How To Increase Service Agreement Revenues
Originally published: 11.01.06 by Jackie Rainwater
At Peachtree Heating and Air Conditioning, the Atlanta-based service, replacement, and IAQ company I helped to operate from 1990 until 2002, we were successful in growing our maintenance-agreement customer base to over 18,000 and we leveraged that customer base for almost $18 million in revenues and over 17% pre-tax profit in 2001. We averaged over 15% pre-tax profits during that 12-year period.
Our business mix was about 85% residential and 15% light commercial. The company was virtually “weatherproof” (We didn’t rely on weather extremes in order to sell replacemets.); “recession proof” (We didn’t depend on a strong economy to make our numbers.); and our customer base was “bulletproof” (Because our customers were cared for under our maintenance-agreement plan, they were for all practical purposes not in the marketplace of our competitors).
Over 80% of our advertising and marketing budget was committed to the promotion of our company as a premier hvac and IAQ service provider. The primary objective of our advertising and marketing was to get our professional service technicians into the homes and businesses of customers who did not own one of our maintenance agreements. Our technicians were trained to present our maintenance agreement at the end of each service call, and we were successful in converting 75% of these “casual” customers into maintenance-agreement customers. During the process of performing maintenance, our technicians were trained to inform and educate customers as to solutions our company could provide to alleviate problems regarding comfort, energy bills, hvac equipment reliability, or indoor air quality. Most of our sales leads were generated through this process, and over 75% of our annual revenues were derived from our 18,000 maintenance customers. And less than 25% of our annual revenues came from the balance of Metropolitan Atlanta market — a market with a population of over 5 million people. Now THAT will keep you focused on growing a maintenance agreement customer base!
How did we do it?
We used targeted direct mail on an extensive basis to get our technicians into homes to enroll new maintenance-agreement customers. We found that the best response to direct mail advertising “tune-ups” was during the spring and early summer, and again during the fall and early winter. We tracked 24 tune-up direct-mail campaigns, two each year from 1990 through 2001. Here are the documented average results of those targeted direct-mail campaigns:
Clearly, your very best prospects (by a 6 to 1 ratio) are your existing customers who are not presently enrolled in your maintenance-agreement program. Pick the low-hanging fruit when you purchase names by mailing to homes with older hvac equipment that will soon need to be replaced.
After determining your primary service area, make a list of the zip codes within that area. Contact a local advertising or marketing firm that can furnish a mailing list with the qualifications listed in footnote (3), above. You will pay around 8 cents to 10 cents per name. An excellent source for mailing lists as well as direct-mail pieces that I used successfully for 10 years is Prism Marketing, www.prismsupplies.com. Provided your area has not been saturated by excessive telemarketing, I recommend a telephone follow-up behind the mailing. A telephone follow-up can easily increase your response rate by 50% or more.
Before you begin the direct-mail campaign, be certain your technicians have been trained in the maintenance-agreement “conversion” process and the development of sales leads through the “informing and educating” of customers. A well-structured tracking process to insure that technicians are recognized and rewarded for their efforts is absolutely critical. We will address these important issues in future articles.
Notes: (1) This quantity was mailed twice each year. A typical 70,000-piece spring or fall mailing would be staged over a seven- or eight-week period. (2) Customers of record who were not under a maintenance agreement.(3) The names we purchased met these qualifications: lived in detached single family homes; homes >10 years old; household income >$65K; located within our defined primary service area.
Jackie Rainwater is a 46-year veteran and former owner of Peachtree Heating and Air-Conditioning in Atlanta. He built his businesses on service agreements.