Fixed IncomeBy Nick Bragg, Deputy Editor
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Five years ago, Nick Spallone truly learned how valuable his equipment repair department was to his company. In an effort to increase revenue, Spallone, president of Tahoe Supply Co., LLC, Carson City, Nev., expanded his product offerings to include warewashing and laundry. To make time to focus on these new accounts, it was decided to outsource equipment repair. What was thought to be a business gain, instead proved to be a costly error.
"We lost control of the touches with our customers, and the manufacturer we outsourced our equipment repairs to started selling to some of our customers directly," says Spallone,
Recognizing his mistake, Spallone decided it was in his company's best interest to bring the equipment service department back in-house where it had been the previous 15 years.
"We basically blew up everything that we had done in the past and started over," says Spallone. "We brought in new people to run our service department and it's a division within our company now. It's been a great thing for us over the last couple of years since we've redone this."
Instead of taking his equipment repair business for granted this time around, Spallone's new outlook has been to turn it into a revenue generator.
"If you're going to be in the business of servicing equipment, you need to look at it as a business and make it a priority in making it a profit center," says Spallone. "We've worked really hard to make that part of our business model."
Spallone's decision to rebuild his company's equipment repair business couldn't have come at a better time. With facilities' cleaning budgets being curtailed as a result of the poor economy, capital purchases, including the sales of new floor care and carpet cleaning equipment are significantly down over the last couple of years. It's no surprise then as a cost savings measure, customers are searching out distributors who can repair their current machines.
"It's not like the past where they would purchase equipment when they need to. They don't have the capital to do it anymore," says Spallone. "And so they are fixing dinosaurs to keep them running and it's just the reality of their business right now."
Spallone, along with other distributors with service departments, say they've noticed an increase in repairs recently.
"It's amazing to me some of the stuff we're working on," says Spallone. "In the past it would have literally just gone in the garbage, but they don't have any other option. That's what they need, they need to try to get it band-aided to make it to work. So we're doing that for them."
No matter the economic conditions, distributors say servicing equipment is a continuing profit center, long after the initial sale of a piece of equipment. But not all distributors in the jan/san marketplace who sell equipment get involved with the service end of the business and that is a big mistake, says Lloyd Rothstein, managing partner of Scoles Floorshine Industries, Wall, N.J.
"It's like buying a car from a dealer who doesn't do their own repairs," he says. "If there are distributors who don't currently have a repair department, they are missing out on revenue."
No Service, Lost Profits
Phil Consolino, president of SouthEast LINK, Atlanta, says there is a greater margin on repairs of cleaning equipment than the actual sale of a machine. For most distributors, service represents less than 10 percent of their revenue because they are not looking at it as a profitable business enterprise. In fact, Consolino says a distributor's equipment service business should be equal to or greater than their equipment sales number.
"So if somebody's selling a half million dollars of equipment, then they're missing out on a half million dollars worth of service business," he says.
Generally speaking, a customer will purchase a machine at least two times — the day they buy it new and all the repairs they do to it while they own it. So for distributors who do not have a service shop, they are missing out on valuable business. In addition, distributors who do have service departments say they are more apt to get customers' business vs. distributors who solely just sell equipment.
"There's a lot of people selling equipment that don't offer service departments and that kind of hurts them in the long run because a guy like us is going to come in and say, ‘Here's your choice, you can buy it from me or you can buy it from him, but I'm going to be here to support your machine all the way through its life cycle. He's leaving you after today,'"says Glenn Rothstein, president of Bio-Shine Inc., Spotswood, N.J.
With customer's budgets still frozen from a beaten-down economy, there is no better time for distributors to immerse themselves in the service side of the business to take advantage of its potential profitability.
Jumping On Board
For those distributors on the outside looking in, the first challenge at starting a repair shop is deciding on who should run it. Most distributors make the mistake of having someone already in the company take on the additional task of running the service department. But that is not recommended by distributors because the service business is a whole entity in itself.
"The No. 1 challenge for a business owner is they realize they need to invest in somebody to spearhead and drive that part of the business," says Consolino. "It is an investment. Sometimes it starts with a very capable service technician that can develop into a leader or manager."
Starting a successful service enterprise relies on a company's ability to find and hire capable technicians. Tapping into a local trade school is one way to find a qualified applicant. When weeding out the applicants, distributors say to look for people who are good at troubleshooting and repairing powered cleaning equipment.
"They might be good mechanically or they might have a good electrical background but if they don't understand how the equipment is supposed to operate and what its purpose is, it might not be a good fit," says Consolino.
Hiring suitable technicians is important, especially with the issue of liability of repairs over each distributor's head.
"If you're touching the machine, you can be potentially exposed to liability," says Consolino. "That's why you have to make sure your people are properly trained."
