How to Develop a Service Agreement Program

Service agreements are crucial to the business of an HVAC add-on replacement contractor, and can create a consistent, sustainable revenue stream. Here are some tips on how to create a sustainable service agreement culture within your business.

The first step to creating a successful service agreement program is to determine your business model. In the Contractor University module, they outline two potential pricing strategies that can be effective: a break-even pricing model, where you then try to maximize the number of agreements you have, or a price for margin strategy, where you have fewer agreements and try to maximize the amount of money you make on each one.

There are commonalities in each strategy: an effective program will reduce your marketing cost year-over-year, and both give you opportunities to convert existing customers to service agreements and retain them as their agreements expire. Then you can grow your customer base, take advantage of upsell opportunities, and gather equipment replacement leads.

There are differences as well:

• In the break-even model, you need to have accurate knowledge of your overhead and maintenance costs.
• In the price for margin scenario, you can assign a price to hit a certain margin.
• The trade-off is, more agreements, like in the break-even model, lead to more opportunities for referrals and leads, but if you have labor challenges, the price for margin strategy is better idea.

Other factors included in putting a service agreement program together include multi-year agreements, multi-system customers, extended warranties, and determining your costs to perform a basic maintenance tune-up.

Some questions to consider:

• How many tune-ups will be included in your basic service agreement?
• How will you price single year, multi-year, and multi-system agreements?
  • Efficiencies for multi-system agreements include a reduced cost of no travel time between tune-ups.
  • If a customer pre-pays for a multi-year agreement, you can then hold onto and safely invest that money, earning interest.
• What tasks are in your basic tune-up, and how long will they take?
  • This determines how many tune-ups each specialist can do.
  • Adding more time into your cost structure gives you the leeway to provide great customer service.
  • Start small, get better, and add more complexity as you go.
• What are your KPIs?
  • Remember: what gets measured, gets done!
  • Metrics you can track:
    • how often a tune-up converts into a service agreement
    • how many service calls a technician can support
    • how often a sales lead comes from a service agreement
    • the accessory sales rate
    • how often your technicians offer a service agreement

There are worksheets on the Contractor University website to assist in pricing your service agreements, figure out appropriate discounts for multi-year and multi-system agreements, and ensure you can maintain a profitable service agreement program.

Create a Culture of Success for your Service Agreement Program

In order for your service agreement program to be successful, you will need the buy-in of your employees, especially your service technicians and tune-up specialists. An appropriate commission structure will be important, as well as arming them with tools to effectively work with homeowners to describe and sell the program. As we know, some technicians are better at sales than others, so these marketing materials to describe your service agreement program should be simple and visual, and easily spell out the benefits of the program.

Also, training for your technicians is important, not only so they know the technical side of the equipment, but also how to work with different personalities, how to build and maintain relationships, and how to be comfortable using sales materials.

The culture of a service agreement program should be built around consistency and accountability, meaning your technician should offer the program every time they are working with a homeowner and then be sure you give your team a way to track their results.

Every time you are in a daily or weekly team meeting, reinforce the fact that this is important, and part of your culture of service. Tracking the statistics can create some fun competition as well! Consistency is crucial, and will allow you to continually improve. If this program is set up correctly, the homeowner, the employee, and your business all win!

Reach out to your B-Y territory manager with any questions on how to make a service agreement program a success.

This post is inspired by a module on the EGIA Contractor University site. For more information on Contractor University, contact your B-Y territory manager.