Building Revenue, Relationships via Service Agreements
HVACR contractors employ various programs to meet their customers' needs
Most automobile owners recognize the importance of maintaining their vehicles through regular oil changes, tire rotations, etc. Unfortunately, the same doesn’t hold true for homeowners when it comes to their HVAC systems.
“We in the HVAC industry have not done a great job of informing customers of the importance of regular maintenance,” said Rob Basnett, president and owner of Basnett Plumbing, Heating, & Air Conditioning in Littleton, Massachusetts. “A lot of manufacturers will not warranty the equipment if it is not maintained on a regular basis, and many people are unaware of that, so it’s our job as contractors to ensure customers are educated so they can make the best possible decisions.”
Basnett said contractors who fail to offer service agreements are not only damaging their bottom lines, but they’re doing a disservice to customers. “You want to treat customers well and build relationships, which is an advantage to both parties. Service agreements eliminate the need for customers to go out and get three quotes because they have a relationship with you. And, if you do your job properly, you’ll have a customer for life.”
Basnett recently spent about 80 hours redeveloping his service agreement program after realizing his current offering no longer worked with the company’s newly implemented flat rate pricing program.
Once he launched the program, his technicians grew vocal about their discontent with the new system. Eager to avoid the program’s nuances, employees simply stopped offering the plans to customers.
Seeking a solution, Basnett went back to the drawing board and sought out a Performance Action Team (PAT) — a concept he learned through the National Comfort Institute (NCI). The PAT, which is essentially an employee taskforce, came up with an acceptable alternative agreement plan that included the option to pay for the agreement monthly or in one lump sum. Other changes clearly stated the type of maintenance that was included in each of the plan’s four tiers.
Without the support of his team, Basnett Plumbing, Heating & Air sold a total of three maintenance agreements during the first quarter of 2015. After delegating and engaging his employees to come up with a better PAT solution, the company sold 97 agreements during the first quarter of 2016. Since July 15, 2015, his team has sold a total of 472 maintenance agreements, adding an additional $186,666 in sales revenue.
“The [employees] embraced the newest program because, essentially, they came up with the idea themselves,” Basnett said. “Even with the success we’ve had, we still have a lot of room for improvement.”
Farmington Hills, Michigan-based Thornton and Grooms offers its customers the choice between nine separate service agreement plans: three levels — Gold, Silver, and Platinum — of plumbing only, three levels of HVAC only, and three levels of Plus plans, which include the plumbing and heating and cooling plans from each respective level combined. Each of the plans can be paid in one lump sum or may be broken down into monthly payments.
“Customers want different things — new homes may not require as much maintenance, or if you plan on moving, you may not want to invest as much as other folks who look to the higher cost plan for value,” said Matt Bergstrom, president, Thornton and Grooms. “Service agreements are important for the same reason a car needs an oil change and maintenance. Without maintenance, typically the equipment’s life span will be shorter, energy costs will be higher, and a customer’s home comfort will be lower.”
Thornton and Grooms has more than 4,200 service agreement customers.
“Having a maintenance customer means you have a customer who likes you enough to buy something from you and will likely call you first when they are in need of service, maintenance, or a replacement because they’ve already signed an agreement with you for other heating, cooling, and/or plumbing services,” said Ammi White, branding coordinator for Thornton and Grooms. “Additionally, when business is seasonally or un-seasonally slow, you have someone to call to schedule appointments they’ve already paid for, which allows you to keep your guys working. Lastly, there’s also the opportunity for continued and repeat business as well as referrals. The most important part of having a customer as a member is that you have another almost promised opportunity to give them your best, so you can have another opportunity. You have an opportunity to build a lifelong relationship and create a fan of your business. We’ve been in business almost 80 years, and lifelong is not just a far-off-dream. We have customers who have used us all of their adult lives and now their children use us.”
Sara Tominac, comfort protection plan manager for Thornton and Grooms, said service agreement plans help customers when it comes to priority scheduling, options, and reminders when certain visits are due.
“They help the company by growing our customer base — we’re able to have repeat customers that love us and know we will be there for them when they need us,” she said. “It also allows us to market to those customers based on their individual plans. We will often offer them exclusive member deals that benefit the other side of the business. Maintenance customers will also refer family members and friends when they are in need of a company. They also, on average, spend more with a company they have a maintenance agreement with than not. It’s a trust and relationship builder.”
