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Residential Service Agreements Part 3: Converting Theory Into Practice
RESIDENTIAL SERVICE AGREEMENTS PART 3
Building a highly profitable HVAC retail business with residential service agreements take more than ideas; it takes proper training and execution.
BY RON SMITH
This year, in each issue of HVACR Business we’ll be publishing an article from our archive based on popularity and website traffic. This is the third in a series from Ron Smith. We hope you enjoy.
With this final article in the service-agreement series, I will present the last steps necessary to position your company as the dominate force in your local market.
In the first two articles of this series, we presented service agreements as the solution to obstacles such as the inability to attract and retain good people, difficulty in driving revenues during mild weather periods, and overcoming low-price competitors in the marketplace. We also presented the importance of avoiding false starts in your service-agreement program by elaborating on the required commitment by owners and leaders, as well as providing necessary training to all ongoing co-workers. Additionally, we highlighted pricing strategies for both non-service precision tune-ups and service agreements, and noted the importance of rewarding all co-workers with commissions.
To build on previous knowledge, this article will offer procedures for converting service calls and non-service agreement precision tune-ups to service agreements. I also will explain how to market, sell, renew, and continuously train co-workers to achieve the best results in service-agreement programs.
And to ensure that your company is able to see results, I will offer insight for realistic and practical benchmarks.
“Never refer to Service Agreements as Service Contracts”
There are two methods for obtaining service agreements. The most effective method is a proactive approach: performing a non-service agreement precision tune-up.
Many companies attempt to get new customers by offering replacement equipment systems, which cost the customer several thousand dollars. The effective way to woo customers is to offer the lowest-priced product (typically $69 to $89) in your portfolio of products and services with absolutely no risk to the customer. (In fact, smart marketing should say that if the customer is not pleased with the tuneup they do not pay for it.)
Once the tune-up is completed, the technician carefully explains the customer benefits of a service agreement and presents a proposal for acceptance.
Think of the non-service-agreement precision tune-up as a demonstration of what the customer will be receiving twice a year (along with a host of other benefits) when they invest in a service agreement.
The customer can invest in a one-, two- or three-year agreement and they pay for it all at once. Many companies choose not to charge for the non-service agreement precision tune-up if the customer invests in a service agreement. They simply consider the non-service-agreement precision tune-up as the first tune-up the customer receives with the service agreement. With proper technician training you can easily get paid for both the non-service agreement precision tune-up and the service agreement at the same time.
Additionally, you will greatly improve your service-agreement renewal results by getting paid for the non-service-agreement precision tune-up along with the service agreement. It allows you to schedule the last service-agreement precision tuneup 12 months later when the customer is most likely to renew.
CONVERTING SERVICE CALLS TO SERVICE AGREEMENTS
The other method of obtaining service agreements is regular demand service calls (responding to repairs). This is a reactive approach.
Your service pricing should be structured with a discount for service-agreement customers who experience a service call (I recommend 15%). You can offer the same discount on the present repair if a customer invests in a service agreement after your technician has completed the repair and before leaving the home. The sale requires the technician to carefully explain the benefits of a service agreement. For example, a customer might have a $300 repair that can be discounted $45 (15%) to $255 if they make the service-agreement investment. Hopefully you’re using a flatrate-service system. If so, your technicians’ repair manuals would indicate the two price choices and the savings: $300, $255 and $45. Flat-rate-service pricing enhances service-agreement sales.
For companies that have a maintenance department staffed with precision tuneup specialists, the service technician who made the service-agreement sale informs the customer that a representative of the company will be phoning to schedule the first precision tune-up under the service agreement.
For companies that do not have a maintenance department, the service technician should ask the dispatcher whether they should perform the service agreement’s first precision tune-up while they are still at the customer’s home or if the office wishes to schedule it later with the customer. The dispatcher’s decision will be based on the current work load.
