New low-risk business model
Sunday 1 November 2020
Do you ever dream of a sustainable revenue model that makes your customers happy, so that they no longer turn around every cent? Services as a business is such a revenue model.
But why would you start something new right now? Isn't that risk too high?
Who is your customer?
A successful entrepreneur with a successful business in measuring and control equipment for the building climate was inspired by my story about sustainable business models with services as a business.
In the past ten years, he had supplied at least a thousand customers with his hardware. In all that time, he had only paid attention to the hardware, because that is what the customer still asks: "I don't know if services as a business fits within our company. In addition, I wonder if our customers want to pay that. "
"Who is that customer anyway?" I asked.
"The main contractors who are building a new building. They always tender the subcontractors, like us. For them, price is the most important criterion. It is always a struggle for our sales to achieve a margin of 4 to 5%. And if we go into recession again, I can be happy if we have 1% left. "
"Okay, but are those main contractors also the end users of your products?"
"No, of course those are the residents and in large projects the HOA's or the technical service of a company that is housed in it."
Installers are not set to services
After some inquiries, it appeared that his service department only provides maintenance for 5% of all his customers. The other 95% has it maintained by installers.
"Most installers are actually not set up for services. In practice, they would rather replace a component than support the customer to make better use of the product. As a result, the installers only request new parts or products. So that actually says nothing about how the end user experiences our product, but especially something about the quality and focus of the installer. "
Installers are in between
"Now that we're talking about it, I realize that the installer shouldn't be in the middle of it at all. I should sit down with the end user right away to determine what services they need! "
'What stops you?'
"Well, those installers are also kind of ambassadors for us. When I pass them by communicating directly with the end user, I am afraid I will knock them against the hair and detract from my existing business. Moreover, I am not at all sure whether that revenue model will really work. "
What do you actually supply?
"I understand that you are used to always fighting to sell your products with sufficient margin. Your customers go for the lowest price, because the products are interchangeable. But what is your real right to exist? Do you supply measurement and control technology for main contractors and installers? Or do you deliver more: something bigger, something essential that end users are confronted with on a daily basis and what they therefore find valuable? "
The entrepreneur looked at me glassily. He still seemed to plan to put services as a business aside because the risk would be too great.
"I think that measurement and control technology are only part of what you can provide with your knowledge and experience. You do not supply products, but a service, a service. Namely
a living environment in which people feel comfortable, are more productive and experience better health! "
"Well," said the entrepreneur, "that's how you can view it."
"So you collect the data from your products, analyze them and then develop services that demonstrably make and improve the lives of end users. How threatening is that for your installers? Because if something really breaks, he can still replace the broken part with a new one. And you have a completely different conversation with those end users. Because who are your competitors then? "
The risk is very small
Then the penny fell: "Services as a business is not at all a threat to my current installers, because they do not see that as their business at all."
"Exactly! So what's the risk of picking up services as a serious business? "
"That is actually very small," he confessed. "But does the end user want to pay for it?"
"As an entrepreneur you never have any guarantees. The value you can create with the data of your products and with your knowledge and experience is your game. But, as they say on the stock market: if the risk is low and the uncertainty is high, the profit potential is greatest; then you have gold in your hands and it is time to switch! "
After a workshop and a concrete Services Business Case, the entrepreneur called his sales team together. He set sales as the goal to focus on selling services to the end user. 90% of all completed projects in the past ten years had to become customers of the new services proposition within three years. The hardware sales are now the result of services activities. And not the other way around.
A proposition that makes the end user happy is the basis for a recession-proof revenue model. And a happy customer gives a happy entrepreneur!
Let's have a chat?
Share your contact information with us, describe below what your biggest wish or challenge is and we will make time for you. See you soon!