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November 15, 2019 | 3 Mins Read

Pricing Your Service Contracts: Three Tips for Greater Accuracy

November 15, 2019 | 3 Mins Read

Pricing Your Service Contracts: Three Tips for Greater Accuracy


By Tom Paquin

Here at The Future of Field Service, we spend a great deal of time discussing the ways that service organizations are reinventing their businesses to be more competitive. Making the decision to fuse service into a product is a great first step, but a lot of organizations discover that their actual execution is unrealistic, poorly-informed, or a bald imitation of their competitors. If you're looking to put your best foot forward, you can do better than that.

A particular area in which we often see stumbling blocks in execution is specifically around service pricing. How do you price your service contracts? As more organizations tie service contracts to outcomes like uptime and output and move away from a warranty model, the importance of accurate and competitive pricing increases dramatically, and the inputs that an affect that pricing do, too. Pricing analysts have been around almost as long as the concept of money itself, and service is just another product category to be tabulated, valued, and commoditized. Nevertheless, the many triggers of service, especially of an outcomes-based model, make this a task with not only a lot of inputs, but the possibility that your actual sources of data might not be consistent or accurate. With that in mind, here are some tips for how to approach informed service pricing.

Audit Your Data Sources

It's no secret that data analysis is only really as valuable as the data that you're pulling from your various sources, but it bears repeating. If your source of truth is incomplete, or inconsistent, or (gasp!) somebody is putting their foot on the scale, it's impossible to get a picture of the total cost of service. The typical data sources utilized for pricing evaluation center around service execution, asset performance, inventory management, and back office utilization. If any one of these things is outputting inaccurate information, then it needs to be remedied with expedience. Moreover, are all of these systems speaking a commonly-integrated language, or are data scientists scrambling to reconcile a common value the define all of these different areas? The importance of a single source of service truth is growing, and new tools will provide greater accuracy from a common language.

Don't Fear Predictive

When your data ducks are in a row, you can start thinking about the technologies that you're employing to price properly. Some organizations are proactively triggering service, or using planning and scheduling optimization to get technicians dispatched most effectively, but that same data can give you a window into the expected cost of a service contract. Historical data from these sources alongside perpetual monitoring of assets and costs of service, when combined with predictive algorithms can now provide a fairly accurate expected lifetime cost of service. Again, though, this is really only a useful as your data sources.

Watch Your Competitors, to a Point

This one's pretty simple. Your competitors’ shifting product and pricing stagey around service can provide a useful line in the sand by which you set your own pricing, but being a follower is not a winning strategy. Competitive differentiation is won through, you know, differentiation. Service done efficiently is now the baseline for success, so businesses looking to better their competition need to think about their service products differently. Don't be afraid to take a divergent stand from your competition. As long as you have the tools to price properly, the visibility of your whole workflow, and the means to audit effectively, you have the tools to become a price leader in a whole new product category.