Charging Ahead With Service Agreements

Posted on:

June 16, 2015

Monthly payments for service agreements is nothing new for Kevin Walsh, president, Schaafsma Heating & Cooling Co., Grand Rapids, MI. For about a decade, his company has offered customers this option, which is now becoming an industry norm. The advantage, he says, is not having to go through the process of renewing customers annually. Instead, they are automatically renewed until they choose to stop the service. Another big advantage is, “If they are on a monthly pay, your renewal rates jump into the 90 percent range,” he says.

Service agreements account for about 25 percent of Schaafsma’s $3.5 million annual volume. The company, which focuses on residential business, employs 28 people and has about 1,600 service agreement customers, who can choose to pay the full amount in advance or by the month. “We actually discount the monthly fee, which usually confuses customers,” Walsh explains. “They say, ‘You mean if I pay you upfront it costs more than if I pay a little bit each month?’ Our answer is yes, because it cuts down on the time we spend on renewals. We don’t have the postage and manpower expenses, and we can pass that savings along to the customer. Close to half of our maintenance agreements are monthly pay out of a credit card or checking account. Customers like that.”

The company’s advertising encompasses television, radio, internet, and direct mail. “TV builds name recognition for us,” he says. “The internet and direct mail are good for getting the phone to ring.” He indicates that service calls often result in maintenance agreements once customers hear about the benefits. A maintenance contract for a standard furnace and air conditioner runs about $174 annually, with variances for a boiler or geothermal equipment.

He tries to schedule the service visits six months apart. “We assign a month, generally based on when the customer signs up for the work,” he says. “Our software automatically generates the call slips for each month. We use a program from a third-party service to call all the customers and leave a message that it’s time to schedule maintenance, and please call our office for a date and time.”

14,000 Customers Can’t Be Wrong

With 14,000 residential HVAC service agreements, J.M. Oliver Inc., in Morton, PA, must be doing something right. “We work to differentiate ourselves from the competition,” says Antoinette Coupe, vice president of finance and administration. “We don’t differentiate ourselves on price, just on service and being there 24/7 when you need us.”

The company, which also provides plumbing, electrical, and remodeling, has an additional 2,000 residential plumbing and 1,000 electrical agreements, as well as about 1,000 commercial HVAC maintenance agreements covering about 8,000 pieces of equipment. “About 10 years ago, we introduced a hassle-free residential maintenance agreement that renews monthly,” she says. “We charge a customer’s credit card one-twelfth of whatever plan they sign up for. We’ve gotten a really positive response from our customers. Pricing wise, it’s not a big chunk of money that they have to write a check for once or twice a year, which has really helped.”

The company offers four levels of residential service: an annual tune-up, which doesn’t get many takers; the energy saver or silver level, which includes the annual tune-up, two pounds of refrigerant, and a 10 percent discount on repairs to the system; the gold plan, which adds repairs, except for the heat exchange, coil, and condenser; and the platinum or peace-of-mind plan, which Coupe describes as, “The ultimate maintenance package that includes inflation protection.”

“Once you sign up for the platinum, your price never goes up,” she explains. “It includes the gold repairs, as well as annual plumbing and electrical maintenance inspections.” She adds that repair costs for plumbing and electrical are not included. Another popular feature of the platinum plan is the equipment buyback, she says. “For every year you have the platinum plan, you get $100 toward replacement of your next system. If you have the platinum package for 10 years, you would get $1,000 credit toward your next system. If your system is less than 10 years old when you sign up for this plan, the major components and labor are covered.”

The majority of customers choose the silver and gold plans, she says. “For all of our contracts, we guarantee we will be out within 24 hours to repair your system. You get priority service. We’re not the cheapest, but we will come out in the middle of the night if your system is not working.” The company, which has 220 employees, expects to hit $35 million this year, of which service will account for about $20 million. “We’ve always felt that service agreements are the heart of any business,” Coupe says. “As our service agreement sales go, so goes our business, because they bring on the installations and repeat business, and the homeowners become Oliver customers.”

Transitioning to Monthly

After looking at the option for almost two years, Richard Jones, president, Comfort Solutions, Inc., Springfield, VA, recently made the leap to monthly billing. “The amount of time we were spending trying to get payments from clients was increasing our costs,” he says. “We needed to find a way to fix that.”

The company, which is experiencing a growth pattern, currently has 13 employees and 300 customers with service agreements, not all of whom are enthused about monthly billing. “I’m not going to lie, it’s been a painful transition,” Jones admits. “You have the clients who actually do pay their bills on time, and they are not big fans of this. Those are the ones who don’t like the change and don’t like monthly billing. We’ve had to make provisions to do some customers on an annual basis with an automatic renewal. Some don’t want their credit card charged at all. We have a handful who want us to send them invoices. Those are the clients who have been with us for a long time and always pay.”

Because he expected some pushback, Jones is taking the transition a step at a time and experimenting with what satisfies both employees and customers. For example, he’s trying what he classifies as “dentist office scheduling,” in which customers make fall appointments during their spring maintenance, and vice versa. He’s also experimenting with giving a customer the first Monday of every March and September to see how that works. So far, he says, “Nothing has stuck.”

He points out that his company has developed a custom-made service ticket for each maintenance visit that varies according to the homeowner’s type of system. For example, a hybrid system would have a different checklist from a heat pump. “All of our maintenance checkouts are done digitally,” he says, “and all of our techs have voice-recognition tablets in the field. The prewritten service tickets guide them through a very thorough check, and our operations manager spot checks to ensure they are all filled out correctly.”

Improvement Tips

To make the most of your maintenance contracts, contractors offer several tips:

Don’t over promise and under deliver. “Quality contractors offer service agreements and stand behind their commitments,” Coupe insists. “Deliver what you promise.”

Allow enough time. Jones indicates that some contractors are setting a price point that’s attractive to the consumer, but then requiring that technicians complete their maintenance in 15 to 20 minutes, which he thinks is impossible. “Our folks spend 45 minutes to an hour on a maintenance call,” he says.

Protect property. “Our service techs put booties on their feet, respecting each homeowner’s property, before entering a home,” Coupe says. She explains that each time technicians go to the their trucks, the booties come off. When they reenter the house, the booties come back on.

Train your employees. With the new monthly billing, Jones is conducting classes for employees that include role-playing and index cards. “We are asking our employees how we can help them believe in the contract, so they sell more of them.”

Offer monthly debit card, as well as credit card, payments. “When we started, a lot of people said it would be too difficult and nobody would want to give up their checking account number,” Walsh says, “But don’t exclude direct debit. I wouldn’t overlook that.”