Service Notification ROI – Service Contracts

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You know, it’s interesting.  I’ve done SM for so long, but I never really went through the exercise of why?  or what’s in it for me?  It wasn’t until a recent demo I gave pitching the power of SAP SM, that it really hit home for me just what you can get from using SAP SM.  Well, today’s post is no different.  Today I’m going to talk about using Service Notifications to drive your service contract business.  Now you might be thinking you already know about connecting your service notifications to your service contracts.  And you’d be right, that is a great piece, but the real power comes from analyzing your notifications to determine what products are worthwhile to offer a service contract program.

Now, the initial thought might be to offer a service contract for everything you sell.  While this isn’t necessarily a bad thing, you might be incurring a lot of additional cost by using this catch all approach.  In a future post, I’ll talk more about the ROI of using service contracts.  Today, I’m going to focus on what you should offer a contract for.  How can a service notification tell you what products to offer “extended warranty”?

First, you start by looking at the volume of notifications by material number by product age.  This is going to give you a really solid first pass of a product worthwhile of extended warranty.  The idea behind this approach is to look a product, and find out when the majority of issues occur?  Much like the post a did recently when I talked about setting proper warranty dates, the same applies for service contracts.  You NEED to know when the majority of your issues begin to happen.  Is it 3 months of use?  6 months of use?  10 years of use?  Now, based on your “base” warranty, you can look at the volume of issues that occur in each time frame.  If the volume is high enough that things “can” go wrong, but low enough that you won’t be gambling the farm, this tells you the window you can offer the service plan for.

Maybe an example is in order here…  you have a material, and over the past year, you see the following.

3 months – 100
6 months – 120
9 months – 125
1 year – 133
18 months – 220
2 years – 250
30 months – 400
3 years – 650

now this is a blog, so I’m not gonna graph it, but you can quickly see the exponential type curve of these numbers.  the idea is to offer your warranty for 6 months or a year.  Now the volume is reasonable up to the 18 month mark.  once you hit 30 months, the volume starts to spike.  This suggests to me that you should offer an extended warranty for an extra year.  Your customers will see it as a value since things do happen more often after the first year, but you won’t be replacing EVERY unit.  win win in my book…

This actually went longer than expected, so I’ll pick this up again tomorrow…

thanks for reading,

As always, thanks for reading and don't forget to check out our SAP Service Management Products at my other company JaveLLin Solutions,

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