering costs up to USD 300 (a service limited according to value or quantity)
- Maintenance of a pump every three months (a time-based service plan in which planned services reoccurring at intervals are entered)
- Maintenance of a photocopier after 100,000 copies (a counter-based service plan in which planned services reoccurring after intervals are entered)
- Billing based on the number of photocopies (a usage-based service contract)
2. Overview about SAP CRM Service Contract Management
As service contracts can generate a substantial amount of revenue and profit, SAP CRM provides you the tool, service contract management, you need to make that happen. SAP CRM automatically checks a customer’s entitlement to service, measures service level compliance, and helps you meet service level commitments. SAP CRM can drive revenues by proactively notifying service agents of expiring contracts. It gives you the ability to sell a wide variety of service offerings in the form of value/ quantity based service contracts, usage based contracts, or leasing contracts.
3. Integrate Service Contract Management into your business process
Let me show you a four-step lean example to demonstrate how you can integrate the service contract management into your business environment.
Suppose one customer buys a copy machine from your company and requests one year on-site regular maintenance service and a service representative will be on-site at the customer’s place of business within four hours to correct any fault once reported.
1) You can send quotation for service contract to the customer via email specifying object coverage (the copy machine), parts and services entitlement, service levels, and price agreements.
2) After the customer accepts the service quotation in the interactive PDF form via the email, the service contract is generated automatically.
3) If a technical defect occurs in a customer’s copy machine, it is assured in the service contract. Service order is then generated accordingly, which is integrated the validation of service contract and warranty entitlements.
4) A service representative can be dispatched and repair the copy machine and confirms the service order. The periodic billing of service contract using CRM billing engine is integrated to ERP financial and cost accounting. All costs of the service order and the revenues of the contract will be billed.
4. Different Types of Service Contract
In SAP CRM Service, three types of service contracts are provided to meet your specific business requirement.
- Standard service contract
- Service based: A particular form of service contract, in which you can define the conditions for the offered services such as selecting service level agreements.
- Value based: A particular form of service contract, in which the defined service products are restricted with regard to a certain total value over a specific period. For example: during 2years, Repair: Printer 20 EUR/Unit; Scanner 50EUR/Unit and the target value of the contract is 1000 EUR.
- Quantity based: A particular form of service contract, in which the defined service products are restricted with regard to a certain target quantity over a specific period at a specific price. For example: during 2 years, ten hotline calls without charge and start payment from eleventh call.
2. Usage-based service Contract
A service contract that also contains an arrangement about paying for the usage. The contract defines the conditions for payment based on counter-based usage. For example: during 2years, Usage: Black and white copy 10 cent/copy, Color copy 30 cent/copy.
Following picture will show you how the service contract looks like in CRM:
5. Features in SAP CRM Service Contract Management
SAP Service contract management provides you some features, such as:
- Price agreement: Provide information about the price you want to grant the customer, such as a rebate if the customer buys a certain quantity of the product. This is applicable for any service and repair order referring to the service contract
- Object list: specifying the customer’s objects for which a service entitlement is valid can contain the following: Products, individual objects, installed bases, or installed-base components
- Product list: containing services and spare parts included in contract entitlement includes the following features: Specified by product, product category, or product range; automatically validated against requested service during service and repair order processing
- SLA (service level agreement): Specifying service levels to which a customer is entitled for ensured response times and service hours (for example, 2 h/24×7 h) service level of contracted services specified on the contract item level can include the following: SLA controlling processing of service orders referring to the contract, such as order due dates; SLA influencing pricing of service contract and service orders referring to the contract
Cindy Xu and Adela Shen worked together for this blog.