Over the last 60 years, the term "Service Agreements" has meant conducting maintenance with your existing customers by performing regularly scheduled tune-ups on the HVAC or Plumbing mechanical system(s) in the dwelling.
Today, I would offer we now have an added thought process that, while the basic maintenance is crucial (residential and commercial), what an agreement program is really about is the client experience or relationship it allows us to enjoy, effectively tethering our brand to a home.
Interestingly, 80% of the profits created in our industry are made by 20% of the contractors. After many years of study and evaluation, one of the common themes is the 20% making the profit—you guessed it!—they maintain a thriving, growing and healthy service agreement approach in their residential businesses. It isn't a coincidence. They simply have a strong enough culture in service agreements that it allows the following benefits to occur inside the company:
There are of course other benefits as well, for the company, the employees, and the customer.
So, with all these benefits, why are contractors not more committed to engaging in agreement growth?
There are a couple of reasons:
There are no doubt some other reasons, but if you are reading this far, you have to be at least semi-interested in developing or enhancing a service agreement approach in your business.
Let's take a look at some recommendations for what it takes to create or simply improve a service agreement program!
Many companies have been successful marketing service agreements.
They all share a basic high-level theme. They have a philosophy of what their company does with residential service agreements and they stick to it. It is cultural.
Once they decide they like what they are doing and it works for the company, they maintain their approach and do not change their philosophy of how they go to market.
Example metrics are 1000 agreements per 1 million in annual revenue comprised of replacement, demand service, and the maintenance dollars. A better milestone still is 1500 per 1 million in revenues. Why? Well, when one analyzes the lead turnovers, the add-on sales, the accessory sales, and the replacement of the accessory part such as UV light bulbs, filters and other aspects, the maintenance department begins to create a revenue stream that is formidable and very profitable.
And while we are on the subject of KPI's (and there are many in the service agreement model), be sure that the maintenance department is absolutely broken away from the service department in terms of financials. We price, operate, market and staff entirely differently than demand service even though a truck or man may be doing both styles of work, it is not the man or truck that keeps our metrics orderly for decisions. It is how we operate, so keep the department independent and focus on the KPI's for analysis and adjustments.
Types of Residential Agreements:
After you decide which of the philosophies you think you want to implement, the next consideration is what kind of products or services will you offer?
The products and services we offer are based on what operational comfort levels we have as a company, and more importantly what we want to accomplish for our marketing plan.
Aligning the service agreement products with your philosophy is a key point. This also applies to how you will price these products/services in the next section.
The pricing of service agreements is not very complicated. In fact, in the EGIA website under the template support section there are a number of Excel pricing template tools for you to use so you can price the service agreement products and determine what the correct pricing structure needs to be.
The pricing of service agreements is also somewhat dependent upon what kind of product selection you choose to offer. The various products will have different components in them such as:
This article is to briefly cover pricing in detail, but there are two basic ideas to consider:
Please refer to the service agreement pricing templates at EGIA.org, as you need to be certain your prices are set correctly.
Each form of agreement has a template that allows you to correctly price your agreements.
The marketing of service agreements is a key element in developing a service agreement culture and success in your company.
You need internal marketing and you need external consumer marketing.
It all starts internally with these areas:
The fundamentals are listed above, and they MUST be dealt with! You should craft your company solutions to these fundamental areas and present the approach to the employees.
Here are some additional marketing thoughts for service agreements.
Technician Sales Support Materials
What source of presentation materials do you arm your service technicians with to allow them to speak less and sell more? Use materials prepared and packaged for the service technicians to give to homeowners while they are conducting demand service calls with new customers, or those that do not currently own a service agreement. Videos, collateral materials, your website and all manner of possibilities exist to help the technicians explain the value of such an agreement.
Technician Friendly Flat Rate System
What system of service pricing do you use? Are you allowing your demand service processes to compliment and work for your company and the technician to sell more service agreements? A properly organized flat rate system will offer the discount for the customer in a manner that makes the service agreement sign-up a no-brainer. See the math in the following pages that details this concept further.
Technician Made Easy Marketing Approach
The technician needs to be properly organized with service agreements that are easy to use and with service invoices that work WITH FLAT RATE, or WITH THE TECHNICIAN to allow the sale of service agreements to happen as a natural part of any demand service call.
By creating training, marketing and support materials, a pricing system, and a set of invoices and forms that allow the technician to be 100% comfortable, you have created a powerful platform for the technician to do the work required of him or her!
Technician Training Manuals
The technician needs to practice the system. That means a training manual that supports the ideas in #1, #2, and #3 above. We need to practice the sales process with our technicians daily/weekly to keep their customer communication skills sharp!
Technician Role Play (REAL PLAY) is the best way to conduct your training.
These very role-plays are the basis for how a technician is going to learn to offer the following options to homeowners on demand service and/or a maintenance agreement call:
Thus far we have been focused on the internal marketing of service agreements. By far the best way to create service agreement sales and growth is inside the company. However, there are plenty of potential PTU's and service agreements that can be obtained through marketing externally to the community who currently may not understand what a value this is for them!
Direct Mail – Direct mail is an excellent method of targeting certain areas and zip codes, and narrowing down your target audience of customers who may be potential prospects for PTU's and service agreements.
Flyers – Using flyers through services or through the newspaper as free standing inserts is also an excellent method, and is tied to the all-important TIMING of when the weather is breaking.
PTU Door Hangers – It's always a nice touch to drop letters or postcards inside door hangers with a premium gift like a magnet promoting tune-ups or service agreements.
Coupons for Precision Tune-ups on Your Invoice – These are part of the invoice. The technician tears the perforated letter off after the service call, and the letter contains coupons for service, service agreements, and PTU's.
Free PTU's for Friends and Family – Granting a free PTU creates trial, not necessarily repetition.
A FREE service agreement on each sale you make in residential replacement market
Financially, service agreements are one of the most dynamic and healthy ways to improve your profitability.
A few financial key performance measures to keep in mind:
ABOUT THE AUTHOR
Gary Elekes is serial entrepreneur with a passion for helping others become more successful by sharing what he has learned over the past 3 decades working closely with all facets of the contracting industry. During his career, Gary has held senior management positions at Lennox and Service Experts. In 2000, Gary moved into entrepreneurship and started his training and consulting business EPC. Today, EPC continues to support growth oriented businesses aspiring to reach 20% EBIT. He also designed the very first web based learning platform for the residential contracting industry, which acts as a support system for training and learning in HVAC and plumbing trades, and has over 5,000 subscribers.
In 2003, Gary began acquiring contracting firms with a focus on developing turn-around opportunities. He also opened and operated several start-up businesses. In 2010, he added web design/SEO and online marketing to his company portfolio starting Imarket Solutions as a co-founder. Gary graduated from Ohio State University with a BSBA and also holds a Master's Degree in Business and Finance.