Redline
Try Redline
Contractor glossary

Service agreement

Updated

Definition

A service agreement is a recurring maintenance plan a customer pays for, monthly or yearly, that includes scheduled visits and set perks such as priority booking or repair discounts. For a contractor it turns one-time customers into steady, predictable work.

Also called: Maintenance agreement, Maintenance plan, Membership plan

What a plan includes

A service agreement sells a schedule, not a repair. The customer pays a set fee, and you commit in writing to visits and perks:

  • Scheduled visits, each with a checklist of what gets done. HVAC plans commonly include a cooling check in spring and a heating check in fall. A plumber might flush the water heater and test the shutoff valves, a pressure washing company might do a yearly house wash, and a detailer might book maintenance washes on a set interval.
  • Member perks, such as priority booking when the phones get busy, no trip charge on service calls and a set discount on repairs.
  • Terms: the price, monthly or yearly billing, how long the plan runs, how it renews and how to cancel.
  • Exclusions: what the plan does not cover, such as repairs, parts and problems found during a visit. A clear exclusions list heads off most arguments.

Why it steadies revenue

Plans move work and money into the months you'd otherwise be short. You book visits for the quiet stretches between busy seasons, so techs stay productive when the phone doesn't ring. Monthly billing brings in about the same amount every month. And each visit puts you in front of a customer who already trusts you, which is where repairs and replacement jobs come from. That's why plans raise customer lifetime value.

That revenue only becomes profit if visits are priced from what they cost to deliver.

Example: A shop signs up 200 members at $20 a month. That's $4,000 coming in every month, or $48,000 a year. Each plan includes two visits a year, so the shop owes 400 visits. At 1.5 hours per visit including drive time, that's 600 tech hours, about 50 a month if spread evenly. If a tech hour costs the shop $50 with wages, payroll taxes and the truck, the visits cost $30,000 a year, leaving $18,000 for materials, member discounts, overhead and profit. The numbers are made up for illustration.

Common mistakes

  • Pricing the plan to sell, not to pay. A cheap plan wins signups and loses money on every visit. Start from the labor hours per visit, then add materials and the cost of the member discount.
  • Promising "everything covered." A plan that pays for any repair isn't a maintenance plan anymore: you carry the risk of an expensive breakdown for a fixed fee, much like a warranty or insurance product. Rules for warranty-style products vary by state, so have a lawyer review the terms before you sell one.
  • Selling more visits than you can deliver. Members whose tune-ups slip into the busy season, or never happen, cancel and ask for refunds. Track the visits you owe and schedule them in slow months.
  • Turning visits into sales pitches. Report what you find, with photos, and let the member decide. A visit that feels like an ambush is a plan that doesn't renew.
  • Spending prepaid plans as profit. A customer who pays for the year up front has paid for visits you haven't done yet. Ask your accountant how to record it.
  • Renewal surprises. If a plan renews automatically on a stored card, put the renewal and cancellation terms in writing at signup and remind members before the charge. Automatic renewal rules vary by state, so check with your state attorney general's office.

A plan pairs well with flat-rate pricing: a member price column in your price book keeps the discount the same no matter which tech is on the job. A plan is not a workmanship warranty, your promise on work already done, and doesn't replace one. Plans smooth cash flow, and recurring billing needs clear payment terms. For trade detail, see how to price HVAC jobs and how to invoice HVAC jobs.

Go deeper

HVAC guideHow to Price HVAC JobsHow to price HVAC service calls, replacements and maintenance agreements: flat-rate books, diagnostic fees, Manual J sizing, SEER2 tiers and refrigerant.HVAC guideHow to Invoice HVAC JobsWhat to put on HVAC service and replacement invoices, plus warranty registration, permits, deposits, financing payouts, maintenance plans and refrigerant records.HVAC guideHVAC Seasonal PlaybookA month-by-month plan for HVAC owners: spring and fall tune-ups, summer and winter emergency triage, shoulder-season selling, staffing, parts and cash flow.Plumbing guideHow to Get More Plumbing CustomersHow plumbers win more customers: answering emergency calls, Google profile and ads, referral partners, water heater follow-ups and seasonal campaigns.
Customer lifetime valueCustomer lifetime value (CLV) is the total gross profit a customer brings your business over the whole relationship, from the first job through every repeat visit, repair and replacement. It tells you what a new customer is worth and how much you can afford to spend to win one.Cash flowCash flow is the money moving into and out of your business, and when it moves. Profit tells you whether your work makes money; cash flow tells you whether the money is in the bank when payroll, suppliers and taxes come due.Trip chargeA trip charge is a flat fee a contractor charges for traveling to a job, separate from the price of the work itself. It covers drive time, vehicle cost and dispatch, and it's owed whether or not the customer approves a repair, so it must be disclosed before the visit.Flat-rate pricingFlat-rate pricing charges a fixed price for a defined task, no matter how long it takes on the day. The price is built ahead of time from your average time for the task, your cost per billable hour, parts and profit, and kept in a price book.Workmanship warrantyA workmanship warranty is your promise to fix, at no charge for a set period, problems caused by how you installed or did the work. It stands behind your labor; defects in the equipment or materials themselves fall under the manufacturer's warranty.Payment termsPayment terms are the conditions on your estimate, contract and invoice that say when payment is due, how the customer can pay and what happens if they pay late. Common terms include due at completion, due on receipt, net 15 and net 30.

See every term in the glossary