Maintenance Agreements Part 2

When it comes to Maintenance, you need to understand the animal in order to tame the beast!

PREVIOUS: Maintenance Agreements Part 1

Before I go into strategies you can use to run your maintenance at a time that works for both your customers AND for you, I first need to cover the two main ways maintenance is sold by contractors. The two methods are to bill once a year, or to bill for the maintenance plan on a monthly basis. For most small companies, the annual billing plan is typically their initial go-to method, since it requires slightly less complexity and overhead to manage. Although I have heard of companies sending an invoice out to renew an agreement, the preferred way is to do the tune-up at the end of the agreement period so your tech can ask for the renewal personally. Companies billing monthly incur more office overhead to run the billing every month, as well as the extra time it takes updating the cancelled or expired credit cards that don’t go through every month. 

There are, however, more upsides to billing monthly, than there are to selling annual agreements. Here are a few of the reasons monthly billing is better if you have the tools and capability to manage it:

  1. Monthly agreements are much easier to sell since a lump-sum payment is not required to enroll.
  2. Unlike annual plans where the customer decides every year whether or not to renew, customers remain plan-holders longer since they are never asked again to make a decision to write a check in order to stay with the program.
  3. Monthly plans create a more level cash flow for your business.
  4. If set up right, monthly agreements are less of a negotiating liability on the sale of business because they do not constitute as great a long-term liability as does collecting the money a year in advance for services yet to be delivered.

Most importantly, monthly agreements can be at least 5% or more profitable over time than an annual agreement will be, even if the net annual pricing of both is based on the same amount! The reason for this is that on an annual plan the agreement doesn’t renew (and you don’t get to collect) until the call is scheduled and the maintenance is performed. As any company running an extensive maintenance program can tell you, many times you will chase a client down for a month or two beyond when the maintenance visit was due, trying to get them to schedule. On an annual plan, this means you effectively lost 1-2 months of revenue by the time you renew the agreement for another year. With a monthly payment plan no revenue was lost since you collected every month while trying to schedule the client.

If you offer both monthly and annual agreements, make sure everyone in your organization only quotes it at a monthly price—not the annual price that the customer can pay in 12 equal payments. As anyone who does sales knows, it’s easier to close the sale when you’re only quoting the smaller, less-scary number. If you currently sell monthly agreements, or plan on moving to them, here are few tips that you should consider for your program. 

Additional Tips on running Monthly Maintenance Programs

First, recognize that words have meaning. If you refer to your heating maintenance as a pre-season tune-up, or Fall Tune-Up—STOP. The same goes for your cooling maintenance if you call it your Spring Tune-up. You’re cementing in your customer’s mind that maintenance always needs to be done at the beginning of a season when, in reality, it just needs to be done regularly. If you have the words ‘seasonal’, ‘pre-season’, ‘spring’, ‘fall’, ‘winter start-up’, and ‘summer start-up’ anywhere in your program literature—lose them, and do it yesterday. As I pointed out in the first part of this series, you can get away with it when you first start, but it will haunt you eventually when you need to move your clients’ maintenance to your slow times.

Also, look for a recurring billing system that lets you take ACH (direct bank withdrawal) payments as well as credit cards. ACH is, by far, the superior way to get paid because the fees are less and, unlike credit cards, the accounts don’t expire and rarely, if ever, change. This saves a lot of time tracking down new numbers as well as risking the customer quitting because, when you ask for a new card number, he has been put into a position where a decision is required to stay with the program. In our company, over 60% of our recurring billing is by direct bank withdrawal instead of credit card which saves a lot of time and overhead managing it since bank account numbers never expire. 

To achieve this, you need to train your technicians how to ask. We learned real quick that you never, ever tell a customer that you can take the money out of their account every month—that’s the quickest way to get a ‘no’. Instead, we tell them that we can get the bank to pay it every month for them. To do this, we ask them to write us a check for the monthly amount, and in the memo line write monthly maintenance payment. Then we tell them to void the check and we’ll use the voided check to set up the payments. By doing this we accomplish two things. First, they feel that they are in control of the entire process, and second, we get the voided check with the correct routing and account numbers to set up the bank’s monthly payment to us.

Another suggestion that will let you avoid problems monthly plans can create is how you word the agreement.Too many times, I see companies that sell the plan as simply 12 monthly payments going toward paying for an annual tune-up. This is just wrong on many levels and will bite you in the backend if you let your techs get away with doing it this way. However, it’s as much our fault they think this way since we typically refer to them as annual maintenance agreements. However, I suggest you call it a “Club Agreement” or something similar if you’re collecting monthly for it. Here’s why:

Your plan’s value should always be sold based on the priority service, discounts and benefits that your members get—not an annual tune-up. If you let them think of it as mainly an “annual tune-up” they’re paying for, you will get attrition simply because they can always find someone willing to do a tune-up for less. In fact, in a monthly agreement, if you use the word “annual” in conjunction with the word “tune-up” in your agreement, you’re setting yourself up for future grief right out the gate. Remember the example above where a customer might not schedule his tune-up but you’re still collecting every month? What will you do when he is angrily demanding a refund for the tune-up he was promised every 12 months that you never did? Are you going to offer him to do two tune-ups on the same equipment back-to-back?

