Are you monitoring your service base? Can you answer the following questions regarding your active service base (MIF)? • Is your base growing or shrinking? • Do you know how many machines were placed last month? • How many were net new? How many were upgrades? • Is the product mix of your service base changing? • Do you know how many service contracts were cancelled last month and not replaced? • What effect have changes in your service base had on your staffing requirements? • What will the effect be on your aftermarket revenue stream? • How will your parts spend be impacted by changes in your base? Monitoring the service base is one of the most underutilized elements of business intelligence today, and it is vital to running a smart service department. More often than not, I find that dealers are not tracking their active service base, or MIF. Consequently, many service departments are suffering from the well-known ‘boiled frog syndrome’, meaning, their service base has been changing slowly over time with no awareness of the impact of the change – most notably, the impact on workload and staffing requirements. So, what events and activities impact your service base? Here are the most common: • Net new equipment sales • Upgrades or churn • Outright cancellations/removals • T&M to contract conversions • Competitive contract takeovers What’s the potential impact of these events to service? • Net new placements – obviously a good thing because they bring incremental click volume and aftermarket (service & supply) revenue. New placements also drive incremental service workload and parts cost. • Upgrades or churn – can, and usually does, result in decreased revenue driven by a lower mil rate. This is a business reality that must be quantified and comprehended. • Outright cancellations – obviously a bad thing, which results in revenue and workload loss. If you tracked events that impact your service base and the resulting base changes, what else might it tell you? • It can provide insight into what is driving your revenue growth, or lack thereof • It can provide trend data to better forecast staffing requirements • It can tell you if and when you are losing deals to the competition • It can help assess the impact or effectiveness of sales compensation plans, i.e., net new business vs upgrades • It can provide a means for measuring customer retention How can you track changes in your base? A quick and easy way to track ongoing changes in your service base with virtually any ERP system involves the use of special service call types. Specifically, establish “bookmark” service call types for installation and cancellation activity previously discussed. These bookmark service calls can be entered by contract personnel as they enter new contracts, upgrades, and cancellations. The bookmark call types should be ranged so that they do not show up under normal service reporting – use numeric call types or types beginning with “Z”. Bookmark service calls can be assigned to a service manager, or anyone who does not take service calls. Here are examples of installation and cancellation bookmark call types: • 0101 New placement – new customer or incremental placement in existing account • 0102 Upgrade – new machine • 0103 New contract – competitive takeover • 0104 T&M conversion to contract – existing customer • 0201 Cancellation – upgrade, replaced by new equipment • 0202 Cancellation – equipment consolidation • 0203 Cancellation – M/A cost, not replaced • 0204 Cancellation – equipment obsolete, not replaced • 0205 Cancellation – lost to competition Once these call types are set up and in use, monthly and quarterly service call activity reports can be generated for these call types only. Following is a simple summary report that can then be used to track activity levels: Feb 2010 Service Base Activity Report • New Installations 25 • Upgrade Installation 15 • Interterritorial Installation 3 - Total Installations 43 • Cancellation - Upgrades 15 • Cancellation - Obsolete 2 • Cancellation - Cost 1 • Cancellation - lost to comp 1 - Total Cancellations 19 • Net Change + 24 In this example, we find that 65% of the equipment installations were net new placements and 35% were upgrades that replaced existing equipment. 79% of the equipment cancellations (removals) were not replaced and 5% were lost to a competitor. The base retention rate for the month was 79%. Generally speaking, in today’s industry climate, upgrades account for a high percentage of base change activity. As previously mentioned, upgrade activity can have a significant impact on the service side of the business and must be comprehended. Let’s look at this again. Potential impact of upgrades on service: • When a large percentage of new placements are replacing older models with high service rates, total revenue may remain flat or decline. • Workload (manpower) requirements are generally reduced with the increased reliability of new equipment (as much as a 15% impact, depending on models). This can, and commonly does, result in excess capacity (cost) if not managed. You may not need to add people if you are in a growth mode, i.e., getting into MPS. • Generally, parts cost will decrease (as much as a 25% impact, depending on models). A decrease in parts cost, driven by newer equipment placements, can mask other parts spend issues/opportunities. It is critical to quantify and manage to the impact of churn on parts spend. If your service performance metrics scenario looks similar to the following, there’s a good chance changes in your service base are impacting your results and now is the time for action. • Service revenue is declining, or flat • Labor cost as a percentage of revenue is increasing • Parts cost as a percentage of revenue is declining • Service GP percentage is below 52% benchmark and steady or declining • Response time has improved over time, and possibly better than the four-hour benchmark • Productive hours per tech is low, possibly less than 5hrs/day Here’s the bottom line: Monitoring your service base AND managing to the impact of base changes is a critical success factor in the drive for achieving and sustaining benchmark (52%+) service margins. DO IT NOW! Mike Woodard is a consultant with Strategy Development, an imaging industry management consulting firm. Mike has 30+ years experience in all aspects of field service operations and service strategy development. During his 20 years with IKON Office Solutions, Mike held key regional and national service operations positions including National VP, Field Service Strategy; National VP, Field Services; and National VP, Field Service Operations. Prior to joining IKON, Mike spent 18 years with Xerox Corporation in multiple field service assignments. Mike advises companies on critical success factors including: target service metrics and goals, performance management, technology application, service growth strategies, and compensation and incentives. Mike can be reached at: woodard@strategydevelopment.org  or 610.742.4701.