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Annual service contracts with clients

George_10
George_10 Member Posts: 580
Curious to know if many of you have annual contracts with your customers? If so, what do you provide annually?

Do you feel that you get new business from the client or referrals to his friends?

Just would like to see a general discussion on this topic.

We have such agreements with our industrial clients, but wanted to know more about the residential/small business market.

Thanks for your replys.

Comments

  • Ken_8
    Ken_8 Member Posts: 1,640
    We found...

    Our competitors offer the contracts to bolster some unproven customer "retention" notion. In some instances, if your a large enough player, it can be somewhat profitable.

    We are generally opposed to them. Not because they are a bad thing; hell, everyone knows maintenance is a must-have good thing; but because the fine print in all the contracts we've seen, negates anything like what the customer assumes is in it! This we interpret as unethical behavior and opportunistic marketing with real risks; entirely to the detriment of the client. There is nothing wrong with making money. There is nothing wrong with the concept of a maintenance contract. But if it covers little and has fine print making most of what folks think is included - not, it adds just one more reason for the population to mis-trust us.

    Isn't there enough of that kind of stuff out there already?

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  • Weezbo
    Weezbo Member Posts: 6,232
    I dont particularily have a need for more service work.

    the general contractor gives the new home owner three companies who like to do service work and who i recommend..
    in an emergency ,of course i am available however thru the general.if the boilers out of oil or whatever he sorts it out well enough. in the winter sometimes i do some ,help out the community type service work although for the most part it is understood that they need to have a plan for seasonal maint there after...to me it is like giving the home owner an educated second opinion.
  • Jaitch
    Jaitch Member Posts: 68
    We use service agreements

    to bolster our hand-in-hand concept with oil delivery. Our contract covers an annual precision tune up, emergency breakdowns, most all electrical parts, oil handling parts. Specifically excluded in central PA is anything that touches water.... Way too much calcium in the water (180ppm). I've found it makes the customer more in-tune to the annual tune up, as it's "already been paid for!" and "only needs scheduled and done!" last time I added up the AVERAGE RETAIL price of the parts covered by our contract, it was around two thousand dollars! Yes there are things in "the fine print" that aren't coevered, but I'm not ashamed of them, and make specific point to call that out in any sales call I make. The only down side is CANCELLING a service agreement as the equipment heads into the 1953 Studebaker column, but it is another tactic to sway the homeowner into the equipment replacement that will benefit ALL parties to a service agreement. Why do folks have such a bad attitude about taking their medicine to get better?
  • Ken_8
    Ken_8 Member Posts: 1,640
    So you

    underwrite the losses of the service agreement by raping the client on the cost per gallon of the fuel?

    Sounds fair to me,

    NOT!

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  • Lurker_2
    Lurker_2 Member Posts: 123
    wow

    someone hasn't got their recommended daily allotment of abuse today......
  • jim sokolovic
    jim sokolovic Member Posts: 439
    That is an awful...

    accusation to direct at all companies that provide both service and delivery in one contract. I admit to having similar opinion at times in the past, when I did service work myself - but have since seen examples of the customer receiving very good emergency service and thorough annual maintainance, included for about 20 cents more a gallon than I pay for C.O.D.. What's that add up to, $150 - $200 more a year?
  • Ken_8
    Ken_8 Member Posts: 1,640
    Accusation?

    Hardly.

    "Hiding" one's service overhead by jacking up the cost per gallon is a form of blackmail. Especially when one remembers that the service "agreement" is not offered to anyone except those who buy oil from the service provider. That same provider will generally then NOT sell to anyone without a service contract. And so, there is a criss-crossing exclusionary agenda at work here. ANTHING that thwarts competition is a bad thing IMHO and this is a classic example of exactly that.

    "I won't service your heating system unless you buy your fuel from us." And, "I won't sell you fuel, unless you let only us service it."

    Sound familiar?

    In fact, there really is no linkage betwen heating system service - and buying fuel for it. The suggestion that there is, is purely a marketing strategy used by oil companies that wish to block out independent contractors that are generally better equipped to service equipment, than oil distributers; especially the likes of monster companies like the near bankrupt Petro.

