Make sure your maintenance agreements are growing your business instead of crippling it.
When it comes to creating and managing maintenance agreements, the execution for most companies when they finally decide to do maintenance agreements is based on the, “READY, FIRE, AIM!” approach to management. Here’s an example …
Once upon a time, there was a company called ABC Heating and Cooling. ABC Heating and Cooling was a fairly new HVACR company that survived its first year in business. The company had heard from everyone they talked to that the key to success in HVACR is that “You’ve got to have maintenance agreements.”
Unfortunately, ABC Heating and Cooling either didn’t hear (or weren’t told) the rest of the formula that says, “… the agreements you sell need to be scheduled when you’ll need the work.” So, eager to be successful and get a lot of maintenance agreements, ABC Heating and Cooling goes back and “spiffs” their technicians a bunch of money to sell “agreements.”
Now, as anyone in the business knows, the easiest time to sell a maintenance agreement is in the fall for heating equipment, and in the spring for cooling equipment. The reason it’s easier to sell maintenance at these times of year, is these are the times when the customer may actually be focused on their equipment for the coming season.
So, like every other contractor out there, ABC Heating and Cooling goes out and sells a boatload of maintenance during this time — all due for renewal 12 months-later, smack-dab in the middle of their easiest time of the year to sell tune-ups to new customers.
After a few years of this, ABC Heating and Cooling is mystified — why are they not successful yet? After all, they have a lot of agreements now. Instead, they’re facing a logistical nightmare since all their maintenance agreements are now piled up during the same months every spring and fall. Because of this, they’re running ragged and paying their technicians overtime to try to get to them all.
To make matters worse, since they’re spending all their time with customers where they had previously replaced the old and really bad equipment, ABC Heating and Cooling isn’t able to take on new customers.
Since they’re now so busy doing maintenance on equipment where the “low hanging fruit” has already been picked, their sales are tanking and their growth has stalled.
As if having less sales opportunities wasn’t bad enough, ABC Heating and Cooling still has months in the winter where they don’t have enough work. Because of this, they get behind on their bills and lay their technicians off, since they can’t keep them busy.
Every year, they lose a technician or two, who end up finding other jobs while laid off. Now, ABC Heating and Cooling has to go through the expense to find and train new technicians. This is especially irritating since they were told maintenance agreements were supposed to level off their workload throughout the year.
Okay, so maybe the above fable is a little bit simplistic. But maybe, with all the companies that were in full panic during February and March because they had little work, there is a little truth to this tale.
There are many contractors out there who look at their maintenance program primarily as a marketing/sales vehicle, since it gets them in their client’s home every year. But if you believe this is the primary purpose of having agreements, you’re settling for only one fourth of their true value.
Maintenance programs are valuable to a contractor for these four reasons:
- Creating potential sales opportunities and top of mind awareness by getting in front of the customer routinely.
- Using your maintenance to provide enough work during your slow months to keep your team intact and employed.
- A vehicle to provide “safe” routine service calls, allowing you to train up your own technicians where they can learn while pulling their own weight.
- To put a fence around your “herd.” Agreements are meant to establish your company in the customer’s mind as the company who takes care of their equipment and the one to call when a need arises.
Of the four reasons above, No. 2 is perhaps the most important if you had to choose only one on which to focus. The goal of everyone managing maintenance should be, “How do I move a customer’s maintenance visit to where it’s at my convenience, rather than theirs?”
There are times of the year when it’s easy to get work, and times of the year it’s not. So, why not run calls you’re already guaranteed to get (maintenance) during the times it’s not easy to get a call?
Your marketing will be a lot more effective during the times when it’s the easiest to get a new customer call, because they’re already focused due to the weather or season. That is a key secret to being able to grow. Best of all, doing this doesn’t negate the value of the other three reasons, but it does have the potential to bring in work when you need it the most, not when you’re already slammed.
Because there are times of the year when it’s easier to get calls, every maintenance call you run during that time is one less opportunity to sell a tune-up to a new customer when they’re the easiest to get.
This is especially beneficial since there is a greater potential of a “lower hanging” sale opportunity with a new customer than the ones you maintain every year. The beauty of this is that you didn’t forfeit the opportunity with your maintenance customer — you just moved it to a time when you need the work to keep your team employed.
The reason running an HVACR business is difficult is because of the feast or famine everyone experiences based on the weather. For years, people have said that if you’re marketing right, the weather doesn’t matter. This is nonsense. What they don’t tell you is that the cost of what it takes to “market right” skyrockets during non-extreme summers and winters.
