I want to explain how service agreements actually provide you with more cash from your business — just based on the sales of service agreements — but first I want to review the other benefits service agreements offer. It’s important that you understand how a simple contract with your customers can radically change the way you do business.
Service agreements make it easier to: keep your customer, close more service appointments, increase your opportunities to complete service and repair jobs, cut your advertising budget and increase the value of your business when you sell. Even if you benefited from only a few of these chances for increased profits, adopting a program to sell service agreements would pay off. I’ll show you how as soon as I explain how the service agreement works.
Several Benefits: When a customer purchases a service agreement they receive several benefits. They become entitled to a free home safety inspection annually during the term of the service agreement. This inspection can be very valuable for customers because it may uncover pending fixture or system failures or potentially hazardous situations. Either way, the call pays off because more expensive repairs or dangerous conditions are avoided.
Should the annual safety inspection reveal broken parts that need replacing, customers will appreciate the timely repair. If the customer elects to have many items repaired (add-on jobs), they save more because they don’t have to pay for an additional service call sometime in the future.
In addition, customers receive a certain percent discount on the price of all their service and repair jobs. This discount is a strong incentive for customers to call the company with whom they have a service agreement.
One of the keys to success with service agreements is to make sure your technicians “buy in” to the service agreement program. If they have an incentive to sell service agreements, they will remember to offer them to customers.
To make it even easier for technicians to sell service agreements, we plainly list two prices for every job in our flat rate manuals: the Standard Rate and Value Rate. The Value Rate is 15–25 percent less, but it is available only for service agreement customers. Listing the two prices next to each other encourages the customers to ask how they can get the lower price. The answer is easy: purchase a service agreement. Using this type of system in an effective flat rate manual simplifies the process of selling service agreements for technicians. The agreements practically sell themselves. The customers win and so do your technicians. You win, too. Let’s look closer at your gains.
Let’s say that you, as a customer, had XYZ Service replace your water heater last year. You purchased a service agreement at that time that gave you a discount on future repairs during the term of the service agreement. Are you going to call the company where you know you have a discount, one whose work you have seen and one you know you can trust? It only makes sense to call the company you know and trust — plus the one that gives you a discount. It’s a fact: customers are more likely to call your company if they have a service agreement with you. Repeat customers are the best kind, plus they tell their friends about your business.
It costs you the same amount to send a truck out to a job whether the technician closes the repair job or the customer decides not to have the work done. So the higher percentage of jobs your technicians close, the more profitable the business becomes. If they only close a small portion of the jobs, they analyze for the customers and give a quote, your costs will rapidly increase and your profits will shrink. An easy way to increase the number of jobs your technicians close is to offer customers an incentive — more benefits and a lower price. Service agreements do just that. Customers get the extra annual inspection and they get a price break, too. Your technicians don’t need to be as skilled in sales techniques when you offer service agreements.
You spend significant sums of money to produce a telephone call from someone who needs your service. How would you like the chance to look at thousands of homes to see if they need your services — at no charge. Better yet, get paid for it. What an opportunity! Looking at customers’ homes, trying to determine if there are any failed, broken or inoperative service agreement customers. You get to inspect their homes at least once a year. Naturally, not all homes will have defective systems, but many will. You have an automatic business generator with service agreements. (You’ll want to be certain your technicians are trained properly so they don’t “find” work that isn’t really necessary.)
Cut Advertising Expenses: Most of us spend a lot of money on advertising so we can be assured that customers will call our business for service. Just the amount we spend on Yellow Pages advertising represents a substantial percent of our revenue (for some companies it approaches 15 percent). All service companies compete to get the customer to call them instead of their competition, and bigger and bigger ads seem to be the strategy some companies are using.
All this advertising costs us more and more each year. Often we feel we have to advertise as much as we can afford so we don’t get left behind by our competition.
If your goal is to generate business with your ad dollars, there may be a cheaper way. Selling service agreements could accomplish the same results by allowing your technicians to inspect thousands of customers’ home every year. Further, service agreements increase customer loyalty. Customers will avoid searching through the Yellow Pages and call your business for the reasons I mentioned: they already know about your company and they want the discount they receive.
The more loyal customers you have, the less you need the advertising and the more you can cut your ad budget.
Besides the other benefits to your business, service agreements provide one more source of cash for your business. Think how you would lose 1,000 service agreement fees of $49 each. With all that extra revenue at stake, any delay seems like throwing money away.
Besides your position (seniority) in the Yellow Pages, what do you have to offer a prospective buyer when they look at your business five years from now? Not much. As a result, service businesses typically don’t bring high prices when they are offered for sale. The story changes when you have service agreement customers. First, you have a definite customer list, people who you know will call your business. And you have opportunities to visit numerous homes to examine them for necessary repair work. You also have the fees for the service agreement contracts, plus the chance to renew the agreements when they expire. Remember, every extra dollar of revenue you generate will bring a multiple of that amount on the sale of the business. Service agreements make your business more valuable years from now, plus they allow you to earn more until you do sell.
By now you should be convinced that service agreements are what you need to boost the profits in your business. So I want to throw a few tips on ways to take full advantage of the opportunities made available by offering service agreements to your customers.
After offering service agreements with a one–year term for several years, we discovered that customers will gladly contract for three–year or five–year agreements. We were wasting time going through the trouble to get our customers to renew annually when most would agree to a five–year term. Or you could have a one–year term that automatically renews unless the customer cancels it. Either way, you extend the coverage of a powerful business opportunity for your company. Try the longer term, you’ll save the time we took to figure out that it pays.
Trying to be efficient and save truck miles, you would think that it would be practical to conduct the customer’s safety inspection on a normal service call. After all, your technicians could inspect the premises while they are there, saving an additional trip in the future. Economically, it makes sense. However, if you look at the safety inspection portion of the service agreement contract that way, you are missing the point. The object is to get the maximum number of opportunities to inspect the customer’s home, not the minimum. Your technicians (particularly if they have been to one of our seminars) should inspect the customer’s home on every regular service call anyway. They should always be looking for ways to serve their customers — and looking for business.
The reason you conduct the safety inspection on a separate call, probably months from any previous trip to the customer’s home is to detect new, additional problems, ones that did not exist a few months before. The safety inspection is a valuable opportunity to uncover leaks, shorts and failed systems; don’t give it up in exchange for a few dollars of truck expenses. Additionally, customers will perceive more value from the inspection if it is performed on a separate call.
The time to schedule the safety inspection is during the slowest business periods. During these times your technicians need to be kept busy anyway. So put them to work performing safety inspections. Since business is slow, you need to generate some business. And service agreements are just the way to do it.
I can’t think of a single business technique that can help your business in more ways than service agreements. If you are not offering them, now is the time to begin.