Are your HVAC maintenance agreements actually profitable?

Maintenance agreements are the most valuable thing an HVAC business owns. Recurring revenue, first call on service work, and a customer list that has already chosen you.

They are also, in a surprising number of shops, priced at a number somebody picked several years ago and never revisited. Labor has gone up since. Fuel has gone up. The agreement price has not.

The question is not whether agreements are worth having. It is whether yours are priced against what they actually cost to service.

What an agreement actually costs to service

Four costs, and most books capture only the first.

Labor for scheduled visits. Two visits a year at a couple of hours each, plus the tech's fully loaded cost — not their hourly rate. Loaded cost includes payroll taxes, workers comp, and the truck.

Drive time. Usually invisible in the books and frequently larger than the visit itself. An agreement forty minutes out costs materially more to service than one ten minutes out, and if you sell a single price across your whole territory, the far ones are subsidised by the near ones.

Consumables. Filters, belts, capacitors bundled into the agreement price.

Priority service obligations. If the agreement promises faster response, that promise has a cost — it constrains scheduling, and in peak season it can mean displacing billable work.

What an agreement is worth beyond the fee

Costing agreements as a standalone product is a mistake in the other direction. The fee is not the whole return.

An agreement customer calls you first when the system fails. They are far more likely to buy a replacement from you when it does. Twice a year, a tech is standing in front of their equipment noticing that it is nearing the end of its life.

So the number that matters is not "does the agreement fee exceed the servicing cost." It is total margin per agreement customer per year — fee, plus service work, plus replacement work, minus the cost of all of it.

Measured that way, agreements almost always look good. Measured on fee alone, many look marginal. Both numbers are worth having, because they answer different questions: the first tells you whether the programme is working, the second tells you whether the price is right.

Setting it up in the books

You need three things, and none of them require new software.

Agreement revenue in its own income account. Not mixed into service revenue. If agreement income and service income share an account, you can never separate the two questions above.

Visit labor coded to agreement work. Techs need a way to book time against "agreement visit" rather than a generic service call. This is the step that requires a habit change, and it is the one that makes everything else possible.

Agreement customers tagged. So you can pull total revenue from that group — fee, service and replacement — rather than only their agreement fee.

With those three in place, the reporting is straightforward: agreement revenue against agreement servicing cost, and total revenue per agreement customer against total cost.

The pattern we see most

When a shop measures this for the first time, the usual finding is that the agreements are profitable overall and underpriced at the fee level — often against costs from several years ago.

The second common finding is geographic. Agreements clustered near the shop are strongly profitable; outliers at the edge of the territory are not. That usually leads either to a distance-banded price or to letting the far edges lapse.

Neither is a conclusion you can reach without the numbers. Both are easy decisions once you have them.

Related

Agreement tracking is one piece of job costing for contractors, which is where the install-versus-service question gets answered too. There is more on how we approach the trade on our HVAC bookkeeping page.

If you want this built into your books, it is part of what we set up in the free first month.