Set Maintenance Agreement Goals To Cover Overhead
Originally published: 11.01.10 by Ruth King
Operating cash will keep flowing during tough times.
Many contractors have grown their maintenance agreement base to thousands, even tens of thousands of customers. These companies have discovered that maintenance agreements can cover the entire overhead of their company. They also know that maintenance customers are loyal customers. And, these customers are likely to listen to what your technicians are telling them because they trust your company.
You need enough maintenance agreement customers to cover the entire overhead of your company so that you won’t have to worry about a flailing economy causing your company to go out of business. Here are six activities to do this fall to start seriously building your maintenance agreement base:
1. Make sure that you are at least slightly profitable on your maintenance agreements. Debate about this rages on among contractors. Some say that maintenance can be a loss leader made up for in other areas. Garbage! We are not a grocery store where a loss leader gets customers into the door, and then they buy much more than that loss leader.
Every activity you perform should be profitable. Can you imagine 5,000 agreements where you lost $5 on each? No competent business person plans to lose money on anything. If you aren’t earning a slight profit after you take overhead into consideration, raise your price. Give your customers a reason why your agreement is better at a
2. Calculate the number of agreements you need to cover your entire yearly overhead. If you’re like most companies, the answer will be in the thousands. To determine the number of maintenance agreements you’ll need, divide your total overhead figure by the price of your maintenance agreements. Put a plan in place to increase maintenance agreements to that number.
3. Make sure that your technicians believe in maintenance agreements. This means that you have a maintenance agreement for your building, and your dispatcher schedules the maintenance checks with one of your technicians at regular intervals. Each technician should do the maintenance on a fellow technicians’ home. They can’t do their own homes.
For example, John does the maintenance on Steven’s home. Steven does the maintenance on John’s home. Scheduling these calls ensures that everyone knows you are serious about maintenance. And, when a fellow technician performs the maintenance on another technician’s home, you can be sure that the maintenance is done right. The technicians will check up on each other. John will check Steven’s work. Steven will check John’s work.
4. Estimate the maximum number of enrollments this fall and set the fall contest. Ask the technicians how many they think they can enroll. After last month’s column, their fears should be eliminated (Read Ruth’s October 2010 column “Boost Technician Confidence to Sell More Service Agreements,” in HVACR Business’s archived digital edition.).
Assuming the national average of 30%, the technicians need three opportunities to enroll one maintenance agreement client. So if the technicians go to 100 customers without agreements, they should enroll 30. Make sure that the technicians are “on board” with these numbers. Give them an additional incentive (other than their usual SPIFF) to reach the goal.
5. Send out postcards to:
- Customers who do not own maintenance agreements. Include all clients whom you have done business with in the past five years. Give them a great reason for a fall check (such as lower heating bills). Once in their homes, technicians are responsible for educating the clients and helping them make informed choices.
- Non-customers in neighborhoods where you do a lot of business. Most people will have seen your trucks in their neighborhood. There is some familiarity when they get the postcards. Again, give them a great reason to call you.
6. Track your progress. Let everyone know how they are doing in reference to the goal. When you reach it, celebrate! Then, in December, plan the activities that need to be accomplished in 2011 and beyond to ensure that maintenance agreements cover the entire overhead of your company.
Ruth King has over 25 years of experience in the hvacr industry and has worked with contractors, distributors, and manufacturers to help grow their companies and become more profitable. She is president of HVAC Channel TV and holds a Class II (unrestricted) contractors license in Georgia. Ruth has written two books: The Ugly Truth About Small Business and The Ugly Truth About Managing People. Contact Ruth at firstname.lastname@example.org or 770.729.0258.
Articles by Ruth King
Know When You’re Growing Too Fast or Too Slow
Business profitability doesn’t mean business survival. By running out of cash and not having the ability to borrow or get it in an equity investment, you can be profitable and go out of business by growing too fast.
Understand Your P&L: Overhead
Understand Your P&L Statement: Gross Margin, pt. 2
Gross margin should not vary more than a few points each month. If it does, then you must find out why the margin is varying.
Understand Your P&L Statement: Gross Margin
Understand Your P&L Statement: Cost of Goods Sold
However you decide to categorize expenses in your P&L, it's important to be consistent.