It’s almost May. That means the hot weather is right around the corner for most contractors across the country. It’s a perfect time for you to be checking in on the health of your service agreement program. You’ve got a great opportunity when homeowners are calling in for tune-ups, and you’ll want to make sure your service agreement program is built to be profitable, is attractive to homeowners and that your team is prepared to sell them. A healthy plan base is also one of the most important and fundamental indicators in a valuation of your business. Read on for how you can do a quick self-evaluation to determine the health of your service agreement program.

Conversion Rate on Service Calls – It all starts here.

This time of year, your techs are going to be out in the field tuning up equipment and preparing units for the warm weather. It’s the perfect opportunity to convert tune-up calls or no-cooling calls into service plan sales. Out of every call from a non-contract customer, how many plans will your service technicians or your customer service representatives sell? The answer needs to be at least 50%. (Some will be sales leads too!)

If your conversion rate on service calls is less than 50%, too many of your customers will remain “free agents.” Here’s what you can do to improve your conversion rate on service calls:

• Set a Conversion Rate Goal and post the results monthly – Give your team a target to shoot for and then monitor progress. Make the conversion rate a priority by regularly discussing progress and acknowledging achievement.

• Training – Communication skills training and ongoing role-playing have proven to be the most effective methods for improving sales performance and conversion rates.

• Provide top-notch marketing collateral – Superior marketing materials go a long way to support your technicians’ efforts by promoting the value proposition and benefits of your service agreement program. Plus, they will help you fill in the gaps for your technical employees.

• Reward the behavior you want to encourage – Have appropriate incentives for the team to keep them motivated and focused on the goal.

Renewal Rate – A real strength or a big weakness?

The next step is to analyze your renewal rate. In order to have year-over-year growth, the renewal rate must be strong, upwards of 85%. Otherwise, you’ll be like a hamster on a wheel…working really hard but getting nowhere. For starters, it’s much less expensive to keep existing customers on plan compared to what it costs to acquire new customers. Secondly, plan customers are more likely to choose you for system upgrades and equipment replacement. If they have been with you for a number of years, the likelihood that they’ll choose you increases.

If your company is performing below 85%, consider the following remedies:

• Create your communications strategically – You don’t want your renewal invoice to be the only customer touch. You should have an ongoing dialogue that builds the trust between customer and company. This can be accomplished through customer newsletters, appreciation letters and online communications.

• Look closely at the quality of service you’re providing – Your customers will renew at a higher rate if they value the product they’re receiving. If you’re doing a mediocre job with the actual precision tune-up or your service agreement customers don’t feel like they’re special, they will question the cost of the plan when it’s time to renew.

• Consider re-inventing and repositioning your service agreement offerings – What was good enough in the past may not be enough for today’s more demanding consumers. And your offerings may no longer be competitive. You should benchmark your offerings against local competition, including the utilities. Also, look to other industry experts for the latest consumer trends and market research to determine what type of coverage your customers will value, and which they will buy and renew.

Next issue, I’ll share with you the next two measurements you can use to determine the overall health of your service agreement program – Net Growth and Gross Profitability by Plan Type.

Blaine Fox, Vice President of Warm Thoughts Communications, is a recognized expert on the residential mechanical services industry. In a world where every marketing dollar must be deployed to maximum effect, HVAC contractors are turning to market research to inform their decisions.The Warm Thoughts team of experts is helping contractors unlock the research and fine-tune marketing efforts. Blaine is a sought-after speaker, and presented at Comfortech 2009. He is also a frequent contributor to HVAC industry trade publications. If you have any questions about how to take advantage of market research for your service area, please email him at bfox@warmthoughts.com.