Tagged With "15%"
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Re: Escalating Maintenance Agreements
Art, We build in as much escalation as we can. Sometimes up to 15% on bundled lease/service...sometimes 5% on service only. On occcasion, none at all (primarily true produciton print accounts).
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Re: Escalating Maintenance Agreements
Ours escalate annually at 15% of the service payment. While I understand the need for this type of clause to hedge against cost increases from the manufacturers, gas prices and the like, think it has gotten out of hand. If a clause states that service may increase by up to 15% per year, that shouldn't mean "regardless of what the profitability is on your contract, we are going to increase it by 15% every year." My feeling is that every contract above a certain monthly payment (let's use...
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Re: Escalating Maintenance Agreements
24, While I agree with some of your comments, most of them are broad stroked ideas that in my opionion, would eventually lead to a failed business. And, good luck with having a conversation with all of your customers informing them that you need 45 pts(or whatever you think you need to survive) of profitability and that if thier account does not lend that percentage, you'll increase their expendature...whenever. Just an opinion.
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Re: Escalating Maintenance Agreements
I think having a business conversation with a customer or prospective customer is a better way of going about things than burying a clause in a contract, hoping they don't notice it & then fielding phone calls & emails from upset customers every year when their costs unexpectedly increase. The younger generation of decision-makers are looking for business partners, not vendors, & partnerships are a two way street. Some buyers may not appreciate this way of thinking, but I would...
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Re: Escalating Maintenance Agreements
Personally, I would rather be upfront with the customer (in many cases I am), rather than "hiding the cheese". I will admit that there are many occasions where I do not address the escalating cost of the service agreement, if it is brought up, I will then address it. I just see our industry as a whole "hiding the cheese" in many places. I will strive to tell more clients about the escalating increase, because I don't want to have a irate customer call me after the first year has expired.
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Re: Escalating Maintenance Agreements
tx, you are contrarian, and there's nothing wrong with that!!
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Re: Escalating Maintenance Agreements
Here's a different take and I'm going to use leasing to illustrate my point. 30 years ago the rate factor we used to calculate a monthly payment represented the leases's "true cost". Then our industry demanded lower rate factors without any concern for the terms of the contract. Over time, lower rate factors were offset by alternative forms of revenue for the leasing company...evergreen clauses, exaggerated property tax bills, forced insurance, etc. and the list continues to climb with the...
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Re: Escalating Maintenance Agreements
But now even, those "low" rate factors are now bumped to the sales person. Thus, the customer gets no advantage.
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Re: Escalating Maintenance Agreements
Originally Posted by Old Glory: Give me 20% lower cpc's 1st year with the intent of making it up over the next 5 years and we could rule the world. Unfortunately, what would have been a great idea before the advent of escalations, is now impossible because the powers that be have embraced the clause and have already made it an integral part of their profit structure. The same goes for the "points" or "ticks" dealers add on to the rates they receive from their leasing partners. At a certain...
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Re: Escalating Maintenance Agreements
We have the clause in the contract in bold on the first page. Always have. We have rarely raised any contracts though. Now we find customers with 8-10+ year old equipment where today they are still paying the same cpc as they were on day one. Our old software never had a means to efficiently track it. Our new software lets us very precisely monitor and manage these things. We have begun increasing the contracts on the oldest garbage we have in the field. Believe it or not we are now getting...
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Re: Escalating Maintenance Agreements
Our dealership increases the service portion of an agreement 12% per year or if we lock in the rate (up to 5 years on a new machine) then we take a 5% hit on the machine and a 3% hit on the maintenance agreement. I do not see a problem with a 4-6% increase per year ...that is easy to explain but 12% kills us on getting new business.
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Jredmon: got it, are you having problems with existing accounts also when they are close to end of term?
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Re: Escalating Maintenance Agreements
For a long time we did not increase an agreement and we had a lot of old equipment that was difficult to upgrade due to the low cost but on the other hand as we implemented the 12% increases we had issues with the current customer feeling that we had taken advantage of them....Mainly due to the verbage on the contract that says "we may increase the agreement up to 12%", well we definately did the increase and at the 12% rate. Customer was hoping that they would not see an increase but if...
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Re: Escalating Maintenance Agreements
Originally Posted by jredmon: For a long time we did not increase an agreement and we had a lot of old equipment that was difficult to upgrade due to the low cost but on the other hand as we implemented the 12% increases we had issues with the current customer feeling that we had taken advantage of them....Mainly due to the verbage on the contract that says "we may increase the agreement up to 12%", well we definately did the increase and at the 12% rate. Customer was hoping that they would...
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Re: Escalating Maintenance Agreements
True...Very True....Much easier to sell and get the customer's buyin to a 4-6% increase.
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Re: Escalating Maintenance Agreements
True, but even then a client whose contract is performing within an acceptable range shouldn't be subject to an increase & I'm sure would appreciate being notified I advance that will not face an escalation in applicable years.
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Re: Escalating Maintenance Agreements
I'm told that he sales department makes zero profit, when in fact, if it were not for salespeople gaining net new, and keeping new accounts, there would be no service revenue.
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Re: Escalating Maintenance Agreements
Thru the use of our ERP software we review each and every contract annually for profitability. The % of increase, if any, is based upon the profitability of each contract. We do not do a blanket increase for the entire base. Increases can range from 0% to what ever it takes to get the contract on track. The whatever it takes amount is typically due to new customers having an extraordinarily high usage of toner. We track this and point it out to them as justification for the increase. Lets...