MARKETING NON-SERVICEAGREEMENT PRECISION TUNE-UPS
I know it might sound ironic, but advertising service agreements does not work. I know from experience (and through spending several thousand dollars more than once) that people are not attracted to service-agreement advertising and offers. However, they are attracted to precision tune-up offers.
Direct mail is the most effective method. A follow-up call immediately after a direct-mail campaign can increase the response rate 25% to 50%.
However, before using follow-up marketing, make certain you are in full compliance with federal and state telephone solicitation regulations.
Another tactic that is effective: radio advertising in conjunction with your direct-mail offerings.
For all marketing, make sure you mention the value of precision tune-ups, professional cleanings and safety inspections. Also note that customers associate time on the job with value. For decades I have successfully marketed against competitors that offer and deliver 30-minute, $29 “clean and checks.” Make certain that you emphasize the time you will spend on the job in your marketing campaign.
For the best results, aim your marketing efforts toward customers that do not own a service agreement. Then move to non-customers selected by demographic and geographic decisions.
And if you are going to make bold statements in your direct-mail campaigns, make sure they are absolutely true. True bold statements work well. False statements can ruin your reputation. I also recommend including a discount and using an “act now before the offer goes away” phrase.
TECHNICIANS SELLING SERVICE AGREEMENTS
A sale is not difficult if your technicians are properly trained to explain customer benefits and the procedures in offering service agreements.
To further prepare your technicians, have all of the basics in place: clean and neat trucks, well-groomed technicians, professional forms, and easy-to-understand printed pricing. Also, teach them how to present themselves and how to get the customer involved in the repair or precision tune-up.
For example, after the technician arrives on a service call, introduces himself or herself and diagnoses a repair, he can engage the customer by opening up his flat-rate pricing manual and pointing out the repair cost. He can then say, “Mrs. Jones, as you can see, we can repair your air conditioner and soon be providing cooling for the repair price of $300, plus the diagnostic charge. Or should you decide to invest in a service agreement, the repair charge will only be $255. If you will authorize the $300 repair, when the work is completed, I’ll explain the service agreement and you can make a decision and still get the discount on the investment.”
The technician did not try to sell the customer the service agreement until the air conditioner was fixed. (When people have no air conditioning or heating, they do not want a sales presentation, they want cooling or heating.) But he did properly inform her of a service agreement and the savings opportunity.
When performing non-service agreement precision tune-ups, the sale is even easier.
For example, “Mrs. Jones, I would like to show you your air conditioner and furnace now that I’ve completed the precision tune-up, professional cleaning and safety inspection. I have the system in the very best operating condition. Many of our customers invest in our company’s service-agreement program. When they do so, they receive two precision tuneups every year, just as I performed today, along with many other benefits. Our office will even call you when it is time for the service.”
In order to achieve the results you want from your technicians, you must provide them constant encouragement and recognition. Reward them with spiffs, create contests and have fun. When you celebrate success, you create a winning atmosphere.
ON-GOING STRUCTURED TRAINING
Training is an on-going, repetitive process. Indeed, Tiger Woods did not wait until the morning of a tournament to practice hitting golf balls.
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You will need to review the technical procedures of performing precision tune-ups, particularly as you employ new technicians. Never rely on “training by osmosis.” Your training must be properly structured and scheduled.
In fact, I spend an equal amount of time or more training technicians in customer relations as I do on technical issues.
Another great training technique is having technicians share their success stories and challenges with each other.
PERFORMANCE TRACKING INFORMATION AND BENCHMARKS
In order to set goals for your company, it is important to know how others perform. The following benchmarks are what you should strive for. It is important to set realistic goals, which will result in co-worker job satisfaction and recognition. • 25% — Minimum conversion rate from service calls to service agreements by service technicians. • 70% — Minimum conversion rate from non-service-agreement precision tune-ups to service agreements by precision tune-up specialists. • 10% — Minimum conversion rate from service calls and precision tuneups to equipment replacement sales leads or accessory sales by service technicians and precision tune-up specialists. • 80% — Minimum service-agreement renewal rate. • 1,200 — Total residential service agreements per $1 million in residential retail revenues.
