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Why capital equipment sales teams struggle to sell 🤝 services at point of sale - Part 2 (7 min read)


PART TWO - How to encourage the sales team to sell your services

What’s In It for Me?

When it comes to selling service, what’s in it for me? needs to be spelled out as clear as possible to the commercial team. All too often senior management will simplify this with a statement like “they are getting paid commission for selling Service”. Although it may be true, it does not make Service financially attractive enough to sell. Not to mention that no effort is made to give the sales team(s) the other, non-financial reasons to sell the company’s services. We will save the details of the latter for a future article! The key point is, most companies fail to sell the idea of selling Service.


Carrots & Sticks

I heard the saying “sales people are coin operate” early in my career in medical devices. While I think it has some merit, this saying doesn’t tell the whole story. I’ve worked for a number of companies, and every one of them had a different approach to how sales people should be compensated and incentivized for selling services. While there are many reasons why different approaches exist, what’s important is that some work much better than others.


Free Money?

Let’s start with who sold the Service. It may come as a surprise to many people how often companies pay commission for no reason. It’s not uncommon for a company to assign territories to their reps and revenue is automatically attributed to the territory even if the sales person wasn’t involved. This can be mitigated by focusing your field sales team’s effort on just selling service contracts at POS, which are much easier to renew, require much less work to deliver and actually helps build a relationship with customers. Sales teams tend to excel when they have a more simplified service portfolio to sell.


Sales Commissions for Service

While it may make sense to compensate product sales based on revenue, making it work properly for Service may require some adjustments. For example, sales teams are disincentivized to sell service contracts when commissions are paid on revenue. For instance, a service contract sold in the last month of the fiscal year will yield a single month of commission to the sales rep. Let’s be honest, one-twelfth is not going to do much to someone’s sales quota and the commission is not much of an incentive either. Sales people have often been conditioned to receive instant gratification for their work, which means they will not recognize the long-term commissions and better relationship they would get from a customer that bought a service plan. There are ways to ensure your sales teams are enjoying the benefits of the commission, even if revenue is not recognized. And since sales teams are driven by commissions and services typically have high margins, the commission rate should also be higher for selling services.


Sales Quotas for Service

The idea that selling service is as simple as adding it to the sales person’s quota is quite common. Unfortunately, it’s just not that simple. Although Service should be part of the sales person’s quota, some adjustments are typically needed.


The sale of capital equipment typically generates a lot more revenue than the services associated with that piece of equipment. And, since sales people are incentivized based on the value of what they sell, and they struggle to sell services, then product is pretty much all they want to sell. With a single number to hit, most sales people will just try to sell more product to make up for the services quota, or not make quota. Either way, the result is the same, services are not sold and some sales people may even come to resent that their quotas went up because Service was included. Limiting the service quota to POS and assigning an inside sales team the post-sale responsibility is a great start. In many cases field sales can do a great job selling a product and service bundle. It is however paramount to structure the bundle in a way that it will not compromise contract renewal. Another way to incentivize the sales team is by giving them full credit on their quota when they sell multi-year service contracts.


Customer Incentives

This is an area of opportunity, but it absolutely has to be done correctly. Instrument manufacturers should consider the price inelasticity and limited economies of scale associated with service.


Service has very little price elasticity. The research I’ve come across suggests a price drop in the magnitude of around 65% in order to impact volume in a way that is statistically significant. While many services have healthy gross margins, this level of discounting will surely eliminate all profits, and customers will never pay list price ever again.


Unlike products, services have limited economies of scale. The highest operational cost lies on labor and once that unit of labor is fully consumed, then another person needs to be added. Other costs will surely follow, such as additional training, trunk stock, tools, etc. In other words, the limited financial gain is typically not worth it for the additional volume, which requires more resources to deliver.


A well-structured sales incentive will circumvent high discounts, but still deliver value to the customer. It is also important to remember that not all customers need to be incentivized and to truly get the benefits of incentives, the sales team needs to be trained and fully onboard. When incentives are properly implemented and combined with the right changes in commissions and quotas, the sales team will feel incentivized to sell your services.


And yet, it's not Rocket Science!

Sure, there are a number of challenges and actions needed to help your sales team sell your services, but none of this is rocket science. And, not all challenges need to be addressed at once. Considerable progress can be made by training the sales team, working on change management and putting in place processes, policies and incentives to sell Service. ServiceWise Solutions is here to help companies who currently lack the in-house knowledge or bandwidth to embark on this transformation from beginning to end.


In the capital equipment space, the profit margin of Service ca exceeds 50% and grow by double digits year over year. Is your company enjoying not only these financial benefits but also much higher customer loyalty?






The ServiceWise Marketing Blog consist of thought-provoking articles focused on various topics related to the business of Service. The views, thoughts and opinions expressed in our blog articles are solely that of ServiceWise Solutions and our contributors and does not necessarily reflect the views of other third-party platforms, institutions or other associated parties. Please reference ServiceWise Solutions as the author when sharing or re-posting content from the ServiceWise Marketing Blog.

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