Last updated March 31, 2021
Service is fundamental part of any farm equipment dealership. But it’s also becoming a foundational aspect of many precision farming businesses.
Margins on hardware sales have narrowed in recent years and dealers are working toward a more balanced and recurring revenue stream. Results from 5 years of Precision Farming Dealer’s Benchmark studies show the percentage of revenue generated by hardware sales has dropped every year from its 62% peak in 2013 to 48.6% in 2017.
Dealers often point to market saturation and competition as contributing factors to decreasing margins on precision products. While precision service can be an equally competitive market, it is one which dealers have had success separating themselves from the competition. Some 17.1% of 2017 revenue came from ag technology service and support, which may seem small by comparison to hardware sales.
At the same time, on average, service provides dealers with their largest gross margin. According to the 2017 Cost of Doing Business study compiled by the Western Equipment Dealers Assn., on average, sales of service resulted in a 60% margin.
But developing more recurring streams of revenue remains a priority for dealers to strengthen customer relationships and create additional equipment sales.
“When we talk about recurring revenue, the deep down motivation for identifying it is to be able to plan for the coming year, quarter, month, etc.,” says one precision manager of a multi-store Case IH dealership. “Dealerships, including ours, are looking more into their income-to-expense ratios and are diving into identifying income trends because that is what drives good budgets and achievable sales goals.
“A precision farming business does not want to become a one stop shop in the sense the customer comes in once and never returns. We want to offer our customers the products, services and support that gets them coming back over and over again. If we can begin to predict when they will walk in that door, then we have mastered our budget planning process.
“But we are in the ag industry and machines do not predictably break down, vendors don’t release a hot new product the same day each year and customers certainly do not always know exactly when they will need you. We have to come to terms that some of our income will be unpredictable.”
So what are the more profitable pathways to billing for precision service?
Precision Farming Dealer gathered advice, insight and experience-based tips from a diverse group of retailers of all sizes, colors and locations to provide bankable takeaways on billing for precision service.
1. Start billing.
The sooner the customer grows to expect this, the sooner it becomes normal and you don’t have to fight an on going battle. Just be fair in the beginning to both sides.
2. Find a time that isn’t your busy time and set that as the renewal period each year.
Keep that date each year to engrain it into the customers’ minds so they are thinking about it as well as you.
3. Infrequent billing helps.
We are looking at unit per-year or product per-year billing as it works the whole season. It becomes easier to overcome objections to per-year billing as the service work for setup and maintenance is best done before and after the actual season of when the unit needs to work in the field.
4. Create a simple and clear billing structure.
If it is easy for the farmer to understand and highlight the area where the value is in the dollars they are spending on support, it becomes much easier to meet the expectations of the value of a package.
5. Make sure the customer knows what he or she is getting.
That way there is no gray area when it comes to billing extra work outside of the plan. Be proactive and explain before doing extra work why it’s not covered in the plan. It’s always better to be proactive instead of reactive and in an essence that is what service plans are for — being proactive.
6. Relay the value of software and firmware upgrades after you have tested them, especially for spring and fall updates.
7. Provide software updates frequently during the year.
We have over-the-air software updates for equipment and this is an important service to address bugs and install new software. In my experience as both a customer and precision service provider, it’s much easier to pay for something once and know that you are covered for the whole year. Don’t limit your opportunities to get out to customers once you’ve established a good base.
8. Follow up with customers to verify the amount you billed matches their expectation of the service provided.
“Stop telling customers what you will do and start selling on what they will get…”
9. Use your data coming back from equipment to identify issues and bill the service out both on the data side and service side.
10. Sell a structured product support package that is very adaptable to individual customer’s needs.
For example, combine yield monitor and guidance. preseason setup, software update and a package of 4 phone support sessions.
11. Incorporate remote support tools, through mobile apps and bill for time according to the information recorded in the platform’s documentation.
12. Annual service plans are a great way to ease customers into paying for service.
It lets them know that they can expect a bill for work done on precision equipment just like they would get on iron from the service department.
13. Educate your sales team to include annual service agreement packages on every sales proposal no exceptions.
It can always be removed if necessary, but more difficult to add on later — assumptive sale close vs. add-on sale close.
14. Create or take advantage of automation.
Let’s use the idea of making coffee. How many combined minutes a day does your office spend making coffee? Would those same minutes be spent watching the coffee brew if the coffee maker had some form of artificial intelligence telling it when to refill the pot and you never had to worry that the last little bit would burn because it knew when to shut off? Those few minutes and that back-of-your-mind reminder to turn off the coffee pot before it burns could be reassigned to focus on a revenue generating task. It’s a slightly extreme example, but what tasks do you or your team complete on a regular basis that can be automated to save you time? Are those same tasks the ones you keep a mental reminder steadily rolling through your head, and can you free up that brain power?
15. Be clear about what the annual service agreement covers and does not cover.
16. Simply advertise your plans to the customer.
If a customer asks about the plan and wants it customized, work it out because otherwise your plans can’t cover everyone and as we all know everyone is different. This becomes really important when thinking about mileage differences and time that jobs will take.
