Alex Alexander, founder of Alexander Consulting discusses one of the most important yet challenging transitions field service companies must make...
Alexander: What does it take to transition from free to fee?
Research Respondent: Kevlar vests and iron underwear.
Transitioning from free to fee has a nice ring to it, but how in the world do you do it without alienating your customers, de-motivating your sales force, and creating havoc in your organisation? What is the correct strategy for your organisation to start getting paid for the services you have been giving away?
By reading this article you will learn that your task is more difficult compared to those who have little history providing services because you have trained your customers and your salespeople that services are free, and since they are free they can’t be worth much! You’ll discover the need to be prepared for the inevitable pushback to this change and what you must do to be ready to deal with it. You’ll learn the five strategies for making this transition from free to fee and which strategy is most viable in most situations.
NOTE: Many readers of Field Service News have already made this difficult but vital transition. If that describes you and you are short of time, move on. However, this is also a chance to help your field service colleagues learn from your experiences. If you have lessons learned or tips to ease the pain, please pass them on by commenting.
The Five Strategies in Transitioning from Free to Fee
Strategy One: Don’t Do It!
Just kidding. But when you realise all the potential grief you may get for leading this change, you may wish you hadn’t started. More seriously, unless you are willing to rigorously do the steps outlined a little later, you may want to wait.
Ponder Point: If it is worth doing, it takes effort—lots of effort.
If there is any question at all in moving from free to fee, I suggest that you do a quick readiness review that looks at your customer issues, competitive position, internal capabilities, and executive priorities. There is no sense attempting this transition unless there is enough rational reason and emotional impetus to justify this effort.
In leading workshops on building profitable services organisations over the last decade, one of the first exercises that I ask the executive participants to do is to complete a high-level, free-to-fee readiness review of their organisation. It is a simple but powerful task that can be executed in less than 30 minutes. As the name implies, the readiness review helps determine how ready an organisation is to make this transition. It helps executives determine the factors in place today that will either help or hinder the future goal of selling services. The focus is on the biggest, most important factors that will impact this transition.
Figure 1 provides an example of an executive’s readiness review from one of my workshops. On the positive side, there were several helping factors in place that ideally could be leveraged to make the transition from free to fee successful.
Having a large installed base meant lots of prospects for selling services. Customers who buy high-priced, complex products are more likely to spend money on services such as an insurance policy to improve uptime. Strong consultants and technical support personnel probably have a level of customer trust already established, hence if they recommend to customers that they buy services, the customer is likely to do so.
Customers who buy high-priced, complex products are more likely to spend money on services such as an insurance policy to improve uptime
On the hindering side, there were some significant factors to consider. The organisation in this example had been giving services away forever, and customers expected it. The organisation had a strong product culture, and as I’ve already emphasised, this is a big deal when trying to introduce change. Furthermore, sellers that don’t want to sell services, don’t know how to sell services, and have no negative consequences if they don’t sell services are strong deterrents to getting customers to pay for services.
In this case, the services executive learned that his task of transitioning from free to fee was a huge challenge, and after completing the readiness review, one that he doubted could be accomplished at all. After some consultation with me and his workshop peers, he decided that he needed to approach his boss with his assessment that the move from free to fee was not doable at this time. However, he was first going to get some fact-based information to back-up his thinking and make a stronger business case. This 30-minute readiness review may have saved him months of toil and frustration.
How realistic is making the move from free to fee in your organisation today?
GIST: If the possibilities of success are small, wait for things to change—they always do.
Strategy Two: Flip the Switch
Ponder Point: If it seems easy, it probably won’t work.
If you feel that free to fee can work in your organisation, first consider flipping the switch.
This strategy is based on picking a date in the future and letting everyone know that from that day forward, all services have fees attached to them. The positive side is that it is simple, it is fair from the standpoint of treating everyone the same, and if successful, it will quickly add a new revenue stream.
However, this is a difficult strategy to implement and manage. Within minutes of the announcement, the phones will start to ring as sellers call sales management, sales management calls your executives, and the execs call you (the services troublemaker, as you are beginning to be called), all saying the same thing: “Yes, we understand the need to charge for services, and as a rule I totally support it, but in this case, it is not a good idea, because ‘blah, blah, blah.’” The “blah, blah, blah” includes “we will lose a big pending sale because of our higher price,” “the competition gives it away, and this will give them a wedge inside the company,” or “the customer’s policy is not to pay for any services,” and similar-sounding reasons.