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Re: Escalating Maintenance Agreements
Perfectly said. I think we all agree (as would most of our clients) that a business has to make profit in order to stay in business, invest in growth & deliver a high level of service & support. What you just described, BG, is the transparency that I am certain most of our clients (at least the ones we want & have quality relationships with) would very much appreciate. Cheese is good & essential; it's the "hidden cheese" Art referenced that comes across as shady or...
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Re: Escalating Maintenance Agreements
So, the cheese in not the profit. I'm all about profit. It's those agreements and or contracts that state "may raise", "is subject to" , "could have", and never go on to state what the increases are on a year over year basis.
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Re: Escalating Maintenance Agreements
This is what we use to differentiate us from our competition. Honesty up front and no extra hidden billings. There are a number of dealers that don't track profitability or know how to properly price a contract from the beginning. They just raise contract prices because that's what they think the industry does. They have no clue if they are making money on a contract or not. They end up giving the rest of us a bad reputation. Its a painful education process for customers but well worth it...
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Re: Escalating Maintenance Agreements
WOW, this topic is blowing up! Don't want to get off track of the main topic here, however, under many cpc leases there is a clause that the entire monthly cost can increase by 10-15% each year. So, that's hardware and service, woweeee!!!
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Re: Escalating Maintenance Agreements
The competitors who have clauses in their contract that allow the total payment to be escalated by a certain amount are the easiest to sell against if you know they're in the deal early enough in the process to expose it as an issue.
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Re: Escalating Maintenance Agreements
Germane to the question, haven't seen those kind of escalations. We do increase maintenance reasonably after 5 years. An underlying question comes to mind though; why is it some dealers feel they need to escalate exorbitantly, if they do? Is it related to our industry's 'race to the bottom' pricing-wise and a dealership's desire to make an account profitable after-the-fact? It might not be pure greed. That, combined with the deterioration of customer loyalty and the 'commoditization'...
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Re: Escalating Maintenance Agreements
I quipped about the possible comparison between maintenance contract escalations and the alternative forms of revenue embedded in most lease contracts. With all the talk about how important it is to be honest and open with customers, I can't help but wonder how many of you are honest and open about the lease contract you ask them to sign. Do you explain to them that they will be getting an extra invoice every year presumably to pay the lease company's property tax? How they will need to jump...
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Re: Escalating Maintenance Agreements
Originally Posted by BG: Thru the use of our ERP software we review each and every contract annually for profitability. The % of increase, if any, is based upon the profitability of each contract. We do not do a blanket increase for the entire base. Increases can range from 0% to what ever it takes to get the contract on track. The whatever it takes amount is typically due to new customers having an extraordinarily high usage of toner. We track this and point it out to them as justification...
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Re: Escalating Maintenance Agreements
I'm sure others in the room with a number of years in this business & had to deal with questions regarding return shipping, insurance, auto renewal, property tax and the like learned early on that it's best to bring all of the above to the attention of their clients early in the process versus getting put on the offensive when a customer gets upset. I for one address each of these on the front end virtually every time I take on a new client. Occasionally questions still come up, because...
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Re: Escalating Maintenance Agreements
When it comes to leasing, I address everything, the insurance, the doc fee, no property tax here in NJ. I also have the discussion about all of the end of lease options. With some companies I even prepare a SOW and make then sign it. What I don't discuss is bumped rates, now that crap really PO's me.
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Re: Escalating Maintenance Agreements
At the end of the day, I believe the industry as a whole needs to be more transparent. Probably will not happen, but that's my opinion. I will have the come to Jesus talk with my customers about escalated maintenance rates, just because I don't need the hassle down the road or to lose a customer, they are just to darn hard to get nowadays. I'm sure, I won't get as many deals because there will be other salespeople that will lie about their maintenance costs or they are so new and naive that...
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Re: Escalating Maintenance Agreements
Originally Posted by Art Post: When it comes to leasing, I address everything, the insurance, the doc fee, no property tax here in NJ. I also have the discussion about all of the end of lease options. With some companies I even prepare a SOW and make then sign it. What I don't discuss is bumped rates, now that crap really PO's me. Art, how often do you explain it and then get people who call back upset because they weren't listening. I just had that instance the other day. A guy bought two...
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Re: Escalating Maintenance Agreements
Our contracts say 10% annually on the service. We don't increase the lease payment portion. We will negotiate as it seems the Directs will give someone a 2% increase and point out everyone else is 10%. I have customers who are as low as 4% but the majority are at 10% annual increase.
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Re: Escalating Maintenance Agreements
Originally Posted by Jason H: Originally Posted by Art Post: When it comes to leasing, I address everything, the insurance, the doc fee, no property tax here in NJ. I also have the discussion about all of the end of lease options. With some companies I even prepare a SOW and make then sign it. What I don't discuss is bumped rates, now that crap really PO's me. Art, how often do you explain it and then get people who call back upset because they weren't listening. Probably once a month, I...
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Re: Escalating Maintenance Agreements
My favorite is when a customer doesn't send in proof of insurance then gets mad at me when the realize they've been paying for insurance all along at the end of term. I give the same speech on every lease advising them to send it in. Sometimes I even do it for them.
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Re: Escalating Maintenance Agreements
There will always be an animosity between Sales & Service. Currently this is the most thorny issue (as long as your Service Dept provides good service). This stems, in part, from the Manufacturers getting into Direct Sales. To be fair to the Manufacturer's Direct Sales the trend was already heading this way, they just escalated it and made it significantly worse. Click charges getting lower and lower killing the golden goose of the Dealerships = Service & supplies billing! We can...
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Escalating Maintenance Agreements
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