MAINTENANCE DEPARTMENT
A maintenance department within a service division was relatively unheard of until the mid-1980s, when I established it. Now many companies adhere to the maintenance-department principle. I have personally trained hundreds of companies in the establishment of a maintenance department and operated the four hvac companies I owned accordingly.
A maintenance department separates the functions of service technicians who perform repairs from the functions of maintenance technicians (we call them precision tune-up specialists) who perform precision tune-ups, professional cleanings and safety inspections.
The service technicians’ work is reactive—you never know who will phone next, what will be wrong and where they live. Service technicians are skilled and experienced in fixing air conditioners and furnaces.
The maintenance technicians’ work is proactive—it can be planned days and weeks in advance. Precision tune-up specialists are skilled and experienced in performing quality tune-ups. Their job is to prevent things from breaking.
Service technicians obtain service agreements while performing service calls. Maintenance technicians get service agreements while performing non-service agreement precision tune-ups. However, maintenance technicians also keep service-agreement customers by performing their scheduled precision tune-ups and processing renewals. In fact, our very best customers—service-agreement customers—are inventoried in the maintenance department. It is the maintenance department’s responsibility to keep customers.
MAINTENANCE TECHNICIANS VS. SERVICE TECHNICIANS
Many companies don’t have maintenance departments. They use their service technicians for performing both service calls and precision tune-ups. From a personal standpoint, I am a proponent of a maintenance department.
Positives of using service technicians to perform precision tune-ups: • Provides work for service technicians during mild-weather periods. • Reduces drive time between calls, resulting in increased service-technician productivity. • Should a repair be required while on a precision tune-up, the service technician can complete the repair while there saving time for the customer and the company.
Positives of using precision tune-up specialists to perform precision tune-ups: • Greatly broadens the available labor pool as you are recruiting and hiring based primarily on potential customerrelations skills, not technical talent.
They are taught technical skills as they advance. • Typically, they perform higher-quality precision tune-ups. Most skilled and experienced service technicians do not like performing precision tune-ups. • Since they are hired based on customer relations skills, they relate better to customers. • Their labor rate is lower than service technicians. • They free up your service technicians to be available for repairs. • They are your future service technicians and comfort consultants, well trained in customer relations and with no bad habits from another hvac company.
The question often asked, “I use both non-service-agreement precision tuneups and service-agreement tune-ups as fill-in time for my service technicians in mild-weather periods. Having a maintenance department will prevent me from doing this. How will I keep my service technicians busy?”
There are two answers to the question. The first answer is to actively sell commercial service agreements and schedule as many of the commercial-service-agreement precision tune-ups as possible in the predictable mild-weather months. Commercial service agreement precision tune-ups are performed by service technicians.
The second answer is you will not need as many service technicians once you have precision tune-up specialists.
PROFILING NATURAL BEHAVIOR CHARACTERISTICS
Some people are inherently good with customers.
They have a high degree of empathy, thus it is easy for customers to like and trust them.
In order to hire the best precision tuneup specialists, you must find candidates with great customer-service skills. You can later train them in the technical aspects of your business.
Like all potential employees, you should check driving records and administer a drug test (make certain you are within your legal rights to do so), as well as obtain a complete background report.
Additionally, you should obtain a
profile of the candidate’s natural behavior characteristics. The profile will tell you a lot about how well they will do in offering and selling service agreements as well as selling accessory products and turning in replacement equipment sales leads. There are several sources for this service. One of them is www.learningbeam.com.
DEBRIEFING
Debriefing immediately after each service call or precision tune-up is a must. After the quick debriefing, technicians are dispatched to the next call.
