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Anatomy of a Service Agreement

Aug. 5, 2022

Service agreements

Service and preventative maintenance contracts are the lifeblood of any thriving service organization. Why? Your service agreement customers translate into guaranteed income paid in regular intervals. It’s not only a chance at recurring revenue in the immediate term but also for years to come. If you do your job right by providing value to your customers, they’ll continue doing business with you allowing you to grow as they grow.

Whether you’re in Mechanical/HVAC, electrical, or plumbing industries, a well-thought out service department can mean the difference between steady revenue all year long and a business with negative cash flow, barely hanging on by a thread.

It all starts with an iron-clad service agreement. Is yours up to snuff?

Start with the asset list

At the center of the service agreement is the asset list (aka: the complete list of equipment your customers need maintained). This list should be comprehensive and track the following:

  • Readings (measurements, voltages, amperages, pressures, temperature splits, etc.)
  • Repairs completed and their outcome
  • Call-backs or service and equipment failures and if they were reported to the OEM
  • Cost and time spent on each piece of equipment

Outline your scope of work (and building your value)

Now that you have the asset list, you can begin to fill out the details. This is everything from:

  • Types of material(s)
  • Frequency of service
  • Tasking
  • Scheduling

Once you’ve addressed this, it’s also an area where you can really start to emphasize your value in the form of additional offerings tailored to the customer’s needs. These could be:

  • Your team’s factory-specific trainings
  • Prefab capabilities
  • Warranties or reporting
  • Energy evaluations

And in case we haven’t emphasized it enough, the key here is to make your offerings specific to the customer’s situation, not to put the hardsell on customers. Keeping your list of add-ons hyper edited (aka: limited and relevant) will build credibility at this critical point in this new customer relationship and will give you more opportunity to really hammer home the extra value you can provide. It’s easier to sell one or two offerings that are a perfect fit for the customer vs. ten add-ons that might work.

Of course, you can deliver value without offering add-ons. Clearly outlining the data points you collect and report will also do the trick. Consider adding:

  • Regulatory tracking for government agencies
  • Upcoming changes on the newest and best equipment on the market
  • Changes to governmental restrictions and restraints on refrigerants

What are the terms and conditions?

A service agreement component that is vital to both you and your customer, the T’s & C’s outline the fine print. This includes:

  • Type of agreement (regular planned maintenance? Planned inspections only? Limited parts and repairs?)
  • Overall cost and length of the agreement
  • Breakdown of billing cycle
  • Payment terms (Net billing? Billing in advance?)
  • Service-level agreements (SLAs) on response time

Knowing your business, cash flow projections, and understanding the time value of money is critical when writing service agreement quotes and accompanying billing terms. It can mean the difference between a profitable job and a break-even job (or worse, a net loss).

Service contracts can be used to provide strategic advisory

Collecting and storing all these data points is important not only to reference job-site history but also to create an annual audit for your customer. Think of how much value you can provide by scheduling an in-depth analysis of your work on each account.

In this analysis, you should list each piece of equipment, the scope of maintenance performed as well as any repairs performed. Notate if this level of repair work is typical for the asset and if not, what are next steps? If the piece of equipment is older and approaching replacement, you will want to flag this to your customer early along with approximate costs so that they can begin budgeting. This type of foresight and advanced warning helps your customers avoid unscheduled downtime and preserves their cash flow.

Additionally, you’re able to perform an analysis on planned vs. actual cost on repairs per property and provide expert insight on industry average. For example, in the mechanical/HVAC industry, you can typically expect to see a 3:1 ratio of pull-through work on maintenance. So for a $2,000 maintenance contract, you can usually expect to spend about $6,000 in repair work. Of course, it varies from building to building (and age of equipment) but the 3:1 ratio should give you a starting point of reference. It’s even better if you can look at your entire book of work within a given industry and provide a better informed estimate. Again, it’s all about providing value – you don’t just perform the work, you are also a partner giving guidance and experience.

The big question is: once you have a solid service agreement, how do you collect and store every maintenance task for all assets? The good news is that BuildOps can help! Our simple, user-friendly app for jobsite documentation and asset management makes it easy. Take a test drive today.