These are the words of Matt Koop, vice president of training for The New Flat Rate in Dalton, Georgia. He encourages the contractors he works with to stop seeing home warranty service companies as the enemy and view them instead as another lead source.

“This lead source should be used to grow the contractor’s customer base as needed,” he said.

WHAT EXPERIENCE TEACHES

There are always two sides to a story, and David Hutchins, owner and president of Bay Area Air Conditioning Inc. in

Crystal River and New Port Richey, Florida, has had experience doing work for a home warranty service company. Hutchins and his company worked with one company for several years but eventually parted ways.

“In our early days, home warranty services work did provide some work at slow times of the year,” he said. “We also gained a few new customers from the work, but they generally do not pay enough to make a profit. Some were slow to no pay. Some encourage you to charge the homeowner for anything that can be deemed to be not covered to make up for low labor rates. This often angers the homeowner.”

While Hutchins cautioned contractors that making home warranty a major portion of a business was not a good idea, he also noted that his experiences were over 20 years ago.

The idea of using home warranty services for leads has made the rounds with Butch Welsch, owner of Welsch Heating & Cooling in St. Louis. According to him, the 125-year-old company relies on its reputation and desire to do whatever is best for the customer at a fair price.

“The home warranty company’s business model does not mesh with the direction of our company,” said Welsch. “If we were brand new and in need of some business to get us going or keep us going, perhaps this would be a way to get leads and business. But we have built our business on the quality and reputation we have developed in the St. Louis area, and that is of no significance to the home warranty service company.”

Michael Rosenberg, president of Rosenberg Indoor Comfort, San Antonio, Texas, worked with American Home Shield for more than 10 years, about 20 years ago.

“At first, working with home warranties was a great way to build your customer base without spending money on marketing,” he said. “For us as a new business, it helped us get off the ground. After a while, we began to see it took our eyes off the ball. We did not focus on growing our residential business organically.”

The lack of organic growth became an issue for Rosenberg’s company as time progressed. At one point, the company started having a customer perception problem, as clients would sometimes blame them when a repair was denied by the home warranty company.

“Working with home warranty companies in the beginning of your business cycle is ok, but eventually it can be a hindrance,” cautioned Rosenberg. “When we started our second business, we chose not to do any home warranty work, and we built a solid residential customer base by marketing and good referral business.”

THINGS CHANGE

As a co-owner of Performance Heating and Cooling in Milan, Tennessee, Michelle Alexander has some more recent experiences with home warranty service companies. Alexander and her husband operate primarily with American Home Shield and have also done work for Choice Home Warranty. These services have been conducted in the last three to four years, and it has not been a negative experience for the company, she said.

“It has definitely increased our customer base,” said Alexander. “We have been able to convert many of our home warranty service calls to — hopefully — lifelong customers who love and appreciate our services.”

When the company signed up, they were required to submit a current contractor license as well as proof of automobile insurance. Alexander said that the rest of the paperwork was fairly easy.

“The key to home warranty companies is to provide a licensed HVAC contractor or staff to perform a job because of a problem,” she explained. “It is then your responsibility to perform this job 100 percent to satisfy the customer and gain them and their family plus friends as lifelong customers.”

Alexander cautioned contractors to not solely invest in home warranty companies but to also build the value a company offers customers by satisfying their HVAC needs.

WHY RISK IT?

Contractors still on the fence about home warranty services have other facts and opinions to consider as they calculate overall risk and reward. One of those facts is the reason home warranty services are becoming increasingly popular with homeowners and potential HVAC customers.

“We’re in a world that promotes the need for insurance; it’s no wonder why over 90 percent of the homes sold today come with a home warranty plan,” said Koop. “Because of this, when a homeowner purchases what will most likely be their most expensive asset of their life, the end result becomes them defaulting to the insurance companies instead of past relationships with contractors. Therefore, if we don’t join the program, we have a higher rate of attrition simply by people utilizing their insurance before calling who they know.”

IMPROVING THE EXPERIENCE

The first step to being involved with a home warranty service is to sign up. The second is to set prices.

“When contractors are setting their prices with the home warranty company, making all of their money from the home warranty company is not the goal,” said Koop. “Contractors have to learn to make the money from the homeowners themselves.”

To do this successfully, he suggests contractors start with an affordable rate with the home warranty company so the contractor will get the leads. He also mentioned that joining a coaching group, like The New Flat Rate’s home warranty coaching group, will allow contractors to share information with other contractors who are successfully navigating the home warranty market.

He also cautioned contractors to make sure they put the home warranty service company’s leads as top priority, in order to successfully grow a customer base.

“Make sure you don’t accept more leads than you can handle, even in busier seasons,” said Koop. “Also, be wary of customers that ask you to cover things that aren’t covered. This can lead to insurance fraud. Contractors can lose their standing with the home warranty company, and it is ultimately illegal.”

He advised that contractors keep their paperwork in order and done properly.

“Cross the t’s and dot the i’s,” Koop said. “Turning in the paperwork in a timely manner keeps the leads coming. Neglected paperwork reflects poorly in the warranty company’s eyes, and you can ultimately lose your status — and then be replaced.”

See more articles from this issue here!