    We are amazed at the things oil companies do to "fix" things. We are equally dismayed at the things the gas company does as well. But that could be a whole new thread... Incompetence is certainly no oil company or utility company exclusive, but it sure seems that way more times than not.

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  • DaveGateway
    DaveGateway Member Posts: 568
    Service Agreements

    Our service agreement(its not a contract and we're quick to explain that to our customers) sells for the cost of a boiler service and includes - surprise -a boiler service, as well as a few clearly spelled-out one time extras. In addition, the service agreement holder is billed at a 5% lower profit margin than a non-service agreement holder while the agreement is in effect. No fine print, no obligations, and no reason not to sign up. I think it's a reasonable and worthwhile way to keep our customers from reaching for the phone book, and our re-up rate is near 100%. Win-win, no?
  • Ken_8
    Ken_8 Member Posts: 1,640
    Sounds as if somebody has

    figured out a great way to offer contracts!

    However, is it exclusionary? E.g., you must have an "agreement" or you won't sell folks the oil or, conversely, you can't get the service agreement - if you don't buy the oil?

    If it IS that way, then I retract my praise. "Bundling" service and fuel with criss-crossing exclusionary provisions is the stuff Microsoft lawsuits made famous; and with good reason...



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  • Why should service overhead

    not be included when calculating profit margin? Do you not include the cost of motor fuel or vehicle repairs when calculating yours? I do.

    I know of no oil company who will not sell their product to someone w/o a service agreement. There are times, when in order to keep product in their customers' tanks, a company will decline to deliver to a non-customer. Have you never been too busy to accept a Yellow Pages service call?

    Service agreements are meant to be a 2-way street. The customer has someone to call when required. The company can then forecast the logistical support necessary for the customer base. The income from the agreements helps to defray the cost of keeping that support in place during the slow times. A service agreement is like an insurance policy you don't have to die to collect on. If done properly. It is a win-win.

    "Incompetence?" Yep. Unlike doctors & lawyers, service techs have to stop practicing & work for real. Sometimes, just like everyone, they, or the company screws up. Even I made a mistake today. Did you?

    You're correct. Most oil companies will not service where they don't sell. Will the gas guy give you the key to the rest room if you don't buy gas? Do you take your Best Buy TV to Circuit City for repairs? The practice of providing service to only your customers is not unreasonable.

    Oh yeah. My customers used 2 mil gallons of #2 last year. I didn't sell a drop of it.
  • Ken_8
    Ken_8 Member Posts: 1,640
    ?

    You wrote, "Why should service overhead not be included when calculating profit margin"?

    For the same reason McDonald's wants to know how much potatos cost to properly price french fries - and how much meat costs to properly price burgers.

    But then, McDonald's lets you buy fries for the same price - regardless of whether you buy the burger or not. Unless of course you like a "Happy Meal"?

    Is that what we should do? Only be allowed to buy the "Happy Meal" Is that where this is going? If so, McDonald's would be out of business should they attempt that strategy.


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  • That is not

    answering the question. MacDonald's has enough trucks to deliver food products to their own restaurants. Bet they have that cost in the price of the fries. Wonder if they ever considered the overhead necessary to deliver to Wendy's too? What would happen if a Wendy's Manager called them for a delivery? Be right over. Not!







  • lchmb
    lchmb Member Posts: 2,997
    not sure

    Not sure where your at Ken, but the company I work for does sell oil. And will sell oil to anybody that want's to set up a account. We do not require a service contract but do offer one. The contract's only requirement is the system be inspected and must meet code. Do we offer contract's to people who purchase oil from other companies, no. Why because we are in the buisness to sell oil. We take care of our oil customer's and could not cover them and all of the other companies customer's as well.. We are not strickly a service company. The contract offered by the company is very well laid out and I believe the only thing not covered is the block and chamber.. It is not hidden in small print but highlighted so there is no misunderstanding. I believe when all the figures were done last year we actually lost money on the contract's. Oh yea, in the contract is also a cleaning free of charge. We take these cleaning's very seriously and can take 2 or 3 hour's. We want our customer's warm and do not want them calling at night. If we find something that will not make the winter and they have a contract we replace it without question. If they don't we point it out to them and let them make the choice.
  • Uninformed