One of the questions you should ask technicians, “Did the customer invest in a service agreement?” If yes, congratulate them. If no, make sure the technician completed a service-agreement form and left it with the customer. When your company performs a happy call with the customer the following day you can say, “I
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DIRECT MAIL LETTER FOR TUNE-UPS
(Your Letterhead) (date)
(name) (address) (city, state, zip)
Dear (name),
START SAVING MONEY!
Many local residents do not realize their home heating and air conditioning system operates approximately 3,300 hours per year. To put this “run time” in perspective, a car driven for the same 3,300 hours at 65 miles per hour would travel 214,500 miles. No one would consider such a journey without arranging for oil changes, lubrication, and routine tune-ups along the way to assure the efficiency, safety and reliability of the vehicle.
Your home heating and air conditioning system serves you many more hours than your car, and, like your car, needs routine tune-ups to operate in an efficient, safe, and reliable manner. Our unique precision tune-up includes everything that can possibly be done in order to restore your heating and air conditioning system to its very best condition. No other local heating and air conditioning company performs a comparable precision tune-up. In fact, it often takes us 1 ½ hours or more to perform the work! This unique precision tune-up is available to you for only the next 60 days at a special discounted price of only $79. Since your system will likely be running another 3,300 hours this year call us at (phone number) and ask for (name) at extension (number) to schedule a convenient time to have your system brought up to maximum operating standards. Don’t wait, start saving money today!
Sincerely,
(name) Customer Service Representative
P.S. 100% Guaranteed. If you are not satisfied with our service, I will gladly refund your money – no questions asked!
P.P.S. Here’s a special offer! Should you, for any reason, experience an emergency service call on your air conditioning and heating system within one year after we complete the precision tune-up we will waive the $57 service call diagnostic fee, which compensates us to get to your home and diagnose the problem.
(date)
(name) (address) (city, state, zip)
Thank you for your business! We appreciate the opportunity to serve your indoor environmental needs.
It is time to extend your Service Agreement so you can continue saving money on your monthly utility bills, lengthen the life of your heating and air conditioning equipment, and minimize expensive inconvenient service calls. You can extend the Agreement one year for $149, two years for $289, or three years for $421. As you can see, there is a discount available for the two- and three-year renewals.
Please enclose your check: I choose one year for $149 I choose two years for $289 I choose three years for $421
INVOICE
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noticed our technician left a service agreement with you to consider. Are there any questions I can answer?”
Another question asked of the technicians during the debriefing, “What is the age of the equipment and is it a sales lead?”
RENEWING SERVICE AGREEMENTS
There are several methods of renewing service agreements. What I have found works best is to have the technician handle the renewal when performing the last precision tune-up on the present service agreement. The technician can ask for a check and indicate the payment and renewal on the precision tune-up invoice. This works well if you schedule the last precision tune-up in the 11th or 12th month of the present agreement. It is not necessary to have the technician prepare another service-agreement form during the renewal process.
Other companies mail a renewal invoice. (For an example, see the Service Agreement Renewal Invoice above.)
SERVICE AGREEMENT RENEWAL INVOICE
Whatever method of renewal you choose, do not accept losing a customer without telephone follow-up. The renewal of a service agreement must be considered extremely important to you. However, it is probably not the most important thing on your customer’s mind. That is exactly why you must be willing to phone them as a last attempt in your renewal effort.
With all the parts in place and all the knowledge gained regarding service agreements, I hope you put into practice the techniques I have learned over the last 60 plus years.
There is a reason I named my book “HVAC Spells Wealth”—because there is wealth to be had both personally and financially within the hvac industry. Service agreements are one avenue toward that goal. u
Ron Smith is a well-known authority in the HVACR business with more than 60 years of experience as a contractor, franchisor, consolidator, and consultant. He is the author of HVAC Spells Wealth, More and New HVAC Spells Wealth and HVAC Light Commercial Service Agreements.
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Keven Prather of TransitioNext Advisors is a monthly columnist for HVACR Business.
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