Wouldn't it be great to have supernatural powers over the natural forces that affect your business? I've often wished for a magic wand so I could change something about myself, my staff, my vendors, my competitors, my market, my customers or even the weather. What I wouldn’t give for that "magic pill" that would cause co-workers to accept necessary improvements when change is necessary.
Over my past 34 years in the service business, I've seen many owners search for the magic bullet that will solve all of their problems. Unfortunately, they're searching in all the wrong places. They talk to their buddies at the parts counter and find out that things aren't any better with their business. All they hear is gloom and doom. They begin to believe the lies. They assume that their fate is somehow controlled by outside forces and that all hope is lost.
You've heard about the outside forces I'm talking about. "This economy is killing me. It's hard to find and keep good help. My vendors are putting me out of business with these prices. How can I compete when Joe Garage is charging half what I charge? I can't ask my customers to pay more than $60 an hour for service and expect to get any business in this town. Flat rate won’t work in my area. My customers don't want service agreements. Why should I train my people? They'll just get smarter and leave!" (My question is this: What if you don't train them and they stay?)
Where's the magic?
Is the magic formula hiding somewhere in a locked vault, totally out of reach to the rest of the service-contracting world? Is it only available to those mega-contractors that have enough money to hire big-time consultants and fund big-time advertising campaigns? Is the secret so hard to understand that you have to employ rocket scientists to get it all done?
How can you overcome these natural forces that make your personal life miserable and your business life a disaster? Where can you turn to find the answers to these common problems? How can you build a business that will grow in value over time so that you'll have something to sell when it's time to move on to the next phase in life? I've discovered an answer. The answer is maintenance agreements.
Imagine this: You wake up on January 1 and, before you even get out of bed, your company has over 20,000 prescheduled appointments already on the books for the year. No advertising is required. No competition is involved. You don't have to pray for hot summers or cold winters. Your technicians don't worry about "short weeks" because there's plenty of work to do. You can plan the schedule so technicians stay in the same part of town. Accessory sales are easy because your customers trust you. You get the "first look" at replacement equipment opportunities. You're paid for the work in advance or on an automatic monthly basis. Your customers regularly recommend your company to others.
Value at Retirement
The real magic comes when it’s time to "cash out" of the business at retirement. The only thing that has lasting value in your business is your maintenance agreement customer list. People that buy HVAC service businesses don't care about old, used service vehicles. They don't care about obsolete stock in your warehouse. They don't care about your desks and old computer systems. They don't care about a list of names or addresses where you have installed a piece of equipment or repaired a unit ten years ago. The only thing prospective buyers really care about is the predictable income stream associated with a strong maintenance agreement customer base. That's the magic.
Make it Happen
This dream really can come true if you decide to do what it takes to make it happen. I know several companies in our industry that are living this dream right now. Due to their focus on maintenance agreements, they haven't suffered during these tough economic times. In fact, many of them have flourished and tell me they had their best year ever in 2009 and are looking forward to a profitable completion of 2010. These companies tell me that their maintenance agreement customers are the "magic" ingredients in their success formula.
It makes sense when you think about it. Most people don't buy new houses when the economy tanks. When new houses aren’t being bought, new houses aren't being built. When new houses aren't being built, new HVAC systems aren't being installed. Older homes have older HVAC equipment and older HVAC equipment breaks down more often. The number one cause of HVAC system failures is the lack of regularly scheduled manufacturer-recommended maintenance. The easiest time to enroll a customer in a maintenance program is when their existing system doesn't work. Regularly maintained equipment breaks down less often so your service agreement customers survive the extreme temperatures better. Since maintenance customers don't call as often during peak seasons, you have more capacity to take care of non-agreement customers that need service.
So Many Excuses
The number one reason most contractors aren't living this dream is because they think maintenance agreements are a nightmare rather than a magical dream come true. They have all sorts of wrong ideas about the value of a maintenance agreement program and, as a result, don't actively embrace this important facet of the service business. Here are some of the excuses I've heard from contractors when I asked them why they don’t have a strong maintenance agreement program:
- My customers don't need maintenance agreements
- My customers don't want maintenance agreements
- My technicians hate doing maintenance work
- I can't afford to discount my work as an agreement benefit
- I'm afraid I'll forget to perform the scheduled visits
- I don't see the value when equipment has a 10-year warranty
- I have a hard enough time just fixing equipment when it breaks
- I can't keep track of which customers have service agreements and which ones don't
- My competitor rips people off selling maintenance agreements
- Customers will abuse me if I offer no overtime charges
- I won't have time for hunting and fishing if I'm busy all year long
- If I grow my customer base, I'll have to hire more technicians.
Most these excuses are pretty lame, but they're actual excuses that I've heard from owners, service managers, and service techs over the past 34 years in this business. They're victims of a lie and they'll go down the path of lack-luster business performance as a result. When their "cash out" date arrives, they'll wonder why they didn't get the big payout they were expecting for all the hard work they've invested. It's sad, but true.
The Truth about Maintenance Agreements
Build your business on a strong maintenance agreement customer base and you'll enjoy a more predictable success rate. Look at the largest and most successful businesses in your area and across the country. They rely on their strong maintenance agreement customer base for their success, not the weather. Sure, weather extremes enhance their business, but they don't rely on the weather to have a great year. These successful contractors have recognized the real "lifetime value" of a maintenance agreement customer and they treat them accordingly.
The lifetime value of a maintenance agreement customer includes annual maintenance agreement enrollment fees + repair fees + accessory sales + add on and replacement equipment sales over the life of the relationship with the customer. When you add it all up, you can easily see that the value of a maintenance agreement customer with a single HVAC system could very easily top $10,000 over a 10-year period of time. If your customer base has multiple units per house or building, the numbers are even more phenomenal.
Imagine having just 1,000 maintenance agreement customers. Over 10 years, that would translate into 20,000 pre-sold, scheduled maintenance calls; hundreds of billable repair calls; hundreds of accessory sales; and the vast majority of these systems would be replaced in a non-competitive sales environment. The end result: $10,000,000 in sales over the next 10 years to a group of people who trust you and will help you grow your business for years to come. When you factor in the reduced need for advertising expense, unapplied labor time and a non-competitive sales environment, the profitability on these sales will be terrific.
That's the magic of maintenance agreements.
David M. Holt is the business development manager at Profit Strategies, Inc., in Columbus, GA. He can be reached at 888/229-4100 or [email protected].
This article is based on, "Maintenance Agreement Magic," which David Holt will present during HVAC Comfortech 2010, in Baltimore, MD, Sept. 22-24. HVACR WEEK includes Comfortech, the Commercial HVACR Symposium, and the Engineering Green Building Conference. Visit www.hvacrweek.com for additional information.