A CLUB MEMBERSHIP MENTALITY
Steve Saunders, CEO of Tempo Mechanical in Irving, Texas, said his company recently changed the name and basic terms of its service agreement program and spent time addressing the mental, marketing, and technical changes from a service agreement mindset to a ‘Club Membership’ mindset.
“Our Tempo service agreement is now a part of a larger marketing services effort we call the ‘Tempo Club,’” Saunders explained. “The HVAC maintenance-specific version is the Cooling and Heating Club. It includes biannual maintenance, cleaning, and safety inspections. Members get discounts on repairs and priority scheduling, including the ability to schedule service calls on Saturday and Sunday. There are no overtime or after-hours charges, nor extra charges for service during holidays. The client’s cost of the cooling and heating membership accumulates on continuously active memberships toward the purchase of a new system. Ultimately, for long-term clients who purchase replacement equipment from Tempo, the maintenance service is free.”
In addition to the Cooling & Heating Club, Tempo offers a Plumbing Club and Connected Home Club service plans.
Club Memberships are primarily sold by service technicians and customer service reps, Saunders noted. “Club Memberships are sold on ‘value and relationship.’ The CSR and the techs are the key client relationship leaders for the company. On projects where we deliver a retrofit, they also get a one-year complimentary membership on fully replaced systems. Another initiative is a collective push to create a more successful system for converting our residential new construction clients to club members as they exit their new home warranty period.”
Saunders called service agreements the foundation of a long-term, successful service business. “In addition, HVAC manufacturers are taking a stronger stance on maintenance as a condition of a warranty. The agreement is a great way to assure our clients will receive their warranties and also to provide opportunities for system improvements, accessories, zoning, ductwork improvements, etc. In an increasingly connected world, memberships/agreements are a crucial link to the long-term relationship and integral for Tempo remaining the client’s partner when their system needs replacing.”
TAKING AN ALTERNATIVE APPROACH
Not everyone believes the service agreement concept is the best approach. Rob Minnick, CEO and president of Minnick’s Inc. in Laurel, Maryland, created a VIP Club to replace his service agreement program about three years ago.
“We dealt with a lot of frustration with service agreements,” Minnick said. “The problem is people pay for a service they may never need to use. The first question I ask people is, ‘Do you have service agreements with anybody besides heating and cooling companies, like Best Buy, car manufacturers, and things like that?’ And everybody says yes, but whenever they take their car in, the issue is never covered, of course. They think, ‘why do I even have this agreement,’ and they get frustrated.
“Another reason we eliminated service agreements is I feel like we set our technicians up to fail,” he continued. “When they’re going to do a service agreement, it’s prepaid, so when they go there and find an issue, the customer feels the issue should be covered because they’re already paying for a service agreement. They question why we are trying to sell them something else. It just takes the service tech and a customer down a road that’s usually not a good place to go. Then, they want to talk to a service manager, and someone else has to get involved. It was just a never-ending battle internally within our company.”
Now, Minnick’s offers its customers a pay-as-you-go VIP Club program. “They still get all the benefits, they just don’t have to fork out the lump sum today,” Minnick noted. “They just have to pay for maintenance done that day, plus any other items being done. And, since they are already discussing money, we’re in a better place to discuss all the things we find.”
Every time VIP Club members use Minnick’s, they earn discounts and rewards points, which can be used for future services and discounts. Just signing up for the program earns a customer 25 points, with each point worth $1.
“It’s just like the rewards points for airlines, hotels, and many other businesses, which now all have rewards programs,” Minnick said. “There are points for signing up, points for liking us on Facebook and Twitter, points for referrals, and points for having maintenance work done. It’s never ending, and that’s the beauty of it — we can create points for anything we want and offer it immediately.”
Making the switch was a process, Minnick said. Customers who had service agreements kept the terms of their agreements until they expired. Then they were automatically signed up for the VIP program, so they didn’t have to do any additional legwork.
“The VIP Club has eliminated the frustration with our techs and with our customers,” Minnick noted. “It also eliminated a lot of angry phone calls from customers wanting to speak to supervisors because they were upset. It’s a great plan and most people agree. I just need to get the message out there. We just need to make sure people understand how it works because it can be a challenge at first. Just like anything, change takes time.”
Publication date: 7/25/2016