Service Agreement Pricing

As you can tell from my blog history, I don’t blog a whole lot. I am usually too busy every day running my business, being a grandfather to two great grand kids, being active in my church, and being president of the Saguaro Astronomy Club (and observing the heavens every chance I get) to blog much. So when I do post a blog, it is usually because either I (a) have some extra time on my hands and don’t want to hike through the Grand Canyon, or (b) I have something that may be of interest to you.

This is a Type B blog.

Many HVAC contractors want to sell their businesses some day, but most have no idea how to go about doing that. One thing is for sure, though– a well-developed customer database is worth more than your building, fleet, and inventory (in most cases, anyway).

So what constitutes a “well-developed customer database?” One thing it is NOT made of is a shoe box full of job cards. You may have installed 20,000 jobs over the life of your business, but the big question is, How many of those folks have you seen in the last 24 months?  THAT’s the measure of your realistic customer database. I doubt if it would be 20,000. (If a typical service tech can see five customers a day and works 240 days a year– wishful thinking, maybe!– he could touch 1,200 customers a year. Multiply that by the number of techs you have, then multiply that result by 1.5 and you probably have your 2-year “customer touch” count. The 0.5 deduction allows for customers you see very year for tune-ups and the like.)

If those customers are not regularly seen, they are vulnerable– vulnerable to another contractor with an aggressive marketing campaign. So how can you keep your customers tied to you? (And make them of value to a prospective buyer?)

With service agreements. Research I did in the 1990’s, and published in the magazine Contracting Business (Dec 1993, May 1994) and The HVACR News (Nov 24, 1997 and Dec 1, 1997) showed that an undeveloped customer database is worth maybe ten cents a name, while a service agreement base is worth at least $75 a name. Adjusting for inflation, today I would say an undeveloped list is worth $0.15 a name while a developed database is worth at least $110 a name. If you had 8,000 customers in your database, the difference in value between an undeveloped list and a developed one would be $880,000! Holy snowballs, Batman!

But one of the biggest barriers to contractors getting into service agreements is pricing them. That is why I am please to announced I now have available on my site an Excel spreadsheet that takes the guesswork out of pricing them. It runs on Excel 2003 and all later versions and lets you calculate prices for residential and light commercial jobs. Both types of jobs let you price inspection-only agreements, maintenance agreements, and full coverage agreements. The commercial sheet is for DX cooling systems only (no chilled water units, please), but can handle almost any size DX job.

To visit the page or order a copy,click here.