    Ken If you are in our industry and have this twisted view of how an oil company operates your statements are laughable.If our customers see value in our contracts so be it. Our industry is market driven and customers have many options,including doing business with our competitors.We provide price protection plans and in most cases are less expensive then the bottom feeding COD companies.
  • Steve_35
    Steve_35 Member Posts: 546
    We offer service agreements

    They include an annual service, 15% off our flat rate pricing for any work we do on that unit during the life of the agreement, no OT charge for emergency out of hours service and double the warranty to 1 year for tuneups and 2 years for any "parts" repairs. The warranty includes labor and material.

    We offer them for a few reasons. We are big on PM. We find our customes that have annual tuneups have very few no heat calls. We schedule tuneups for our slow periods. In return we sell the service agreements at about enough to cover our labor, parts and OH. This also helps cash flow during sow periods.

    The big thing is referrals and future sales. I know going to a presentation that I have about a 70-80% chance of closing with a client who has a service agreement with us. I have a 40-60% chance if it's a referral from a service agreement client and about a 25-40% chance of closing with a cold call.
  • Jaitch
    Jaitch Member Posts: 68
    You know folks......

    A lot of mud is being pitched here. Not ALL oil companies try to "rape" the customer on the price of oil - or the price of a service agreement. In the same light not ALL P&H contractors are experts, either! For many years in the oil business, we looked at the heating equipment as a "vending machine." Anything we could do to keep the old, inefficient vending machine running was OK! No so anymore! I don't want to drive my clients to the poorhouse in an oil tanker. The yo-yo's who oversized the old boiler by 200% damn near bankrupted my client base. Now I install small, properly sized, high efficency heating equipment and am actually SAVING my customers money on heating oil! WOW what a concept! And to keep the prices low and efficency high, I recommend the service agreement so that I have a peek at the equipment at least once a year to make sure heating efficency is maintained! BTW, currently our liability insurance limit is something like 2 million dollars basic, with "umbrella" coverage over and above that limit, mostly to cover any environmental damage that may be caused by a tanker wreck or turnover, but that same limit applies to products and completed operations (ie P&H work). Wonder why heating oil margins are higher than they used to be?
  • Constantin
    Constantin Member Posts: 3,796
    I think you're on the right track

    For me the threat as an oil vendor are not the other oil vendors, it's the gas company. By installing properly-sized units in client homes, and maintaining them well, you help protect your client base from gas-company poaching. Once a client has been lost to gas, it'll be a while before they can even consider switching back. In the meantime, your available client base shrinks.

    As far as the other oil vendors is concerned, offer a better service, competitive prices, and word of mouth will soon send you waves of refugees from other companies that just don't get it. Let the bottom-feeders scrap over the leftovers, you wouldn't want to serve those customers anyway.

    I agree with you, let the customer decide for themselves what is best. This is the beauty of oil heat, a.k.a. competition. People like myself who like to have oil delivery and service agreements be separate line items will go with one type of vendor. Other folk who just want one fuel bill, go to another.

    However, I'm still amazed how well the gas company propaganda machine works around here... People never stop to ask if the ads they're seeing are telling the truth... this is the real threat to the oil heating industry, and this is why the residential oil heating business needs at minimum modulating appliances to survive in the long run. Low sulfur fuel might make condensing oil-fired appliances attractive again.
  • tls_9
    tls_9 Member Posts: 89
    Service Contracts

    These people are the experts in maintenance agreements.

    http://www.lincservice.com/index.asp

    I used to work for a contractor that was a Linc service contactor. We had over 100 contracts. If you follow their system you will make money and have satisfied customers.
    We also did plan & spec, design build, & controls.

    tom
  • Ken_8
    Ken_8 Member Posts: 1,640
    Oh contrare

    We sub to 14 oil companies. They do not want to service the equipment. They want sell oil. We don't want to sell oil. We just want to do service and installations.

