When a customer enrolls in your service agreement program, they are making a commitment to you. You should make some commitments back to them. You should make them feel special. The two most common approaches are priority service and discount pricing.

Priority Service
Wherever practical, service agreement customers should move to the front of the line when scheduling work. Give them priority service. The airlines are masters of this with their frequent flyer programs. Typically, the highest-level frequent flyers (i.e., the most loyal customers) get to board the plane before the rest of the cattle. They get to stand in shorter lines at the ticket counter. It’s obvious that they’re getting special service. It’s obvious for a reason. Each airline wants you to be so envious that you concentrate your travel business with them so that you can build up enough miles to get the special treatment. Guess what? It works.

Discount Pricing
Service agreement customers should also get special pricing on routine service, repairs, and products. Many businesses with service agreement programs offer a 10% to 15% discount.

Be careful that you don’t penalize yourself with the discount. You should calculate the pricing you need to achieve a targeted net profit. This is the price paid by your service agreement customers. Everyone else pays more. You present the pricing paid by service agreement customers as a discount, and it’s compared to what non-service agreement customers pay. The point is to ensure that you would be able to hit your net profit objectives even if all of your customers owned service agreements. Don’t calculate your prices, then discount from your target for your service agreement customers.

Is charging customers more because they don’t buy a service agreement justified? Of course. It costs money to acquire a customer. It costs money for marketing. It costs money to set them up in your computer system. If you do business with this customer over and over again, the customer acquisition costs become insignificant. If you never see them again, it’s a different story. Customers that aren’t committed to your company should pay a little more than those who are, if only to reflect the administrative costs.

Other Approaches
There are a variety of other tactics I’ve seen businesses employ to clarify the benefits of belong to a service agreement program. Some wave diagnostic or travel charges. Some mail out special cards. Some send special certificates to certify the equipment in question was properly maintained. Some provide a special phone number. Some mail special offers limited to service agreement customers.

You can use a variety of methods to treat your most important customers special. Be creative. The more value you add, the greater your retention.

Matt Michel is president of the Service Roundtable (www.ServiceRoundtable.com), an organization dedicated to helping contractors prosper. Matt is also the publisher of Comanche Marketing, a free marketing e-zine. Subscriptions are available at www.ComancheMarketing.com. You can contact him directly at matt.michel@serviceroundtable.com. Or send your comments to Contracting Business at letters@contractingbusiness.com.