17. Make sure you deliver a value and be able to prove that when you are pressed.
Show the customer where you delivered on the amount you billed. If you can show you saved them money, even better, such as calibrating a fertilizer rig or planter and improving accuracy.
18. Know your competition and know what their labor rate is and what they charge for.
Make sure you are competitively priced in the market.
19. Your precision specialists or technicians MUST be part of the service department and not part of the sales department.
Customers are accustomed to getting a bill from the service department. If a salesperson can effectively promote your billing with flyers, emails and/or other communications, stick to it.
20. If the first bill the customer gets is one they are going to contest, consider adjusting the charges to smoothly transition the customer into a normal service charge.
21. Don’t allow your salespeople to drift from billing for actual service work.
They may be doing the customer a favor in the short run, however, in the long run, it hurts your business and the customer. If you go bankrupt, who are your customers calling? Your competitor who has been billing all along, that’s who.
22. KISS: Keep it simple stupid.
Have a “few” options for service packages, but not so many that it is confusing. Hourly billing is the most preferred way by the customer, thus far. Too many options just turns the customer and salespeople away. If you create a package, make it worth both you and the customer’s time and money. Trying to “stick” customers with excessive padded hours will not fare well once they notice you’re finished in half the time they are being billed.
23. Educate your sales staff to the amount of time startups take.
When they throw in the startup training as part of the deal they are usually costing the dealership a minimum of $500. Without a machine startup program more often than not, you will return the next season to refresh last year’s operator or train a new one. You need to build a program that covers the recurring training costs into a program at point of sale.
24. Clearly explain the difference between a support agreement and a service agreement with the customer.
We provide yearly support agreements that allow for unlimited phone support, but make it very clear that if we pick up a wrench it now becomes a service call. For example, auto-steer is following the line but the customer has wide guess rows. This can be solved by adjusting offsets. If he has not adjusted his sway bars, it involves picking up a wrench and adjusting so now it’s a service call. We as dealers can’t afford to be babysitters and ride in the cab for 2 hours punching buttons for the customer.
25. Thoughtful communication between customer and dealership is critical.
Technology is moving fast and we as dealers are to be the experts. The costs involved in keeping staff trained can be overwhelming. But the continuous updates or improvements to products are designed to make equipment perform for customers and they need to know we are here to support them with service, but it does come at a price. The margins in precision ag are not great enough to give cost-free unlimited support or service. This has to be done without scaring customers away from using the technology because it’s too hard. If discussed and sold at the point of sale, it can give the customer a sense of relief that he will be taken care of.
26. Don’t give labor away for free.
If you sell 5 hours of service then give what customers pay for. The minute you start adding BOGO (buy one, get one) deals, you have just devalued the quality of your service to your customers, whether they have a service plan or not.
“Educate your sales team to include annual service agreement packages on every proposal and quote, no exceptions…”
27. Every person in every store needs to be on board.
You can’t be billing for a service when the salesperson in the office next to you is giving it away for free. Phone support is a perfect example. A varying pricing structure and scope of services between stores creates customer confusion.
28. Make your annual service agreement package(s) as simple and concise as possible.
29. Stop telling customers what you will do and start selling on what they will get.
Educate them on how things are done and why other people are doing them. Let them research for themselves and come to a conclusion. Once they decide they need what you offer instead of just being stuck with another bill, the pricing becomes much less of an issue.
30. Always be on the lookout for ways to make your customer’s life simpler.
The majority of people in precision farming will say one of their top goals is to be a partner to their customer. By identifying tasks related to your department/company that customers come to you for on a regular basis and creating a process that automates that task for them, opens a door for a recurring revenue opportunity. They will become accustomed to you handling specific aspects of their business and be willing to pay you to take care of it.
31. Track the work you do.
Track what is billed and track the time you decide is an unbillable customer satisfaction call or visit. Being able to track your business gives insight into where you are spending your time and may spark some new ideas. Tracking unbilled time is a way to identify opportunities in your operation. Is your unbilled time spent on a specific salesperson’s customers because he or she lacks knowledge on a product line? Is it an opportunity for internal training to equip others to help support customers when you are busy with higher level in-season troubleshooting?
32. We offer RTK subscriptions bundled with data plans.
Each person on the team is responsible for billing those customers each year to renew their RTK bundle. During the busy season it is very easy for a renewal to fall off the plate and get missed if that team member is working on larger projects or the season hits in a way that creates chaos. We have a shared calendar in our department and the first day of every month there’s a calendar reminder with a list of customers who’s RTK expires that month. New subscriptions are added to the event as they are activated and the appointment re-occurs every year until someone decides to delete it. That simple item provides reassurance that even in the busiest months we are much less likely to overlook billing subscriptions and resetting that clock for the customer.
33. It still comes down to communication.
Listen to the customer let him tell you his expectations and needs, then build the program to what he is asking. It’s much better than telling him what he is going to get.
Defining Precision Farming Opportunities, Revenue Streams & Job Descriptions: Read the first in this free eGuide series from some of the brightest minds in the sales and service of precision agriculture.
Bridging the Gap: Get additional insight, tips an takeaways on how to incorporate agronomic services into your dealership’s precision farming business.
This article originally appeared in the Winter 2018 edition of Precision Farming Dealer magazine.