Introduction
It is a fact that the customer's mindset has shifted from ownership to usership. To adapt to this change, manufacturers rethought their business model to change it from a one-off transaction model to a subscription one. That led to a completely new sales team mindset selling not only assets but entering the As-A-Service journey hand in hand with long term relationship customers.
In this regard, the sales team is not only motivated by the initial signature of the As-A-Service contract but also incentivized by the end of the contract that shall be considered as an important source of revenue. The end of term becomes a crucial pivot momentum:
- On the one hand the customer should be offered the possibility to extend the use of its asset or upgrade it before it comes to an end from a contract perspective.
- On the other hand, manufacturers remaining the owners of the equipment, have to take back the assets which might not have reached their end of life. These assets can enter the reverse logistics aspects and be offered to another client through a new As-A-Service contract or a direct sale, or be used for spare parts.
The whole orchestration of the end of term is not to be thought of at the very end but on the contrary at the very beginning. It requires strategic focus, anticipation and alignment of both sales and operational back office teams to ensure a seamless process.
Whether it lies within the legal frame of the As-A-Service contract or within the definition of pricing tool, keeping the end in mind is key to sustain a valuable refresh strategy.
Turning the end of the contract into a selling opportunity
Do you know how many contracts come to an end within the next quarter? Or this year?
Only a very few sales champions can answer this fundamental question. Although part of the valuable pipeline stands within the contracts reaching their end, evaluating their potential per quarter might be quite a challenge for the Sales team because of lack of information access.
The information is available though at the Back Office level. The Back Office indeed has the responsibility of contract management including the very end. Thanks to a proper end of lease notification process, both the Sales team and Back Office can align their goals.
They can draw the proper picture of assets to be taken back per customer, per contract per quarter for the coming year and hence target these specific customers for upgrade purposes.
Not only does the sales team use this momentum to bring awareness to the customer that the contract comes to an end but should also come with a new proposal based on a deep analysis of previous contracts, asset upgrades availability and also usage behaviour of the customer (inferred from proper data collection and analysis). This tailor-made offer will most likely turn into a new contract signature, the refresh contract.
A proper refresh tool can be designed to draft sales proposals for existing customers. Pointing the asset to be returned, the tool can automatically suggest the newest version of the equivalent asset and related pricing for estimated same duration.
Reverse logistic
Once the customer gladly benefits from newly upgraded contracts, what happens to their used assets to be returned?
Because in the As-A-Service model manufacturers remain the owner of the equipment, tackling the end of term has to be thought of from the very beginning as part of a valuable strategy.
Set the Legal frame of the end of use with the customer
The “end of lease” is defined in the signed T&Cs as the end date of the contract. Because contract management is part of Back office responsibilities, the end of term is handled by this team via notification system with customers.
Once the end of lease is reached, several scenarii can occur. At customer request, the contract can be extended for a defined period of time, either completely or partially (for some selected assets only) or it can be ended.
The return of the assets must be properly defined within the contract answering the following :
- What equipment is supposed to be returned? As an example, for IT products, any accessories, cables and manuals can be expected to be returned
- Who handles the logistics costs associated with packing and shipping?
- What are standard packing procedures that ensure a safe shipping of the equipment?
- Where are the assets located? And in how many locations would you bear the costs associated with the pick up?
- What are the costs associated with defective or missing assets that will be charged to the customer?
- What is considered as a minor or major defect?
The legal frame protects the manufacturers from a cost perspective, setting clear expectations and responsibilities at the very beginning between customers and manufacturers so that assets can be returned to its owner.
However, it does not describe the how-to implement reverse logistics which requires a whole organisation.
Implementation
From an environmental point of view, the reverse logistics can be strategic. It is designed from the start because it is a value-adding step as it allows the optimization of the value of the used asset.
A reverse logistics strategy addresses the following points occurring at “end of lease”:
- The physical collection (accessible, safe, secure)
- Identification and validation of returns (what, when, where)
- Data destruction
- The Reuse (possibility to send it directly to the next user without passing by integrators building?), remanufacturing, recycle (see R strategies)
- Distribution and environmental logistics costs
- Circular third-party partnership
This is shown as per below valuable loop :
Once collected, assets are audited and will eventually start a new life after refurbishment. As described within our previous White Papers, R strategies imply many tasks and a full ecosystem to address from logistics, to audit, recycling, refurbishment, remarketing and sale to the second hand market.
Residual Value strategy
Getting the most value from the asset at its end of life is not a simple additional revenue, it also has to be monitored closely with the Residual Value that might have been taken from the beginning and included in the offer.
The sales team designed the recurring fee related to the use of the asset during a given contact duration. This is the “monthly (or quarterly) fee”. Customers can benefit from a lower monthly fee if the Sales team expects a certain amount resulting from the sale of the asset at the end of the contract. This decision is part of the Residual Value strategy.
Hence in order to reconcile the revenue per contract, it is required that the sale of the asset at end of term, at least covers the amount of residual value. This is another mandatory step requiring the alignment of both Sales and Back office teams at the end of term.
Conclusion
Whether it lies within the Sales or the Back office team, the crucial date of end of Term needs to be anticipated and tackled with as much focus as the origination of the contract.
Designing a clear End of Term Strategy can align department goals. It should take into consideration the following topics:
- Map the global take-back strategy (geography, logistics methods, CSR impact KPI and tool)
- Measure the environmental impact and market readiness for reuse/refurbished assets
- Analyse the national and international regulations
- Define the legal framework surrounding the end of lease
- Forecast the financial impacts and ROI including the Residual Value strategy
- Map the return steps and carefully select expert partners within your ecosystem.
Should you not have the in-depth internal resources to set up the seamless organisation sustaining your growth, look for Experts for guidance on the subject.
At Black Winch, our team of Experts hold over 25 years of experience in the leasing sector. Reach out to info@blackwinch.eu for an inspiration session on how we can help you develop your most effective and efficient BO and Sales department.
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