Stabilize your cash flow and customer relationships with service agreements
By Jim Raposa
If you’re running your pool service company without a service agreement between you and your customers, you’re flirting with danger and loss of revenue and growth.
“Service agreements are the foundation stone for profitable growth,” says Tom Grandy of Grandy & Associates, which works to teach contractors how to run profitable businesses. “It’s what ties the customer to you and gets you the eventual repair work, replacement or upgrade work. It gets you referrals from customers on a recurring basis.”
Jerry Jurden learned what to put into his agreements after baptism by fire in the early days of his business. “There were many situations we found necessary to code into our service agreement like policies on how to handle a customer who cancels,” Jurden says. “Every pool company has experienced interacting with defective equipment on a job site, like a deteriorating valve that breaks when you turn it. The customer will automatically expect you to pay for that. A service agreement can cover these situations in advance.”
Jurden admits he’s lost money in the past by flying without the service-agreement safety net, but says its primary function is defining the relationship between you and your customer before work commences. “It’s about setting expectations and that includes all aspects of service to be performed including pricing, payment terms and any exceptions and conditions like delays due to rain, holidays or blocked access to a pool site,” Jurden says. “It’s best to make sure you and the customer agree to the terms and conditions up front, or risk heartache later. For those reasons and more, service agreements help your business grow and make your customers happy.”
Grandy points out that a service agreement nearly guarantees service work during the year, too. It adds consistency and predictability to your cash flow — a key component to your exit strategy when deciding to sell your business. “To sell a company, you must demonstrate that it is able to run without you; you’ll also need to show a buyer that you have guaranteed and significant monthly income,” Grandy says. “Your service agreement demonstrates your cash flow and a systemized operating structure. It often increases the selling price of the company.” To that point, Grandy explains that, as an industry rule of thumb, each maintenance agreement is valued at $400 when you sell your business. This can add a substantial amount of money to your selling price.
While service agreements make sense no matter what type of business, Jurden says an agreement helps address the unique optics inherent with pool service. “Many times, I’ll contrast the pool service business with the lawn maintenance business,” he says. “With a lawn service, when somebody comes and cuts your lawn, you can see what was done. With pool service, it’s not always that obvious. You can arrive and do your job properly and (depending on what you’re doing and the chemistry involved) the pool often looks the same as it did before. The service agreement tells the customer what you’ll be doing on your monthly visits.”
Jurden also advises people to be flexible with their agreements: “It’s good to have an iron-clad service agreement,” he says. “Keep in mind it also lets you make the service agreement be the ‘bad guy’ when a customer seeks to negotiate concessions,” Jurden says. “You can be the good cop by saying, well the service agreement won’t allow that…but maybe I could do this. It shows customers you’re willing to go above and beyond for them.”