    Despite your narrow and rather self-seving view, this makes far more sense and the customer benefits from both better fuel prices and superior service.

    Doing it exactly as you suggest is the "best" way has resulted in the largest fuel oil company on earth going belly up.

    To add to this fact, our huge local gas company also went belly up three years after trying to integrate fuel sales with installations and service. The new owners quickly terminated all the installers and turned the company around by doing what they are experts at; namely, gas distribution and delivery.

    Your notion of how it should be - is at odds with reality in the marketplace. There are of course exceptions. There always are. But they are not what I refer to and I think you knew that.

    Or are you just trying to jerk my chain?

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  • Chuckles_3
    Chuckles_3 Member Posts: 110
    just like extended warranties

    Service contracts are like those extended warranties they push when you buy any major appliance. They are an EXCELLENT DEAL





    ...for the seller.


  • Ken, Your bitterness is apparent but I don't take offense because I have the feeling that you think all the big profit is in the oil delivery side of the business. This is the same thinking the COD companies start with when they started their business. Delivering oil at 15 and 20 cent margins is on the road to failure. Look at it this way, delivering oil and not providing good matching 24 hour heating service is only half a company. If your only providing oil service at COD prices you are is essence a trucking company. Yes that is correct, a trucking company not an oil company. COD companies that only want to provide oil service are a dime a dozen because its very simple to market oil as a commodity based on lowest price in town marketing. So Ken I'm not jerking your chain. Let me ask you this question in your existing situation, what company is the most vulnerable in your working relationship with these 14 oil companies that you say do not want to do service. Ken my answer will surprise you having owned a full service oil company for 25 years. I want to give you some valuable insight into what you conclude is making you upset. Dave Logan Ireland Oil Co
  • Ken_8
    Ken_8 Member Posts: 1,640
    Bitterness?

    > Ken, Your bitterness is apparent but I don't take

    > offense because I have the feeling that you think

    > all the big profit is in the oil delivery side of

    > the business. This is the same thinking the COD

    > companies start with when they started their

    > business. Delivering oil at 15 and 20 cent

    > margins is on the road to failure. Look at it

    > this way, delivering oil and not providing good

    > matching 24 hour heating service is only half a

    > company. If your only providing oil service at

    > COD prices you are is essence a trucking company.

    > Yes that is correct, a trucking company not an

    > oil company. COD companies that only want to

    > provide oil service are a dime a dozen because

    > its very simple to market oil as a commodity

    > based on lowest price in town marketing. So Ken

    > I'm not jerking your chain. Let me ask you this

    > question in your existing situation, what company

    > is the most vulnerable in your working

    > relationship with these 14 oil companies that you

    > say do not want to do service. Ken my answer will

    > surprise you having owned a full service oil

    > company for 25 years. I want to give you some

    > valuable insight into what you conclude is making

    > you upset. Dave Logan Ireland Oil Co





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  • Ken_8
    Ken_8 Member Posts: 1,640
    Bitterness?

    About what? Suggesting there are better and more viable options out there than "your" way sounds bitter?

    Your response to mine sounds like the bitter one. You seem bent on bashing anyone who wants to unbundle fuel deliveries from service, despite the fact that I named a gas utility and oil giant as failing - as a direct rsult of doing what you would have us believe is just fine and dandy.

    Is Petro going under because they embrace exactly the mindset you hold? How can you ignore the evidence? There is no "bitterness." There are facts and then there's your "opinion."

    It's really rather simple. Isn't it?



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  • Steve_35
    Steve_35 Member Posts: 546
    From another's vantage

    stating "This we interpret as unethical behavior and opportunistic marketing with real risks; entirely to the detriment of the client." sounds at a minimum somewhat strident.

    > Your response to mine sounds like the

    > bitter one. You seem bent on bashing anyone who

    > wants to unbundle fuel deliveries from service,

    > despite the fact that I named a gas utility and

    > oil giant as failing - as a direct rsult of doing

    > what you would have us believe is just fine and

    > dandy.


    Right or wrong this is a business decision, not a moral/ethical one as you seem to be suggesting in your first post.

