Should My Company Be Selling Agreements?


Tim McGuire
VP of Content and Community
June 18, 2019
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When I was first starting out in the industry I had the pleasure of seeing one of the early pioneers of home service marketing, John Young, speak a number of times. One of the talks he gave was about the importance of service agreements to the residential contractor. He would ask the group, “How many customers do you have?” People would answer “5,000,” “4,500,” “10,000.”

John would call on them and ask, “How many agreement members do you have?” They would answer “100,” “250,” “none,” to which he would reply, “THAT’S how many customers you have. Those are the only ones you can count on to call you next time they need work done.”

Think about that. Does performing work in the past for someone guarantee they are your customer moving forward? Hardly. But an established relationship, where both you and the customer enter into an agreement, would seem to change that answer.

While I have seen many contractors grow their businesses to incredible heights with a solid agreement customer base, I also see many who have not made the service agreement part of their offering to customers.

Let’s step back a moment. When we talk about a service agreement, what do we mean? First, they go by many names — maintenance plans, preventive maintenance plans (PMPs), comfort clubs, energy savings agreements (ESAs), ultimate savings agreements (USAs) and many more. But, regardless of the name, they share a number of common attributes:

Maintenance visits: Most plans, depending on the industry, include at least one and often two promised maintenance visits to the customer with an expected month each will be performed. Common maintenance may include an annual plumbing or electrical inspection, or annual heating and cooling maintenance.

Discounts: The discounts offered vary from company to company. But regardless of the amount you offer, a discount on parts or service repairs helps to build the value of the offering you are making to the customer. Just make sure that the discount you are offering is not too high. You don’t want a big chunk of your client base getting repairs at a price that doesn’t allow you to earn an appropriate profit.

Priority or “front of the line” service: Again, this gives you an opportunity to make your agreement customers VIPs. This is a great value add when a customer knows that during peak season they will be moved to the front of the line. Again, be careful here. If you charge a nice premium for first call of the day or a specific set time, don’t lose that revenue by putting your plan customers in those spots. Make sure your conditions are clearly stated.

What Is the Benefit to the Contractor?

As stated above, service agreements are a way to ensure that customers who have used you in the past will be coming back to you when they need service or a replacement. A customer who has a service agreement will almost certainly call you when they need work done.

Additionally, while most customers may call once every few years, a service agreement customer welcomes you into their home at least once, and often multiple times per year. This creates opportunities for the technicians to up-sell beyond the maintenance visit they are performing.

This also creates additional opportunities to drive reviews for your company, often in what would be your slower seasons. These benefits come with very little additional marketing spend toward these customers.

Plus, a service agreement is a way for a contractor to ensure that they have work to do in the “shoulder season” (the time between busy seasons). A good number of agreement members assures your technicians will be kept busy during the slower seasons so you don’t need to cut hours and risk losing quality technicians.

Agreement members create something called predictive revenue, which can be very important for budgeting in an industry that can have revenue plans so easily disrupted by weather. Another factor of predictive revenue is business valuation. If a contractor is selling their business, the number of contract customers they have will positively affect the valuation of their business.

And, importantly, selling agreements allows contractors to offer value to their customers. Properly maintained systems will run more efficiently, making them less costly to run. They are also a way to catch problems when they are small and can be corrected before a larger, more expensive problem arises.

What Should You Consider When Planning to Sell Service Agreements?

Price: The price you charge for your plans must give value to your customers. Be sure the cost of your agreement is not more than the amount you would charge a customer calling to schedule maintenance without a plan. Would you buy a plan that was more expensive than a demand call?

Term: Plans can be sold with a fixed term (one, two or three years) or they can be perpetual, meaning you are regularly billing the customer and the plan stays in place until they cancel.

Which method is best? I am a fan of the perpetual model because it does not require me to ask the customer for their business at some regular interval, giving them the thought to cancel rather than make a large payment. The small monthly recurring payment often slips under the radar each month as your customer pays their credit card bill, and they get the positive value experience as your tech provides them service each year.

Many companies offer both options to their customers. Be aware, there are technical considerations if you are going to consider monthly billings. I’ll address those later.

Scheduling: You are making a promise to a customer to show up at their home once, twice or even more times per year to provide maintenance that they have contracted with you to perform. Imagine the chaos to your business (and customers) if you promised all of your annual heating visits would be performed in October? Are there enough days in the month and techs in your business to satisfy that promise?

In selling the agreement, be sure you are spreading these visits properly through your anticipated slower months. Also, give yourself some time to get the visits scheduled. Calling the month the visit is due is going to lead to a lot of visits going incomplete as you struggle to contact your customers. Start communicating a couple months in advance by email or with a postcard, or reach out to customers with visits due a month or two out to fill open spots in your schedule.

Technology: Managing agreements can be an overwhelming task without some technology to back you up. For some an Excel spreadsheet may be enough, but for most, that is a solution that is outgrown quickly.

Determine in advance how you will be tracking the expiration dates of your plans so you can offer renewals in a timely manner. If you are using business management software, understand if you can track and report on this information.

That goes for the visit scheduling as well. Can you generate reports of upcoming maintenance due and then use that report to generate emails or postcards to your members? Will your system keep track of which maintenances are upcoming, complete and overdue?

Finally, if you plan to offer your customers the ability to pay monthly, be sure you have a solution that will allow you to manage and process those billings. No one wants to be manually running hundreds of credit card transactions each month.

Accounting: Before you begin to implement an agreement program talk to your accountant! There are considerations related to revenue; do you take it as the money comes in or defer until you perform the scheduled maintenance? Depending on the state you live in, your answer to that question may require you to physically keep some of that money in an account, or only show it on your balance sheet. Your number of agreement customers will also affect the budgeting you do for the following year.

All of these elements related to agreements might make them seem too complicated and too time-consuming to bother with. Guess what? They are worth it. And choosing the right software can mean service agreements are not difficult to maintain and manage.

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