If you've been in the HVAC industry very long, you know that there have been many changes since the 1980s. And while success or failure has never been a “sure thing” (even during good times), in some circles, it's a good bet that you or your competitor down the street won't be in business next year.

As a “hedge” against that bet, a golden opportunity awaits those HVAC contractors who add service agreements to their business model. Peaden Air Conditioning, Heating & Plumbing, Panama City, FL, has more than 11,000 of them. From a revenue perspective, those agreements represent almost $2 million of annual, guaranteed income, and more than 11,000 homes for Peaden's sales technicians to call on every year. For many homeowners, the Peaden company has become the “consultant” that consumers have said they're looking for. In addition, that $2 million is only a small part of the revenue that his company brings in by being there for their customer. Much like a dentist performs preventive treatments, Peaden's technicians want to be there before failure occurs, keeping customers comfortable without having to go through the trauma of a system failure at the height of the season.

Rescue & Relief

Many of us know the sense of relief homeowners express when a customer-focused contractor shows up with solutions. Customers value the judgment of a qualified service technician, and this is borne out by Decision Analyst, Inc.'s research. We've surveyed homeowners that had service agreements in place versus homeowners without them. We've found that a large number of HVAC contractors who offer service agreements are realizing far greater success than those who don't.

Homeowners are Getting It

By September of last year, 21% of all homeowners held a service agreement with their contractor consultant. On top of that, a full 28% of all homeowners buying new central equipment to replace old systems purchased a service agreement with their equipment.

That represents two of every 10 houses you drive by that either knows you and your company as their consultant, or knows and relies on your competition. It represents three in every 10 in which you or someone else is building a relationship with the homeowner that just bought a system.
Garry Upton

As Service Agreements Grow, So Does Revenue

Many HVAC contractors will agree that service agreements are very important to the success of their businesses. If that's true, why is it some companies have many service agreements, while others have so few? It may be because commitment and priority is lacking. Years ago, we made a conscious decision to study and spend more time on our service agreement growth than our financial statements. Why? Because I believe if you can grow your total number of in-force service agreements, the net gains that everyone seeks on their monthly P&L statement tend to be there.

At Peaden Air Conditioning, we've made our share of mistakes with regards to service agreement customers in the past 40 years, and we've learned from our mistakes.

This decision has provided tremendous dividends. Our revenues and service agreements have risen dramatically as reflected in Table 2. We don't do anything out of the ordinary with regards to our benefits, maintenance procedures, or service discounts. However, I believe our commitment to service agreements is superior to most. Within Peaden's residential business, our total service agreements represent almost a 16% market share of all the residences in the entire county. And, in this economic climate, our total is growing. In 2008, we posted our best year in 40 years of business. In 2009, we're running ahead of our 2008 revenue pace. The only way we could achieve these results is due to a large and loyal customer base.

All contractors recognize that the consumer's spending habits are much different now than they were a few years ago. Consumers are looking more diligently for value-added deals before they part with their hard-earned dollars. A service agreement fits this consumer mind set. To get to the gold, you have to sell the benefits and value of service agreements via marketing and advertising. For almost two decades we've allocated a fair amount of our annual marketing budget to promote maintenance agreements. We continue to advertise the importance of maintenance, especially with regards to indoor air quality (IAQ).

Research by Garry Upton and Decision Analyst proves that consumers are looking for contractors that they can rely on for their comfort needs. They want to ask specific questions and feel comfortable with the professional advice they receive. The consumer seeks a long-term relationship, and so do we. In fact, part of our mission statement is “creating customers for life.”

Prove What You Can Do

A quality service agreement provides value. That includes periodic maintenance, discounts for service, no overtime charges, and more. A service agreement should contain enough benefits that the value is obvious to the consumer. Do otherwise, and you give them a good reason to pass on the initial sale, which, in my opinion, is the most important sale of all. I would much rather introduce our company to a new customer via a service agreement. For less than $100, they have the opportunity to see our maintenance procedures, appreciate our benefits, and become more comfortable with us than if we first met on a system replacement involving thousands of dollars.

We give priority service to all of our service agreement customers. It can be mid-day, weekend, or holiday. Our registered service motto is “25 hours a day, eight days a week,” and we honor it. In typical peak season, when others may hold emergency service calls from their valued agreement holders to take the new C.O.D. customer call, we absolutely don't. Yes, we market for a new customer like many others, and when this new customer calls Peaden, we may actually delay our response to tend to our agreement holder needs first and foremost. This enhances our service agreement value. We do, however, respond to the new C.O.D. customer within a reasonable amount of time.

Peaden Air Conditioning, Heating & Plumbing has made long-term business decisions to follow the trend lines discovered by Decision Analyst, Inc. One example is to provide whole-house performance testing, when we realized consumers want solutions to common IAQ issues. Our decision to follow the trends related to service agreements has been golden for us, and can be the same for you.
Robert Wilkos

This article is based on the presentation, “The Gold is Yours: How to Find the End of the Rainbow,” which will be presented by the authors during HVAC Comfortech 2009, Sept. 23-26, in Nashville, TN. Visit hvaccomfortech.com for information.

Garry Upton is executive vice president of Decision Analyst, Arlington, TX. He can be reached at gupton@decisionanalyst.com. For a related article, see p. 14.

Robert Wikos is a business leader for Peaden Air Conditioning, Heating & Plumbing, Panama City, FL. He can be reached at rwilkos@peaden.com.

  • SERVICE AGREEMENT TIPS

    Display a total commitment

  • Offer priority service

  • Honor your word

  • Be flexible

  • Provide reasonably-priced service with good value and benefits. It's the beginning of a long-term relationship and not just a quick sale

  • Monitor your growth

  • Refine and duplicate procedures.

  • Track technician performance.

RW