    You're bouncing all over the place. Is bundling service with oil immoral as you seem to be suggesting initially? Is it immoral if the buyers are made aware of the limitations of the service? Is it immoral for ANY company to include service within their ol pricing?

    In later messages you claim it's a terrible business decision and perhaps it is, but Dave Logan's response is interesting. Apparently he's looking to market his company in a different manner. That's a business decision he (or the powers that be) can and should make for his company. It doesn't have to be a poor business decision or an unethical decision as you seem to be implying.

    The reality is this is part of living in the US of A. Business owners get to decide how to market their company as well as how much to charge. The consumer gets to decide where and how to part with their hard earned money. As long as both sides treat each other honestly and legally what's the problem?
  • A renowned lawyer,

    who hates Capitalism, started a discount operation in our town 20 or so years ago. He undercut the full service prices by 20-25 cents p/gallon. Had a couple of oil companies, who did no service, deliver the product.

    When service problems appeared, he solicited HVAC Companies to provide service to the oil customers. One was selected. A slick brochure was mailed to customers telling them who to call.

    One, or many more service calls later, the screaming was heard all over town. The full service companies started getting their customers back. But not all. Over the next few years, HVAC & plumbing types had a field day. Shortly afterwards, his name disappeared from what was left of the operation.

    Some said he did this to break the "greedy" local oil companies. He did succeed in chasing many homeowners to his beloved regulated utilities. He also succeeded in helping kill the residential oil market in our town.

    However, with gas & electric de-regulation, his utopian dream of government control of energy markets is going down the drain. Hope he gets zero votes next time.

    Choose your own moral.
  • Ken_8
    Ken_8 Member Posts: 1,640
    Me thinks thou

    doth protest too much...

    I respect your opinion, but not the underlying logic it embraces.

    Let's agree to disagree. As an aside, please tell me what differentiates your notion of why "bundling" is good for anyone, including the oil company - and/or its service department - and Petro's crash and burn - based on identical strategies?

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  • A renowned lawyer,

    who hates Capitalism, started a discount operation in our town 20 or so years ago. Undercut the full service price by 15-20 cents per gallon. Used a couple of no service oil companies to deliver the product.

    When service problems appeared, he solicited local HVAC companies to service his customers. One was selected. A slick brochure was sent out telling folks who to call for service. They even offered a service agreement.

    One, or many more calls later, screams were heard all over town. The full service companies started getting their customers back. But not all. Over the next few years, HVAC & plumbing folks had a field day. Shortly afterwards, his name disappeared from what was left of the operation.

    Some said he did it to force the "greedy" oil companies out of business. He did succeed in chasing many homeowners to his beloved public utilities. He also helped kill residential oil in our town.

    However, with de-regulation of gas & electric, his utopian dream of a government regulated energy market is going down the drain. Hope he gets zero votes next time.

    Choose your own moral.
  • Steve_35
    Steve_35 Member Posts: 546
    Certainly you're free to think what you want

    > doth protest too much...

    >

    > I respect your

    > opinion, but not the underlying logic it

    > embraces.

    >

    > Let's agree to disagree. As an

    > aside, please tell me what differentiates your

    > notion of why "bundling" is good for anyone,

    > including the oil company - and/or its service

    > department - and Petro's crash and burn - based

    > on identical strategies?

    >

    > _A

    > HREF="http://www.heatinghelp.com/getListed.cfm?id=

    > 68&Step=30"_To Learn More About This

    > Professional, Click Here to Visit Their Ad in

    > "Find A Professional"_/A_



  • Steve_35
    Steve_35 Member Posts: 546
    Certainly you're free to think what you want

    But it sounds like you think we may be a fuel vendor and that's not the case. We're strictly equipment installation and service. However, I have no fear of fuel companies bundling oil and service. From my point of view it's merely a business decision.

    As far as why bundling is good for anyone, did you ever buy a value meal at MickeyDees? Or Microsoft's Office? Did you ever include an additional product or service at a reduced rate to sell a job? These are all examples of discount by bundling. MS bundling Excel and Word together blew 123 and Word Perfect out of the water.

