Matt Michel: Create a plumbing service agreement in six steps
Give your team the tools necessary to present and fulfill a service agreement.
Few contractors are successful with plumbing service agreements, but they should be. Done right, the plumbing service agreement results in recurring revenue, customer loyalty and steadier workflow. Here are the six steps to creating a plumbing service agreement that your plumbers will sell.
1. LET YOUR PLUMBERS BUILD THE AGREEMENT
One of the problems with many plumbing service agreements is the team lacks buy in. If your plumbers do not believe in the service agreement, they will not sell it. The solution is to let them build it.
Use one of your service meetings to build the agreement.
Ask your plumbers what they would do to build the perfect service agreement. Tell them time is no object. You might need to prompt them to get started. Would you flush the water heater? Would you check the anode rod? Would you dye test each toilet? Would you replace toilet flappers? Would you clean faucet aerators?
It is okay to get them started, but remember, this needs to be their list and their ideas.
2. ASK YOUR PLUMBERS TO VALUE THE TASKS
After you have a number of tasks and discussion is tapering off, go over each one. Ask what the value of the task is to the homeowner. Note: The value is not the value to you or your plumbers, but to the homeowner.
If the task is preventative, ask how much it costs to repair the prevented problem. Then, ask how many homes out of a hundred will have the problem over the next year. If it’s only two, then multiply the repair cost by 2% (i.e., 2/100). The point is to get a value assigned to each task.
When each task has a value, add them up. The total should run into the hundreds of dollars. This is the value of the service agreement according to your plumbers. It is their number, not yours.
3. ADD A DISCOUNT
Increase the value of the service agreement by adding a discount. Many contractors use 15%, but this is not set in stone. Why not 20%?
If you wonder how you can afford to offer a 20% discount, don’t worry. It is not a discount. The service agreement price is the price you set to achieve your target net profit. It is the same as your billable rate. Non-service agreement customers pay more. They should pay more because it costs less to serve repeat customers (i.e., service agreement customers) than it does to serve new customers.
Present your service agreement rate as your value rate and your non-service agreement rate as your standard rate. If you need a billable rate of, say, $250 per hour to hit your targeted net profit, this becomes the value rate your service agreement customers pay. With a 20% discount, this means your non-service agreement customers pay $250 / (1 – 20%) or $312.50, which becomes your standard rate.
Ask your plumbers what they think the average ticket is. Multiply the average ticket price by the service agreement discount to create more value to add to the service agreement.
4. SEEK BUY-IN
Place a selling price on the service agreement, bearing in mind that you will perform the service agreements during slow periods when you would not be busy otherwise. The added costs to perform the work are your truck cost, labor, service agreement sales spiff and some material, cleaning solutions, etc.
Price the agreement so you are making money on a marginal cost/marginal revenue basis, but remain well under the value assigned by your plumbers. You may come up with a price on the spot or adjourn and work on the price later.
When you have your selling price, ask your plumbers if they feel that this would be a complete bargain. The answer should be yes. They placed a value that is far higher than your selling price. It is not your value. It is their value.
Ask your plumbers if they think they should keep such a wild bargain a secret from your customers. Ask if they believe they have a moral obligation to let customers know how much they can save with a service agreement, including the discount on the current repairs. Get everyone to agree they should at least present the agreement, leaving it up to the customer to decide whether to invest, or not.
5. STRESS THE TRIPLE WIN
Review how the customer saves with a service agreement. If you want, make priority service a benefit of the service agreement. Some companies even waive response charges for service agreement customers. Write W-I-N on a white-board or flipchart.
Next, note how a service agreement is performed when work slows so it means more work and more money for your plumbers. Add that service agreement customers are more likely to buy additional products and services in the future, meaning more work. Finally, tell your plumbers you will pay a small spiff of $10 to $20 every time they sell a service agreement. Write W-I-N a second time.
Finish by noting how receiving money up front helps the company’s cash flow. In addition, it ties customers to the company. Plus, the company tends to make more money and receive more referrals from service agreement customers. Write W-I-N a third time.
6. PREPARE THE COLLATERAL
Once your team has bought in, you need to give them the sales tools necessary to present and fulfill a service agreement. You should have a service agreement brochure that can be handed to homeowners at the start of a service call.
You also need a new invoice with three column pricing; one column is for the service agreement value price, the second is for the non-service agreement standard price and the third is for the service agreement savings.
Next, you need a maintenance checklist for use when performing the service agreement. The checklist should be designed with lots of checkboxes to show value to the customer.
Finally, update your flat rate pricing to reflect the service agreement value price and the non-service agreement standard price.