Selling Service Contracts: From One-Off Orders to Ongoing Relationships

Why service contracts are on offer and still rarely sold

Many trade and technical businesses have a template for the maintenance contract. It sits in a folder, and occasionally a customer asks about it. It is rarely offered actively. The technician does not feel responsible, the owner has the next order on his mind, and the customer only remembers the topic when the equipment fails. Then he calls whoever has time.

So the question is: how does a business sell service contracts so that customers see them as a benefit and not as an additional bill? To answer it, we first clarify the terms, then introduce the customer's view of offerings as a mental model, review what research shows about selling services, weigh who in the business should sell, and finally go through occasion, offer, conversation, and renewal. The guide Building recurring revenue describes how to set up and price service contracts. This one is about selling them.

A service contract is not sold when it sits in a folder but when it is on the table at the right moment.

Terms: service contract, installed base, statutory warranty

A service contract governs a recurring service at a fixed amount per period, such as annual maintenance, a mandatory inspection, standby with a guaranteed response time, or the support of a piece of equipment. The installed base is the totality of equipment, machines, or systems that a business has installed or sold at customers. For most businesses, it is the obvious starting point for service contracts.

This must be distinguished from the statutory warranty, the legal claim in the event of defects. It applies anyway and is not a selling point for a contract. Customers occasionally confuse the two. A good offer therefore states clearly what the contract delivers beyond the warranty: regular care, faster help, documentation, predictable costs.

The mental model: offerings from the customer's view according to Tuli, Kohli, and Bharadwaj

Kapil Tuli, Ajay Kohli, and Sundar Bharadwaj (2007) interviewed 49 managers at customer firms and 55 managers at supplier firms and held two focus groups with 21 further managers. They wanted to know what makes a solution for business customers. Suppliers described a solution as a customized combination of products and services. Customers saw it differently, namely as a sequence of four relational processes between customer and supplier: defining the customer's requirements, customizing and integrating products and services, deploying them, and continuing to support the customer afterward.

According to the authors, this difference explains why many suppliers neglect precisely the processes customers consider crucial: requirements definition at the start and support after deployment. For a service contract, this is a useful structure, because at its core it is the fourth process sold as an offering of its own.

What research shows about selling services

It is well documented that salespeople who used to sell products struggle with services. Ulaga and Loveland (2014) conducted focus groups and in-depth interviews with 38 sales executives at B2B manufacturers and found four hurdles in the transition to a service business: the change for the sales organization is bigger than expected, selling combined offerings differs from selling products, it requires different skills, and successful service sellers differ as individuals from successful product sellers. Top management frequently met strong resistance within its own sales force.

Alavi, Böhm, Habel, Wieseke, Schmitz, and Brüggemann (2022) studied whether money helps. They analyzed data from 294 salespeople at an industrial company who sold complex new services, combining surveys with company figures. What mattered for sales success was the salespeople's problem-solving behavior, meaning the willingness to understand the customer's problem and look for a fitting solution. When commissions depended strongly on service revenue, an inverted U appeared: a medium variable share of pay went along with the most problem-solving behavior, very low and very high shares with less.

All three studies concern larger companies. But their common finding can be transferred to a small business: a service contract does not sell through pressure or bonuses but through understanding the customer's situation. Someone who asks what a breakdown costs the customer sells differently from someone who lists maintenance dates.

Two views: who in the business should sell service contracts?

The first view says: sales or the owner. Selling is a skill of its own, and technicians do not want to sell. Ulaga and Loveland support this view insofar as they describe selling combined offerings as a demanding task in its own right.

The second view says: the technician. He is at the customer's site, sees the condition of the equipment, hears the staff's concerns, and is trusted because he does not appear as a salesperson. A technician's remark that a component will be due in a year is more credible than any brochure.

I consider a division of labor the workable solution. The technician recognizes the occasion and reports it; the owner or sales clarifies the requirements and makes the offer. For this to work, the technician needs a simple way to report, such as a field in the service report, and a small recognition for every occasion reported. According to the finding of Alavi and colleagues, a high commission is not necessary and can even be harmful. The article Sales compensation compares how sales pay is structured in general.

The right occasion: when customers are open

The best time for a service contract is the completion of a project. The customer has just experienced how your business works, and the equipment is new. There are further occasions that can be planned because they can be read from the installed base.

The completion of a project is also the beginning of customer onboarding. The guide Customer onboarding describes how to use the first weeks after an order. A mention of the service contract belongs in the acceptance meeting, not in a promotional email three months later.

The offer: results instead of dates

Many offers for service contracts list services: two maintenance visits a year, visual inspection, cleaning, inspection report. What the customer gets out of it remains unclear. An offer that starts with the customer's situation and describes the result is more effective.

Where possible, the value in euros belongs in the offer. The value equation from the guide Expressing customer value in euros compares the contract with the customer's next-best alternative, usually paying for time and materials in case of a breakdown. An offer in three tiers helps because the customer then chooses between variants instead of between yes and no. The guide Good, better, best describes the Basic, Standard, and Premium tiers at annual prices of 1,400, 2,000, and 3,000 euros.

• The offer starts with the customer's situation, not with the list of services.
• It states what the contract delivers beyond the statutory warranty.
• Response time, dates, and exclusions are clearly described.
• Materials and call-outs beyond the included quota are covered.
• Term, renewal, and price adjustment are stated in the offer.
• There is a named contact with a phone number.

Conversation, objections, and renewal

In the conversation, the first process according to Tuli and colleagues counts: defining the requirements. Three questions are usually enough. What happens in your business if the equipment is down for a day? Who takes care of maintenance and inspections at your company today? How have you experienced repair costs in recent years? The answers provide the reasons for the contract, and they come from the customer himself.

The guide Handling objections describes how to clarify objections without pushing. The fourth process, support after deployment, decides the renewal. A short annual review with a report on call-outs, the condition of the equipment, and upcoming replacements makes visible what the contract has delivered. It is also the occasion for the post-calculation and a justified price adjustment. If you renew this way, you rarely have to negotiate. The guide Growing existing customers shows how existing customers can grow beyond that.

Conclusion and a first step

How does a business sell service contracts so that customers see them as a benefit? It offers them at the right occasion, above all at the completion of a project, first clarifies the customer's situation, describes the result instead of the dates in the offer, and makes visible in the annual review what the contract has delivered. Research shows that customers consider precisely the clarification at the start and the support afterward to be crucial, and that problem-solving behavior sells more than high commissions.

1. This week: List all projects from the last twelve months at which no service contract was offered.
2. Next week: Add a field to the service report in which technicians report occasions for a contract.
3. In a month: Make the service contract a fixed part of the acceptance meeting, with an offer in two or three tiers.

A customer who signs a service contract is not buying more maintenance. He is buying the certainty that he no longer has to look after this equipment himself.