    Why can't this work in other fields? Do you think bundling service and oil delivery caused Petro's problems? Why then did Agway fail? They didn't bundle. My guess is in both cases it was poor management.
  • Rich W
    Rich W Member Posts: 175
    bundle

    Ken, I’m not trying to be “in -your-face”. However, you are using inductive reasoning. It’s like saying, “He ate an apple everyday of his life. Then he died. It must have been the apples that killed him.”The first two statements are true. That does not make the third statement true. Bundling is not good or bad, what people do with it can be either.
  • Ken_8
    Ken_8 Member Posts: 1,640
    Struck nerve!

    Your premise is flawed, therefore so is your conclusion.

    Using your examples we should realize the following: When Mickey D "bundles" a burger with a fry, there is a positive symbiosis. This is logical for all concerned. When we eat a meal, we generally prefer to eat it at one place. It also makes sense that the items of a meal be served at the same time or nearly so. This is because everything we need for that meal, needs to be in front of us at one moment in time. This is symbiotic.

    When MS sells us an operating system, there is a connection via the computer, to all the inter-relationships of the OS and the things that it can do. They convince us that the word "system" means "required" and or integrated system that work better when bundled than unbundled. Were it not for Outlook, the inter-connectivity would be clunky and anything but seamless.

    The delivery of fuel, be it oil, gas or LP has NO symbiosis with servicing a boiler or furnace. To suggest otherwise would be like suggesting your electric utility company should also have to fix burned out bulb.

    If however, a heavy marketing effort over many many years suggests the utility compnay IS responsible for light bulb replacements, we have become victims of "bundling" not benefactors.

    Considering the cross subsidation of oil and service, the consumer becomes incapable of discerning what the real costs of each are - and has been effectively denied the ability to make an informed choice.

    Which is precisely why the bundler does what he does!

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  • Steve_35
    Steve_35 Member Posts: 546
    No, my examples were

    merely showing you where bundling was good for someone. In your previous message you asked "please tell me what differentiates your notion of why "bundling" is good for anyone". I did and you, as you have done so far in this discussion, chose to ignore the premise and try another end run.

    Obviously you have your mind locked in and are resistant to the suggestion there may be any validity to another point of view so my part of this discussion with you is at an end, although I'm sure your part will continue on simply because you have a need for the last word. Feel free, have it.

    BTW, "Struck Nerve"? Hardly. Simply a normal response engendered by the condescension shown in your last couple of missives.
  • Paul Mitchell_2
    Paul Mitchell_2 Member Posts: 184
    Service and oil companies

    Around here in my part of NJ..Monmouth and Ocean counties. I have found that the oil companies give the service away and mostly charge accordingly for their oil. Notice I said accorcdingly. Everyone deserves to make a profit. But I do feel that the oil companies should start treating each part of their business separetely. Oil part needs to be profitable...so does service/installation. People understand they need to pay for services. Everything has a value...oil companies here de-value their service because of old ways of thinking...
  • John R. Hall
    John R. Hall Member Posts: 2,245
    Ken

    You are so cute when you strike a nerve -- rock on. I don't agree with a lot of your philosophies -- as you know -- but I respect your right to your opinions.

    In the HVAC world service agreements are one way to lock in the customer and stay one step ahead of the garage mechanics. Is it a flawed system? Depends on which contractor is selling the agreements. For the most part, service agreements and their providers are good.

    Score one for the majority here my friend. C'mon back when flat rate makes the subject line!
  • Ken_8
    Ken_8 Member Posts: 1,640
    John,

    your a tad off the mark - again. We were discussing oil companies and them selling oil and doing service and acting like one is imperitive to the other - which of course is nonsense.

    We were NOT debating HVAC stuff like A/C and hot air furnace and service contracts for service or maintenance - which is of course generally a good thing.

    Read twice, write once. You'll get the hang of this...



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  • John R. Hall
    John R. Hall Member Posts: 2,245
    No Ken

    Read George's original post -- no mention of oil. But let's not sweat the small stuff big guy.

    Wrong "again" -- hmmm.
This discussion has been closed.