Small Business Blog

Subscriptions, SLAs and Preferred Supplier Agreements - Increase Repeat Business With Contracts

How To Effectively Communicate Subscriptions, Service Level Agreements, & Preferred Supplier Agreements To Your Customers & Prospects...

There is a very good reason larger organisations do not follow the same guideline range that small businesses do to determine the value of the business (normally a multiplier between 0-5 x EBIT = goodwill). Larger organisations can be seen ranging from 5-50 x earnings. Why?

The higher the multiplier, the more likely it is that the future profit of a business will be solid. One very effective way you can increase repeat business and the multiplier, which influences the value of your business, is by getting your customers to commit to a contract. Here's how...

Just About Every Person or Business Is a Customer On a Contract With Someone, I Bet You Are, ... So Why Don't You Sell Them?

Hey look, maybe you do sell them already, but there is probably room for improvement, right? The point is, most people or businesses have a contract with another business, i.e. a mobile phone provider for 12/24/36mths, a landlord for 5 years, a utility company in perpetuity, computer or car lease for 36mths, software for 24mths, a newspaper for 12mths, etc.

All these situations are just common place and accepted normal business practice. What it provides each of these companies with is guaranteed repeat business. They make the sale once and get paid each month for it, or all upfront for a whole year sometimes. They don't have to try and entice the customer to come back and make another sale. This is a very profitable way to do business.

With larger organisations, no matter what their industry is, they realise the value in having certainty about future sales, profits and cash-flow. This certainty can be delivered by; Subscriptions, Service Level Agreements (SLAs) and Preferred Supplier Agreements (PSLs). Even if your business is retail, you can't discount this approach. It can be a little obvious to see how this works for the big service based companies above, and I can understand how sometimes it's a little hard to believe that people would commit to your business in a similar way. Especially for retailers, but even retailers solidify their companies future earnings through repeat business in the form of loyalty and reward programs.

Here are some examples of what different industries can do;

Retail/ Wholesale/Distribution/ Manufacturing:

The lines between what is retail, wholesale, distribution and manufacturing can be blurry with many doing two or all of these classifications using direct channels and merchant channels, but here are some basic examples;

Subscriptions; Most people have a subscription to something. Magazines, newspapers, virus protection.

Preferred Supplier Agreements; stationery, photocopiers, mailing. A PSA is a contract that limits the customers options, if not removes them all together, from using another provider.

Service Level Agreements; firms that manufacture products can look to greatly increase revenue and ensure repeat product sales if they have a "Services Division". At the lowest form these are sold as ‘product warranties' i.e. 3 yr warranty, where the regular warranty of a product is just 1 yr. Think the consumer appliance market. Other examples include products sold to other companies that often have the option of a support package.

A SLA outlines quantified levels of service a company is promising to give to a customer, for a set rate, for a fixed period with xyz conditions. The benefit to the company is ongoing repeat business from the one sales effort for 1, 2, 3, 5, 10 whatever years... giving predictable future earnings and cash-flow. Often in larger B2B situations a condition is the customer has to use the company/provider exclusively. The benefit to the customer is guaranteed better service at a lower rate and predictability to cash-flow.

Trade Services (Builders, Electricians, Plumbers):

Maintenance Agreement; regular scheduled preventative maintenance servicing to a site or group of sites or installed equipment or client owned equipment.

Professional Services (Lawyers, Accountants, Consultants):

Service Level Agreement; agreed levels of service delivery like time frame acknowledgement, response & turnaround. Plus the amount of work covered, extra work at reduced rates %. All covered by a fixed monthly amount to make cash-flow easy and predictable for a set term. e.g.  A customer or prospect of ‘abc' law firm that signs a 12mth fixed fee agreement of $3000pmth, will get direct and unlimited phone calls and emails to a partner in the firm and a guaranteed same day response, and priority turnaround on all work, plus receive up to $3500 billable hours per mth.

Find The Value In Your Business?

In truth, there are no rules, you can take a concept from one industry and apply it to another. You can take a common practice from large firms in your industry that deal in a different market space and apply them to your market space.... Or you can keep your existing offering to your current market and target the next market up the ladder (bigger dollar value sales) with a new contract offering (SLAs, etc).

Look for the value, in what you do! The value is not in the product or service you provide, the value is in the outcome it achieves. Write out the outcome from your products or services. Write out the desired outcome, check with customers to make sure you have this correct. If there is a difference you have work to do to close the gap.

How To Communicate An Agreement?

To achieve a desired outcome, you need a solution. Move from selling products and services to providing solutions! This is not just a play on words, it is a company and brand; strategy, direction, and position. To achieve this position start by making solutions simple for yourself and your prospects or customers by ‘packaging' these solutions for different situations. i.e.

• Regular Support; $45 per month for people that are light uses of your product that want to have peace of mind that they can call when the odd hard situation arises they can't deal with.
• Premium Support; $75 per month for heavy users of your product that want to be able to get priority help for complex issues that arise often.

Notice how each solution has a name, it has a fixed price (it will also have conditions on what you get for that... let people compare the two options), it highlights the situation light or heavy users, and it explains the outcome the solution provides. This is how to effectively communicate your agreement.

Obviously for many businesses and customers such a relationship for an agreement will need to be customised and is likely to be different and often negotiated. The key word is RELATIONSHIP! I can just hear some of you now saying "I already have a relationship with my customers and many use us every month, and others just use us ad-hoc, when they need it, we can't lock them into a contract, they just won't sign it". Yes, true... but what does this mean as a relationship? It means each customer you have sits on a relationship scale, a loyalty ladder if you like, at the top of the ladder are customers that have you have signed agreements with that get great value and are raving about you. At the bottom customers you've sold to once and don't have their details or keep in touch with and you'll probably never see them again..... and everything in between.

Your goal is to drive customers to the top of the relationship scale where in B2B you become partners in their success. In B2C you become vital them living their life how they want.

B2B: Solutions for business success.

B2C: Solutions for need, desire and want fulfilment.

Position your solution appropriately.

Closing An Agreement?

Read some of my past articles on sales and go and buy a few sales books (they all teach similar principles). The only way to ‘close the deal' or ‘make the sale' is by understanding why people buy and why they don't buy. Learning about sales psychology is not deception and trickery, it's smart business sense. If you're alive, you're a sales person, why not be a good one?

This week's Action Points...

FIND YOUR BUSINESSES TRUE VALUE to unleash the better business you've promised yourself and family.