This is why I suggest your agreements need to drop any reference to tune-ups being done every twelve months, and instead use wording similar to this: 

An additional benefit of being part of the ABC Company Club is that after 12-months from the time we last performed a tune-up on your covered heating or cooling equipment, as an ABC Company Club member you have the ability to schedule a complete maintenance tune-up and safety inspection on that same piece of equipment at no additional cost!

By wording it this way, your customer’s procrastination when it comes to scheduling is no longer a potential liability, and you still get to collect every month they put it off. By the way, if your office gets frustrated trying to get customers to call them back regarding maintenance scheduling, you need to read our previous newsletter article ‘What Puppies have in Common with Your Maintenance Customers’ by Lori Smith who runs our MORE Marketing Program

Now that we’ve gone over the two main types of maintenance programs sold today, here are a few different ways to move them to a time that is acceptable to the customer and best your company.

Of the two types of programs sold, the annual maintenance plan is the easiest to move into your slow time, because it can be done right at the time of sale. And, like all marketing, it’s all about how you spin it! Obviously, telling the customer who has just gotten a furnace tune-up in October that you want to sell him an annual plan—but you don’t want to do the tune-up until a year from January—probably won’t get the sale. However, if I tell him that, “We have a special offer this month that if he signs up for our maintenance plan he can get 15-months of benefits and coverage for the price of 12!” I’ll probably easily close the sale. If I do this for all my maintenance sales during the three months of fall I will have effectively moved all my return maintenance visits into the months of January, February, and March—right when I need them. The same strategy can be used for AC club agreements sold in the busy months as well. Even though you take a slight hit for the three months you give away, it is the simplest and least costly way to do it if you are selling annual plans. The revenue lost will easily be made up by avoiding the overtime costs of performing the tune-ups next year when you’re typically busy with new customers.

Unfortunately, this strategy doesn’t work with the monthly plans since you collect every month and there is no perceived benefit for the customer purchasing your Club Agreement in the Fall to delay his maintenance 3-4 months to when you need the work. To accomplish this, you need to create a plan that does benefit the customer to have their maintenance performed in your off-months. To understand how to do this, simply look at the airlines—they are masters at maximizing their flights to meet their own capacity needs without their passengers complaining about it. The way they accomplish this is by simply adjusting the price or the benefits to get passengers to fill the spots they need filled. You can easily do the same with your maintenance program.

You can use price to motivate your members to have their maintenance performed in your slow months simply by offering them the same plan, but at two different price levels. I guarantee that it’s the exact same seat that you will pay the airlines $100 more for if you occupy it over the Christmas break vs. the 3rd week of September. So, why don’t you have an off-season and busy-season price for your plan? We found that over 40% of our maintenance clients chose to move to our ‘off-season’ when offered a monthly savings for switching their furnace maintenance to the months of January through March. 

You see, rather than offer a lower price if they moved to our off-season, we wrote all our Fall maintenance clients a letter saying that we needed to raise the price of their existing maintenance plan because of added costs. At the time, gas was about $4 a gallon, so we used that as the reason for the increase. But, at the same time, we informed them that if they chose to let us schedule their maintenance in our off-months from January to March, they could avoid the coming increase and be billed at our off-season maintenance pricing, which would be the same amount they were currently paying. By moving 40% of our Fall maintenance to our slow time, we effectively stabilized our workload over the entire year.

The other option you have to motivate customers you bill monthly to do their maintenance when you need it, is to have one plan at one price—but with additional benefits and discounts depending on when their maintenance is done. For example, if they chose the off-season maintenance option, they get $60 off any service call instead of the normal $40 dollars that all other Club Members get. Currently, we are seriously looking at adopting this model instead of the lower-priced off-season model. Here’s why:

  1. By keeping the price constant, it’s less confusing and easier for the technician to sell.
  2. It allows us to later “upsell’ the club member to off-season maintenance by offering the additional benefits whenever we need to balance our workload, without having to change the price or the billing.
  3. It’s fairly easy to manage. If a service call is needed, the additional discount can be communicated to the tech by the office when dispatched, or simply communicated to the tech by use of a sticker on the furnace placed there by the tech who did the off-season maintenance, identifying the client as having the additional $20 service call discount for that year.

Whichever way you build your maintenance program, you need to put forethought into it so you can use it to regulate your workload instead of letting your program destabilize it, which it will naturally do if not planned for. Wishing you the best. 

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