4 Tips for Negotiating Maintenance Agreements
Maintenance costs can make up a significant portion of a manufacturer’s revenue, ranging from 15% to 70%, as per the US Department of Commerce. Negotiations for maintenance contracts primarily revolve around cost reduction, leading to an adversarial dynamic where both parties aim to protect their profits, often resulting in contractors operating with minimal margins and hindering efficient maintenance, which in turn affects operations negatively.
Here are 4 Tips for negotiating more profitable, long-term maintenance contracts with your customers:
- Mutually establish service level expectations
Clients often demand service level agreements which are onerous to the contractor while giving themselves all care, but no responsibility. Facilitate a reciprocal assistance dynamic between the client and the contractor. Clearly identify the responsibilities of both parties that support both parties’ success.
- Set the anticipation for ongoing enhancement!
Understand and embrace your client’s aspirational business goals. Develop KPIs in partnership with your client and focus on results that drive tangible business benefits for your client. KPIs should be achievable and flexible: once the KPI goal is achieved, new KPI metrics should be developed.
- Explicitly define areas of accountability
Most friction and failures in business occur at interfaces or boundaries. A Division of Responsibilities is an operational and tactical document designed to ensure the success of internal processes and procedures. When creating a Division of Responsibilities, emergency and contingency procedures should be considered.
- Direct attention towards shared advantages and collaboration
The owner bears financial responsibility for equipment-related risks. Proactive maintenance can reduce some of these risks but doesn’t eliminate them completely. It’s crucial to view maintenance discussions as a collaborative partnership, with both parties sharing in the potential for success or challenges. An effective method to ease the owner’s financial burden is by including Chill-Pro® service contract insurance, which expands agreement coverage to unforeseen breakdown expenses and contributes to spreading the financial risk to both parties.
When approaching negotiations for a maintenance service contract, the choice lies between a harmful decline or a collaborative rise. Focusing solely on cost in these discussions will undoubtedly erode organizational value for both your customer and your service organization.
By comprehending each party’s vision of success, you can shape an agreement that highlights mutual gains, fostering a partnership where joint success revolves around quantifiable business benefits from maintenance outcomes.