In our industry, the most important area for the profitability and survival of the company stems from the recurring revenue in the service department. When considering the trends in our industry for the future, this topic deserves serious attention.—dealers that fail to secure the revenue stream properly are most at risk for failure.
What Does it Mean
When we are talking about securing the revenue stream, we are talking about creating a binding support agreement for the duration of the equipment lease. I know some dealers do not like to build the service into the lease, but failing to do so diminishes the value of the dealership and does not provide any future security for the company.
I am not suggesting pre-funding the service component of the lease, and most leasing companies no longer offer that as an option. When valuing your dealership, a pre-funded service contract is viewed as a liability rather than as an asset.
When you build your service contract into the lease, that recurring revenue positively impacts the value of your business to a bank or a prospective purchaser. Tying the service contract to the lease means that you can show the full value of the contract as future revenue. With a standard service agreement, you can only show the value of the time remaining until contract renewal.
Read the rest of the article in the Member's area or in ENX Magazine. https://www.enxmag.com/twii/service-management/2018/10/secure-the-recurring-revenue/
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