When it comes to taking care of their heating and cooling systems, consumers are more likely to wait until their equipment is broken to call an HVAC company. However, this is not the only way to do it; consumers can be proactive and schedule regular maintenance check-ups, which are made easier with service agreements. Aaron Salow, CEO of XOi Technologies, said HVAC systems are something people all take for granted at some point — they expect their homes to always be cool or warm, even though those systems decay over time.
“You don't want to be sitting there on the Fourth of July in the middle of a cookout and not have air conditioning,” explained Salow. “You need to be able to explain appropriately to the customer that watching and getting ahead of breaks matters.”
Salow added that selling service agreements can help build a bond of trust between an HVAC company and its customers because many times, the same technician will be sent to the consumer’s house or commercial space. He also explained that consumers are growing more and more invested in transparency and visibility, which is why technicians on the job should be documenting their work through photos and videos so that they can effectively explain the problem to their customer. These visuals serve another purpose, as they can be used later on by the company to sell more agreements.
“They get permission from that customer they documented and say, ‘Hey, I want to give you a special discount or service agreement for permission to use this documentation within our sales and marketing materials,’” said Salow.
From XOi’s perspective, Salow said the connectivity of the brand from the contractor to the end customer is what’s going build trust and develop a good business relationship over time. He explained that at the end of the day, the consumer is typically undereducated about the industries they’re asking the service of, so by leveraging visibility and creating extra touch points, HVAC companies can show their customers what their systems really needs — and in return, the consumers will be more inclined to trust them to get it done.
CEO, XOi Technologies
Tool for Succession Planning
Service agreements are typically thought of as busywork, or a method to fill up technicians’ time during the off seasons. While this might be true, Christian Anderson, vice president of sales at BuildOps, said service agreements can also be great tools for succession planning. He explained that given the rise of consolidations in the industry, especially with private equity money in the mechanical space, service agreement offerings are attractive because they are considered predictable revenue.
“Sophisticated contractors can say, ‘We know we're going to generate maybe $2 of pull-through work per $1 of preventive maintenance. If I have $10 million booked for the year in preventive maintenance agreements, I know I can generate another $20 million and I basically have $30 million on the books of confirmed revenue for this year,’ and they can get that down to a single digit percent accuracy level,” Anderson said.
By having that predictable stream of revenue, Anderson said private equity companies can determine that even if an HVAC business might be run inefficiently and there’s a need for some improvement, it is still valuable enough to consolidate. He warned that although these agreements are created to be profitable, they will only be so if they are measured accurately. It’s crucial for HVAC companies who offer service agreements to stay on top of their earnings and make sure to complete other pull-through work to compliment the revenue generated from agreements.
Anderson added that the size of the HVAC company doesn’t matter — both large and small businesses should be offering some form of service agreement to their consumers, though their approach might be different. Whether a company is selling standard preventive maintenance agreements or full service maintenance agreements, Anderson said one of the main differences he sees in the approach between large and small businesses would be making the decision to hire a specific salesperson to sell these agreements.
“Even in a small business, I could even argue that they should hire a sales guy,” said Anderson. “It's all formulaic. This guy generates 10 meetings a day, he closes one, and that contract values this amount. If he does that throughout the course of the year, then he'll pay for himself.”
Turn Customers into Clients
The beauty of service agreements is in the aspect of consistency that comes with them, both in the form of loyal customers and a steady income. Stephen Dale, director of training at Power Selling Pros, said repeat business is what turns customers into clients. If a consumer has a service agreement signed with one company, they’re unlikely to contact another if they were to have a problem with their HVAC system.
“Service agreements should not be busywork. It can definitely be a profit center, but for me, it has to be set up and designed with three things: What's in it for the company, what's in it for a technician, and what's in it for a homeowner?” Dale explained.
To Dale, service agreements are all about preventive maintenance. He emphasized that a system that is routinely cleaned and maintained on an annual basis will outperform and outlive one that has been neglected. When it comes to cars, Dale said most people know not to drive 60,000 miles in a year without changing their oil because they are fully aware of how much their car costs. They know spending $100 on oil changes would be better than replacing their entire car — their knowledge of HVAC systems should be the same. Dale said many homeowners don’t think of their HVAC systems as an appliance, but in reality, it’s the most expensive one.
To help sell service agreements, Dale said contractors should focus on emphasizing the real value of preventive maintenance. To him, it’s not just about explaining the features and benefits of the agreement itself, but rather the long-term benefits of protecting a consumer’s HVAC system and how it will make their life easier overall.
“A lot of times we sell the airplane like, ‘Hey, we're gonna get on this metal thing. It's got 200 people in … it goes 500 miles an hour.’ No one's excited about that. If I said, ‘Hey, we're going to go to Cabo. It's three days, all-inclusive, it's absolutely amazing,’ you're like, ‘Oh, I like that,’” explained Dale. “We should be selling the destination and not the airplane.”