The fact that most every HVACR market has built-in down times is why there are so many small players out there who want to grow but can’t. The capital they need for growth gets sucked dry during the slow times, and they lose key employees when they can’t keep them busy. So, every year it’s like they’re starting from square one. It’s a vicious cycle that one must understand and manage in order to break it.
A popular management technique for solving your slow time is to market your way out of it by discounting. This can work but, as everyone knows, it’s harder (and more expensive) to get leads at the end of a season when the customer’s focus has shifted, than it is in the beginning of the season unless you’re giving away the job.
The other option, however, is to actively manage your maintenance by moving it to when you need the work. Doing so can dramatically reduce your marketing costs by shifting much of your slow-season marketing to when it is more effective, since the work you need when you’re slow is, then, already there.
When it comes to maintenance, you need to understand the animal in order to tame the beast! There are two main ways maintenance is sold by contractors. The two methods are to bill once a year, or to bill for the maintenance plan on a monthly basis.
For most small companies, the annual billing plan is typically their initial go-to method, since it requires slightly less complexity and overhead to manage. Although some companies do send an invoice out to renew an agreement, the preferred way is to do the tune-up at the end of the agreement period so your technician can ask for the renewal personally.
Companies billing monthly incur more office overhead to run the billing every month, as well as the extra time it takes updating the cancelled or expired credit cards that don’t go through every month.
There are, however, more upsides to billing monthly than there are to selling annual agreements. Here are a few of the reasons monthly billing is better if you have the tools and capability to manage it:
- Monthly agreements are much easier to sell since a lump-sum payment is not required to enroll.
- Unlike annual plans where the customer decides every year whether or not to renew, customers remain plan-holders longer since they are never asked again to make a decision to write a check in order to stay with the program.
- Monthly plans create a more level cash flow for your business.
- If set up right, monthly agreements are less of a negotiating liability on the sale of business because they do not constitute as great a long-term liability as does collecting the money a year in advance for services yet to be delivered.
Most importantly, monthly agreements can be at least 5 percent or more profitable over time than an annual agreement will be, even if the net annual pricing of both is based on the same amount.
The reason for this is that on an annual plan the agreement doesn’t renew (and you don’t get to collect) until the call is scheduled and the maintenance is performed. As any company running an extensive maintenance program can tell you, many times you will chase a client down for a month or two beyond when the maintenance visit was due, trying to get them to schedule.
On an annual plan, this means you effectively lost 1-2 months of revenue by the time you renew the agreement for another year. With a monthly payment plan, no revenue is lost since you collect every month while trying to schedule the client.
If you offer both monthly and annual agreements, make sure everyone in your organization only quotes it at a monthly price — not the annual price that the customer can pay in 12 equal payments. It’s easier to close the sale when you’re only quoting the smaller, less-scary number.
If you currently sell monthly agreements, or plan on moving to them, here are a few tips that you should consider for your program.
First, recognize that words have meaning. If you refer to your heating maintenance as a “pre-season tune-up,” or “Fall Tune-Up” — STOP. The same goes for your cooling maintenance if you call it your “Spring Tune-up.”
You’re cementing in your customer’s mind that maintenance always needs to be done at the beginning of a season when, in reality, it just needs to be done regularly. If you have the words “seasonal,” “pre-season,” “spring,” “fall,” “winter start-up” or “summer start-up” anywhere in your program literature, lose them right now.
You can get away with it when you first start, but it will haunt you eventually when you need to move your clients’ maintenance to your slow times.
Also, look for a recurring billing system that lets you take ACH (direct bank withdrawal) payments as well as credit cards. ACH is, by far, the superior way to get paid because the fees are less and, unlike credit cards, the accounts don’t expire and rarely, if ever, change. This saves a lot of time tracking down new numbers as well as risking the customer quitting because, when you ask for a new card number, he has been put into a position where a decision is required to stay with the program.
To achieve this, you need to train your technicians how to ask. Never, ever tell a customer that you can take the money out of their account every month — that’s the quickest way to get a “no.” Instead, we tell them you can get the bank to pay it every month for them.
To do this, ask them to write a check for the monthly amount, and in the memo line write monthly maintenance payment. Then tell them to void the check and you’ll use the voided check to set up the payments.
By doing this you accomplish two things. First, they feel they are in control of the entire process, and second, you get the voided check with the correct routing and account numbers to set up the bank’s monthly payment to you.
Join the Club
Another suggestion that will let you avoid problems monthly plans can create; is how you word the agreement. Too many times, companies sell the plan as simply 12 monthly payments going toward paying for an annual tune-up. This is just wrong on many levels and will bite you in the backend if you let your technicians get away with doing it this way.
Instead of referring to them as annual maintenance agreements, call it a “Club Agreement” or something similar if you’re collecting monthly for it.