Distributors say they shouldn't be too concerned about liability lawsuits if they're doing everything by the book and not re-engineering pieces of equipment.
"But if you start taking a machine that's UL approved and the cord breaks off it's ground plug or there's a nick in the cord and you choose to not replace the plug or just wrap electrical cord around the nick, that's when you're going to be open to liability," says Glenn Rothstein.
During the last couple of years, standards and certifications have been introduced to the cleaning industry for various cleaning products and procedures. But what continues to be missing from the industry is a 501c certifiable training place that distributors can send their technicians to for servicing cleaning equipment. However, there are alternatives available.
"Technicians don't have to be certified by any standards but equipment manufacturers do have service schools," says Lloyd Rothstein. "We send out technicians to these schools if needed."
Distributors can also send their technicians to generalized electrical classes at local technical colleges to get them more skilled. SouthEast LINK's repair business has been successful based on the training of its technicians.
"One of the things we've always done is make sure they are properly trained," says Consolino. "We make sure our people have the tools and the training necessary to deal with repairing cleaning equipment. And you not only do it once, it has to be ongoing."
Once a distributor has it personnel in place, setting repair rates for customers is the next step. For distributors just getting started, setting an hourly labor price is ideal.
"Distributors should find out the labor rate their competitors are charging so they are in line," says Lloyd Rothstein. "I would start by calling on their own customers first since they already have a relationship with them."
Collecting payments is also a major issue with service centers. Every automobile owner knows that his mechanic expects to be paid the same day he fixes a car. The same standard should apply to machine repair, says Consolino. He says there is no shame in having a strong disciplined system for collections because only by collecting for the services provided does profit become a reality. He suggests payment within the next 15 days or immediate payment required. This way distributors will have more cash to meet payroll and other labor requirements.
Once established in the service business, there are several ways distributors can attract customers.
Enticing Customers With Service
Distributors who have service departments say customers are more tempted to purchase machinery from them by including incentive agreements with the sale of a piece of equipment. These include planned maintenance packages or service contracts that model what automobile dealerships do to help sell cars.
When distributors sell a piece of equipment, they typically pair a planned maintenance program with the sale. A planned maintenance program covers the costs of repairs and check-ups on machinery in the first couple of years following the purchase.
"We do it somewhat similar to what BMW does with their cars where we offer full maintenance for three to five years, so they have no expenditures during that period of time," says Spallone. "But in return, they're paying a little bit up front to have that."
Included in a planned maintenance plan, distributors offer free rentals, so if their piece of equipment is needs to be repaired, the customer is not out of commission.
Service contracts differ from planned maintenance packages. Distributors sell service packages in monthly, quarterly, biannual or annual packages to customers after they purchase a piece of equipment or to customers who did not purchase the machine from them. Under a service contract, technicians check batteries, squeegees, gaskets, filters and hoses and tighten screws, belts or anything else that is loose as part of a routine scheduled check-up. This ensures that a customer's piece of machinery is operating at its maximum potential and helps avoid costly repairs down the line.
By nature, equipment breaks down. While machines are in the shop, distributors can also capitalize on rental income.
"If you have a facility and their autoscrubber goes down, well there's places that can't be down a day. So they have to have something. So we offer loaners also," says Glenn Rothstein. "If someone is a good customer, we'll loan them a machine while theirs is getting repaired. While someone else, I might rent them the machine and so now you get rental income while you're fixing their machine."
Jumping into the equipment repair side of the business can be a great revenue builder, long after the initial sale of a piece of machinery, especially if a distributor is able to maintain a relationship that lasts as long as the life of a machine. With customers still trying to get back on their feet in what is a shaky economy, starting a repair shop to complement the sale of equipment is definitely a worthwhile investment.
Selling Used Equipment
Jan/san distributors who service equipment often find themselves with machines that have been abandoned by customers after trade-ins or when new equipment is purchased. Distributors like Spotswood, N.J.-based Bio-Shine Inc., and Tahoe Supply Co., LLC, Carson City, Nev., are cashing in on their customers' "trash" by fixing and piecing together parts of machines and selling used machines to customers.
With customers' budgets being slashed, they can't afford to spend $10,000 on a new piece of equipment. Instead, distributors will sell them a reconditioned machine for roughly half the price. In fact, during the last couple of years, more customers have begun expressing interest in purchasing used machines instead of new ones.
"There's a whole market that has opened up with selling used equipment," says Glenn Rothstein, president of Bio-Shine Inc. "That's been a big business now."
So, the next time a customer trades in a machine or leaves it behind, if it's financially and technically feasible, consider revamping it and re-selling it to customers. Customers will appreciate the savings and distributor's can enjoy the profit.