If you are initially able to fend off your people internally who are trying to twist your arm, the salespeople will collude and plot with customers, and soon the customers will start calling you, either pleading or threatening, or both. If you don’t meet their demands, they will call senior management and senior management will cave. Therefore, the rule of everyone paying for all services very quickly becomes the exception as more and more customers are waived from having to pay. You spend all your time in defensive mode, making it hard for you to get the real work done.
GIST: Just don’t do it. You will be hated, non-productive, and not much fun to be around.
Strategy Three: Grandfather Existing Customers
Ponder Point: You can fool some of the people some of the time, but not for long.
Under this strategy, all old customers are “grandfathered” and will continue to get services for free, however, all new customers are tagged to pay. The strength of this is that you don’t rock the boat with the installed base, and new customers don’t have a past history to compare what was and what is. Sold correctly, many new customers will pay, providing you with new revenue. The problem here, of course, is that customers talk, and new customers who find out about their second-class status will not be happy. They will see this approach as unfair and view themselves as victims. They will complain, and if they do it long enough and loud enough, they will probably get services for free as well. It will take a percentage of management time to deal with a problem that never goes away. Once again, you will be seen as “not a team player” and a “troublemaker.”
GIST: Don’t attempt this strategy either.
Strategy Four: Launch in New Markets
This strategy is a variation of Strategy Three, where all old customers are grandfathered in. However, if you are opening up new geographies or new market segments, this strategy can work, as customers in these spaces probably will be less likely to be in contact with your old customers. Plus, you can make the case with some credibility that their situation is different and justifies that you charge for services. This approach is more feasible than Strategy Two or Strategy Three, but it is still a challenge to manage.
Again, in most cases I do not recommend it, but it can work adequately in some situations.
Strategy Five: Productise the Old and Sell the New
Ponder Point: People will fight to keep what they have, so don’t try to take away something they feel they deserve.
The problem with the strategies outlined above is that they trigger a powerful, negative psychological response—no one likes to have things taken away from them or not be treated the same as others. Think of your reaction to small personal takeaways, such as when your bank starts charging you for checks that used to be free, or your airline makes you pay for blankets.
Hence, this is the strategy I recommend almost always: Productise the old and sell the new. The beauty of this is that it takes nothing away from your customers or your sellers.
Think of your reaction to small personal takeaways, such as when your bank starts charging you for checks that used to be free, or your airline makes you pay for blankets.
- Productise the old. Here the focus is to standardise the types of services that have been given away in the past to minimise the cost of these services and create a comparison that will make the new, fee-based, value-added services seem very desirable. For example, when hoping to land a deal, in the past, sales may have given away assessments that had no definition of time or quality. In other words, sales would have had a pre-sales specialist do the assessment or maybe they would even do the assessment themselves. It was based upon the availability of qualified people and the internal persuasion skills of the seller. Depending on the situation, it may have lasted anywhere from two days to five days at the customer’s site. The quality of the assessment was totally dependent on the person performing it. In this situation, the goal of delivering an assessment may have been accomplished, but it was probably done in a haphazard, non-standardised manner—one that was not repeatable and one of questionable quality.
So, the recommended shift is from an ill-defined, get-it-done-when-we-can, at-the-quality-level-of-whomever-we-can-get-to-do-it, on-average five-day assessment, to a one-day virtual assessment covering the 10 most important areas, delivered in a standardised, professional document, conducted by a qualified, trained professional. This new service and the other productised services (e.g., Quick Start installation for a software product, online core training for a product implementation) are developed by services and marketing but are categorised as a cost of sales and owned by the sales function.
- Sell the new. Building a high-value portfolio of services offerings that customers want and will pay for and one you will make good money on takes considerable effort. Plus, correctly defining, packaging, and pricing these services may take skills not currently available in your organisation. However, if you want to successfully make the transition, find the time and the talent.
GIST: This is a lot of work and will take a few months of effort to accomplish. However, this approach is far superior to the other strategies, as it gives more to the customer and to sales without taking anything away.
Old pros: Please share your transitioning from free to fee lessons learned. Thank you.
This article was adapted from Seriously Selling Services: How to Build a Profitable Services Business in Any Industry, by James “Alex” Alexander, and can be purchased from Amazon.com or the Alexander Consulting website.
About the Author
James “Alex” Alexander is founder of Alexander Consulting, a management consultancy that helps product companies build brilliant service businesses. Contact him at 239-671-0740, firstname.lastname@example.org, or visit www.alexanderstrategists.com. Sign-up for Alex’s monthly newsletter, Alexander Insights, here.
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