Your plan’s value should always be sold based on the priority service, discounts and benefits that your members get — not an annual tune-up. If you let them think of it as mainly an “annual tune-up” they’re paying for, you will get attrition simply because they can always find someone willing to do a tune-up for less.
In fact, in a monthly agreement, if you use the word “annual” in conjunction with the word “tune-up” in your agreement, you’re setting yourself up for future grief right out the gate.
Remember the example above where a customer might not schedule his tune-up but you’re still collecting every month? What will you do when he is angrily demanding a refund for the tune-up he was promised every 12 months that you never did? Are you going to offer him to do two tune-ups on the same equipment back-to-back?
Instead use wording similar to this:
“An additional benefit of being part of the ABC Company Club is that after 12-months from the time we last performed a tune-up on your covered heating or cooling equipment, as an ABC Company Club member you have the ability to schedule a complete maintenance tune-up and safety inspection on that same piece of equipment at no additional cost!”
By wording it this way, your customer’s procrastination when it comes to scheduling is no longer a potential liability, and you still get to collect every month they put it off.
Timing is Everything
Of the two types of programs sold, the annual maintenance plan is the easiest to move into your slow time, because it can be done right at the time of sale. And, like all marketing, it’s all about how you spin it!
Obviously, telling the customer who has just gotten a furnace tune-up in October that you want to sell him an annual plan — but you don’t want to do the tune-up until a year from January — probably won’t get the sale. On the other hand, if I tell him, “We have a special offer this month that if you sign up for our maintenance plan you can get 15-months of benefits and coverage for the price of 12!” You’ll probably easily close that sale.
If you do this for all your maintenance sales during the three months of fall, you’ll have effectively moved all your return maintenance visits into the months of January, February and March — right when you need them.
The same strategy can be used for AC Club agreements sold in the busy months as well. Even though you take a slight hit for the three months you give away, it is the simplest and least costly way to do it if you are selling annual plans.
The revenue lost will easily be made up by avoiding the overtime costs of performing the tune-ups next year when you’re typically busy with new customers.
Unfortunately, this strategy doesn’t work with the monthly plans since you collect every month and there is no perceived benefit for the customer purchasing your Club Agreement in the fall to delay his maintenance 3-4 months to when you need the work.
To accomplish this, you need to create a plan that does benefit the customer to have their maintenance performed in your off-months. To understand how to do this, simply look at the airlines — they are masters at maximizing their flights to meet their own capacity needs without their passengers complaining about it.
The way they accomplish this is by simply adjusting the price or the benefits to get passengers to fill the spots they need filled. You can easily do the same with your maintenance program.
You can use price to motivate your members to have their maintenance performed in your slow months simply by offering them the same plan, but at two different price levels (it’s the exact same seat you pay the airlines $100 more for if you occupy it over the Christmas break vs. the 3rd week of September).
So, why don’t you have an off-season and busy-season price for your plan?
Rather than offer a lower price if the customer moves to your off-season, you write all your fall maintenance clients a letter saying that you need to raise the price of their existing maintenance plan because of added costs.
At the time, you inform them that if they chose to let you schedule their maintenance in your off-months, from January to March, they could avoid the coming increase and be billed at your off-season maintenance pricing, which would be the same amount they were currently paying.
By moving 40 percent of your fall maintenance to your slow time, you effectively stabilize your workload over the entire year. Best of all, within three years you should be able to increase your sales and profitability simply because your spring and fall shifted mainly to marketing tune-ups to new clients, and you didn’t have to advertise heavy in your slow time because there was enough booked “Club Agreements” to keep everyone busy.
The other option you have to motivate customers you bill monthly to do their maintenance when you need it, is to have one plan at one price — but with additional benefits and discounts depending on when their maintenance is done.
For example, if they chose the off-season maintenance option, they get $60 off any service call instead of the normal $40 dollars that all other Club Members get. Here are some reasons to consider adopting this model instead of the lower-priced off-season model:
- By keeping the price constant, it’s less confusing and easier for the technician to sell.
- It allows you to later “upsell” the club member to off-season maintenance by offering the additional benefits whenever we need to balance our workload, without having to change the price or the billing.
- It’s fairly easy to manage. If a service call is needed, the additional discount can be communicated to the technician by the office when dispatched, or simply communicated to the technician by use of a sticker on the furnace placed there by the tech who did the off-season maintenance, identifying the client as having the additional $20 service call discount for that year.
Whichever way you build your maintenance program, you need to put forethought into it so you can use it to regulate your workload instead of letting your program destabilize it — which it will naturally do — if not planned for.