What's the Deal With Maintenance Agreements?

April 27, 2005
Oh the horror. Oh the joy. The horror of contractor marketing is that its usually poor. On the other hand, the joy of marketing is that, when well done,

Oh the horror. Oh the joy.

The horror of contractor marketing is that it’s usually poor. On the other hand, the joy of marketing is that, when well done, it attracts more phone calls, raises your image, increases recognition, triggers referrals, and solidifies retention.

Ah, the complete marketing effort, what could be better? Well, at least two things:

  • First, making all of the above automatic, requiring little of your time in the creation, application, or placement decisions.
  • Second, making one sale pay many times. Also automatically. Paid in advance would be swell, too. Oh, and if this magic program could plug the leak in the customer retention bucket, increase referrals, and fill your slow season with meaningful work —this week — that program would be nearly sea-splitting miraculous.

Sound impossible? Think again. In fact, you probably already have a program in place: maintenance agreements.

Don’t blame yourself if you haven’t done them well; I was slow to embrace them at all, since I’m a direct response copywriter, and had a really hard time getting excited about a $179 sale. However, after spending about 20 months researching and creating a maintenance agreement program, I found three reasons most maintenance agreements fail:

Thinking that a maintenance agreement (MA) program is just a form. Instead, that form represents a program, which can reap great rewards.

Technicians are generally sales resistant. So when management says, “Here, you’re selling maintenance agreements now,” it’s virtually doomed from the start.

Your first and most important maintenance agreement conversion (not sale) involves your technicians. MAs are a higher form of service, not selling. Give your entire staff a MA so they can vouch for the value in front of customers.

Horrific marketing (there I go again). Some contractors fail because of one-step marketing for agreements. This means they try selling MAs to a general audience by broad media. Not gonna happen. This is like marriage before dating. You must “two-step” MAs by first getting the tune-up leads via broad marketing, then converting it to an MA on site.

Here’s a tip: You can actually sell an MA by direct mail or phone to your existing customers, but this isn’t a general audience. You see, the first step was them becoming your customer.

That’s why this whole customer retention thing is so incredible. You send newsletters to all your customers to build this relationship. You then convert them to maintenance agreements.

You can also convert customers to MA ones during any repair call, which you should do from this point forward, for the rest of your life or until you’ve amassed more customers than you can serve.

Overcoming the Profit Slide

An MA program has many benefits that can boost your profits rather than let them slide away:

1. Customer migration — You pay roughly $275 to gain a customer, but you willingly lose them for free. MAs can reduce this to a trickle, while the others pay to stay. Wow.

2. Seasonality -— MAs reduce or eliminate seasonality by filling in the slow seasons with planned work, not reactions to weather.

3. A recurring revenue stream — MAs turn one sale into many. Avoid renewal efforts that require reselling. Instead, include an “AutoRenew” feature, and you’ll schedule your customer’s renewals rather reselling them.

4. An increase transaction value — Multiply every service customer by $200 and you see the potential here. Rule of thumb is each $1million in sales is 1,000 customers with MAs. At an average of $180, this puts 18% more in sales. This cost you zero to get the lead because you already had them.

5. Reduction in competitive bidding — The average closing ratio in the open market is 30%. For those on MAs, it’s 78%. Would you like to instantly double your closing ratio? Think how good you’ll sleep not hearing the phrase “…we need to check around” running through your self-accusing brain.

6. Turbocharged referral program — You’re in touch, you’re on their mind, you get referred. You can only get referrals from good relationships, which MAs promote. In addition, a three-step referral generator postcard series to your MA clients can pull referrals automatically.

7. A cut in employee loss - Ever hear of a tech who likes zooming between overworked in one season and nearly laid off the next? An MA program gives you the steady work that gets and keeps the best employees. You become a more attractive employer, too.

8. Builds bankable value — You’ve got solid, scheduled, future sales, already paid, with more waiting to happen. Ask any business evaluator if this increases your appraised value. Many contractors think the good name of a company is worth a fortune, but that’s mostly “blue sky” instead of green dollars. Big difference.

And lastly, it gives you control. You schedule maintenance at a time when it’s most manageable and most needed. It parallels your tune-up blitz in the off-season.

The Customer Wins Too

So what do customers get? An MA program is heightened service. Customers get so many benefits that it’s only a matter of sharing the value. Take a deep breath for this one:

They get discounts, priority service, free reminders, energy savings, longer equipment life, “bonus bucks” toward a replacement system for each year’s renewal (smart), and of course, the greatest tune-up ever from a company that obviously cares more about them than the rest of your competition combined. You’ve made them part of the family.

Selling? Are you kidding? You’re telling them how to save money and get the best service. Now you see how your techs are converting customers into MA believers.


Maintenance agreements are like building a toll booth in your business. Yet waiting for the phone to ring in the off season is like a “toil booth.” Instead of being a slave to the weather, you can become a partner with it. Much better to work with nature.

So build yourself a toll booth with maintenance agreements. It’s easier than you think.

We can send you the basics of doing this in a free, no-obligation 16-page report on maintenance agreements called, “Is This the Perfect HVAC Profit System?” Just email your request with your address to [email protected] or fax your request on letterhead to 334/262-1115.

Adams Hudson is president of Hudson, Ink, a creative marketing firm for contractors. Readers can get a free marketing newsletter by faxing their letterhead with the request to 334/262-1115. You can also call Hudson, Ink at 800/489-9099 for help or visit www.hudsonink.com.