Maintenance Agreement Program Overview

Purpose of a Maintenance Agreement program:

Keep Service Technicians and/or Maintenance Tune-up Specialists in front of enough “opportunity calls” during the slowest months of the year to sustain profitability.

Properly implemented, the following results should be recognized during the slowest months of the year:

Operational: (Slowest Months of the Year)

  • Replacement Leads / Sales (Installs): Greater than 8% of completed maintenance calls.
  • **(Assuming 60% of equipment mix is greater than 12 years old)
  • Pre-emptive (preventative) repairs: Greater than 45% of completed calls.
  • Accessory sales. Greater than 30% of completed calls.
  • Recognized revenue from performing the maintenance: (Generally 50% of the initial maintenance agreement sale given a two visit per year program).
  • Revenue Generated for each hour of Technician pay: Greater than $90.00

Financial: (Slowest Months of the year)

  • Service and Replacement Profitability above 8% EBITAD (Earnings before Interest, Taxes, Adjustments, and Disbursements)
  • Service and Replacement Sales Break even attained by week three (no later than day two of week four)
  • Positive cash flow.
  • Service Labor slightly higher (Range between 25% to 30% of sales)
  • Predictable and repeatable sales and profitability results.
  • Marketing and advertising % to sales less than 5%
  • Replacement revenue 65% – 70% greater than Service/Maintenance revenue.

Common mistakes HVAC Businesses make when implementing a maintenance agreement program:

  • Not pro-actively scheduling future calls when they historically need the work.
  • Scheduling Maintenance Agreement tune-ups during High Demand months.
  • Not focusing on Maintenance Agreement Customer Acquisition during High Demand months.
  • Not paying attention to the agreement base mix of older equipment versus newer equipment. (Older equipment mix should be greater than 60%. More old equipment in the agreement base = better financial results.)
  • Not Coaching the Team on how to perform a system Risk Assessment on every call. (What’s the risk of ownership for each customer? That needs to be communicated on every call).
  • Not tracking results and comparing daily results against the pre-determined financial needs of the business.
  • Not forecasting departmental Break-even and gauging where the business is within each monthly cycle (on a daily basis).
  • Not critically thinking through the maintenance agreement business strategy.

Example of an HVAC Business with a robust maintenance agreement program during one of the SLOWEST months:

Company A: Slowest month of the year WITH a properly implemented Maintenance Agreement Program (Best Scenario)

Number of Technicians: 3
Pre-Scheduled calls per day: 12
Calls Per Month: (20 days) 240 – Average – Sale Revenue
Replacement Sales: (8%) 19 – $6,500 – $123,500.00
Recognized agreement revenue – 240 $90 – $21,600.00
Pre-emptive repairs 108  – $200 – $21,600.00
Accessory Sales 72 – $400 – $28,800.00
Total Revenue: $195,500.00
Additional Demand Service Revenue: ??? ???

Revenue per truck (not including replacement revenue) $24,000.00 (Best Scenario)
Projected hours worked (50 hour work week) $200.00
Revenue generated per hour of technician pay: $120.00

Revenue per truck (not including replacement revenue) $18,000.00 (Base Scenario)
Projected hours worked (50 hour work week) $200.00
Revenue generated per hour of technician pay: $90.00

Company B: Slowest month of the year WITH-OUT a properly implemented Maintenance Agreement Program

Number of Technicians: 3
Pre-Scheduled calls per day: 0
Calls Per Month: (20 days)? – Average – Sale Revenue
Replacement Sales: (8%) – ? – $6,500 – $?
Recognized agreement revenue ? – $90 – $?
Pre-emptive repairs ? – $200-  $?
Accessory Sales ? – $400  – $?

Total Revenue: $?
Additional Demand Service Revenue: ??? ???