One of the strongest customer retention programs is a service agreement. Essentially, the customer pays a subscription and receives benefits all out of proportion to the payment.

Although, you may want to use a different terminology than “service agreement.” The electronics retailers have tended to bastardize the term so that the original meaning no longer holds relevance. They’ve packaged their extended warranties as “service agreements.” A lot of customers have determined that a generic service agreement is little more than a warranty where little service is provided.

There Must Be Real Value
Design your service agreement so that there is true service involved, true value added. No matter what your field, you can create a service agreement. Air conditioning contractors are among the best because equipment maintenance is such a natural. However, I’ve seen plumbing contractors and electrical contractors provide them. For the life of me, I can’t figure out why more businesses don’t offer one. It’s made to order for any business where regular maintenance should be performed.

You Become Their Company
A service agreement should provide an opportunity to interact with and for the customer on a regular basis. It’s through this customer interaction that trust is built and a rapport is developed between the customer and your company. Over time, the customer begins to think of your company as his plumber, his pool service, his security company, his carpet cleaning company, etc.

Stephanie Moxley of Citywide Plumbing in California says that, “by a customer a service agreement it has a type of psychological. The customer actually believes that they are your customers and they have to call you. They feel they are part of a special club in your company.”

Creatively Add Value
It’s important to deliver a true service, true value to the customer. If the service agreement is little more than an extended warranty or a ploy to look around the customer’s house in a quest to find something in need of repair, your credibility will take a hit. You may sell a service agreement once, but the customer will not renew.

Find ways to do more than inspect. Be creative. Add extras. I know an electrical contractor who found that he could add value leaving an assortment of spare light bulbs on the kitchen counter following the maintenance. He included both fluorescent and incandescent bulbs, depending upon the customer’s needs. The total assortment cost him roughly $5, but overwhelmed the customer.

I know some air conditioning contractors blow the dust off and replace the batteries in smoke detectors as part of their service agreement. Then, they leave the old batteries on the kitchen counter to make sure the homeowner gets the point that they’re performing one more value-added service.

Bundle
Services can be creatively packaged in a service agreement. Some businesses lend themselves to bundling services. Take carpet cleaning. You might create a service that includes quarterly cleanings. Or, you might offer a bundle of 10, 20, or 50 rooms that can be used in whatever increment and combination the customer wants. If there are seven rooms with carpeting, the customer may call several times during the year to have you clean all rooms or may have you come out more frequently for three rooms with heavy traffic. Be creative; just make sure that you develop a program that locks the customer in.

There Must Be A Discount
Not only must you provide value, but also you must do it at a discount. Of course, the beauty of the service agreement is that it is a win-win. You design flexibility into your agreement so that you can schedule the service to fill in the inevitable valleys of demand. Schedule the service when your call volume is down, when you would send employees home if there was no work for them.

When you price the service agreement, the only costs you need to cover are variable costs, though you can (and should) charge more than that. Don’t burden your service agreement with your standard overhead, only the overhead proportionate to the resources consumed by the service agreement program. The standard overhead should be covered in your standard service work.

Service agreements can and should be a profit center, but that’s not the purpose of a service agreement program. The real purpose is customer retention.

With a service agreement, the customer has pre-paid for services. The customer has made a commitment to your company. The implication is that the customer will do business exclusively with your company while the service agreement is in effect. That’s retention.

Matt Michel is president of the Service Roundtable (www.ServiceRoundtable.com), an organization dedicated to helping contractors prosper. Matt is also the publisher of Comanche Marketing, a free marketing e-zine. Subscriptions are available at www.ComancheMarketing.com. You can contact him directly at matt.michel@serviceroundtable.com. Or send your comments to Contracting Business at letters@contractingbusiness.com.