How Much Service Should You Buy?

When it comes to buying post-sale service and support plans, what should you buy? Unfortunately, there is no easy answer to that question, say three systems integrators/VARs who provide service (software support, hardware repair) as part of their business. In addition to hardware repair, service includes equipment replacement and cleaning. Support most often refers to answering questions about software problems over the phone and providing on-site training.

"The amount of service and support you'll need depends upon the size and capabilities of your company," says Bob Gendt, director of installation and support for Barcoded Management Systems, Inc. (BMS) (Dayton, OH). This $5 million company provides integrated bar-code systems and supplies to the industrial market.

"It's not unusual for a large, well-staffed company to purchase a service contract that covers everything, from phone support to on-site maintenance. "Managers basically don't want to worry about service and support," says Gendt. On the other hand, smaller companies may have one employee, often an information technology (IT) person, whose job is to handle minor hardware repair and software support.

Evaluating The Need For Service
For the most part, service and support plans are discussed after the sale of hardware and software. These plans should, however, be budgeted for prior to an installation of new technology, recommends Peter Minetos, president of Diversified Computer Solutions, Inc. (DCS). Based in Atlanta, this $1.4 million company installs network and document imaging systems.

Minetos often works with companies that are upgrading to newer technology. "Their need for service isn't so clear-cut," says Minetos. The problem, he explains, is that the end user believes the new technology is fail-safe. "However, what the end user doesn't take into account is how the new and old technology work together," says Minetos.

One Company's Expensive Lesson
Minetos cites the example of one of his customers, a large mortgage company. The mortgage company upgraded part of its document imaging system, connecting it to an existing (legacy) system. "We encouraged the company to cover the entire system with a $2,000 per-month service plan," says Minetos. Instead, the mortgage company purchased a $1,200 plan with limited service. The plan did not include preventive maintenance, which includes routine cleaning and inspection of equipment. When part of the upgraded system failed, it caused the legacy system to fail.

"The entire system crashed, costing the mortgage company approximately $60,000 in lost fees and productivity over a three-day period," says Minetos. Had the company purchased a more complete plan – and allowed for preventive maintenance – the failure could have been easily avoided, Minetos says.

What Services Do Integrators Offer?
Preventive maintenance is only one type of service offered by systems integrators/VARs. Most will offer some type of phone support, including a 24/7 help desk, and on-site maintenance for repairs. Others may offer online help (using the Internet) for software problems. (see sidebar of terms, page 36)

The Advantage Of "Hot Spare" Service
Hot spare service (hardware replacement) and depot maintenance (hardware repair) are becoming more common, according to Bob Gendt of BMS. "With hot spare service, we send you a replacement printer, for example, when your printer fails. You simply "swap out" the failed printer with the replacement. We supply the packaging and labels for the failed printer. You pay to have it shipped to us for repair," says Gendt. The advantage of this plan, says Gendt, is that you have a replacement printer during the time it takes to do the repair.

Using Depot Maintenance
Depot maintenance, on the other hand, requires you to return your printer for repair, without a replacement. It may take anywhere from one day to three weeks to ship, repair, and return equipment. "For some customers, such as a large manufacturing company, being without one printer for three weeks is not a problem, if it has 19 others," says Gendt. Smaller companies, with only one or two printers, can't be without their equipment for any length of time, he explains. Gendt says that depot maintenance is typically less expensive than hot spare service.

According to Gendt, preventive maintenance is often the key to minimizing equipment failure. "Service technicians should be doing preventive maintenance – cleaning and checking equipment – anytime they are called in for on-site maintenance," he says.

Determining Service Costs
"Typically, the cost of service is between 10% and 15% of the equipment costs," says Richard Adams, vice president of sales and marketing for Business Equipment Consultants, Inc. (BEC), based in Denver. This $1.9 million VAR specializes in point of sale (POS) systems for multi-unit restaurants and entertainment facilities, such as arenas and sports parks.

Will You Use The Plan?
Adams cites the example of a customer using a three-terminal POS system with a back-office PC. The total system cost $15,000. A full service plan would cost between $1,500 and $2,250 for one year for this customer. According to Adams, 8% to 10% of all system failures occur in the first 30 days of installation. That failure rate drops to 5% for the remainder of the year. The average cost of a service call – without a contract – is $95 to $125 an hour. It would seem, given these numbers, that a service contract would be a good idea, says Adams. However, he says during that first year, as failure rates decrease, the cost of a service plan may be prohibitive.

The Security Of A Service Plan
"Approximately 98% of customers don't recoup the cost of their service contract," says Adams. But, he adds that for many end users, having the service contract gives them security. "A restaurant owner, for example, will be more comfortable knowing that if the POS system fails, he can call his integrator. The restaurant won't be out of business for very long, if at all," explains Adams. Again, purchasing the "right" amount of service depends on the buyer, says Adams.

Be Wary Of Warranties
Many people may be comfortable knowing their hardware is covered by a manufacturer's warranty for parts and labor. Manufacturers' warranties, however, don't necessarily replace the need for some type of service plan. Gendt has one caution when it comes to manufacturers' warranties. "You have to contact the manufacturer, not the integrator, to have equipment repaired or replaced," he says. It's common for the end user to be required to ship the item for repair, without a replacement available. "Consider a manufacturer's response time versus the cost of a service plan," Gendt advises.

Should You Go Without A Plan?
Service plans are similar to insurance policies in that you buy them in case something happens. Can you do without them? Maybe, say Adams, Minetos, and Gendt. The key, they say, is to weigh the cost of being out of business, even temporarily, against the cost of a service plan. For example, one of Gendt's manufacturing customers called for service six months after the installation of a bar code printer. The printer was down and the customer was unable to ship its products. Without a service contract, the customer had to pay a higher rate for the service call. In addition, the customer had to agree to purchase a minimal service plan.

Gendt also points out that "acts of God", such as storm damage and floods, are not covered in service plans. "However, an end user's property insurance may cover acts of God," he says. Hardware or software that is deliberately or accidentally destroyed may not be covered under a service plan. "You can't run over a handheld computer with a forklift and expect it to be repaired," says Gendt.