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Question: With tune-ups being set as loss leaders for gaining customers, how do you convert them to service agreements that are profitable?

Gary Elekes; EGIA faculty member and co-founder of iMarket Solutions:

For us, the service agreement is always a high-labor, low-material event. We’ll make a little bit of money on the service agreements priced at $169 but it’s marginal. If we don’t transact some form of an accessory or a repair or a lead turnover of some form, it’s really not a profitable event.

When we’re doing a tune-up – let’s say we’re doing it at $49.95 – you have to convert those people to the club. That number as a KPI is typically between 60-65% of those tune-ups you market to. A good plan is to establish a geographic area around your call center and deliver a postcard, followed up by a call. Your techs have to be trained to create the club membership.

I think the question is, “What’s the process?” Step one is getting your technicians to believe in the club. If you charge $49 for a tune-up special, a customer can just sit and wait on your next promotion and pay $98 for two tune-ups. Why would they pay $169 to join your club?

So, the tech training has to be set up so that they can communicate the value and the benefits of the club. You have to have a structure of benefits for a client that is an improvement to the value chain over just a precision tune-up. Yes, change their filters and clean their coils, but you have to add more value to your club program to justify the price.

We give our club agreement customers a discount on any accessory or any potential replacement to double the value. The second thing is, we give our club agreement customers a lifetime repair guarantee on any system I install as long as they stay in the club. If I have to repair a contactor, that’s going to be guaranteed as long as they own the system and as long as they’re in the club.

Without going through the entire structure of benefits, you must make sure you train your technicians on your company’s value chain and on the club program. I think you want your club program to be set up so that the price of the tune-up isn’t so low that it becomes a problem for your techs to discuss the reasons why customers might want two.

For us, we also include a third plumbing whole-house inspection for free, so there’s three events not just two. If you’re not in plumbing, you obviously don’t have that so you wouldn’t want to price a tune-up at $19.95. In that case, there would be no incentive to join your club.

I think what you do is you set up a strategy, a tech training program, and a value chain of benefits that make it basically a no-brainer for the client to join. Club agreement or not, your customers’ contact information should be added to your database for email marketing drip campaigns. So even if they don’t join your club today, you continue to deliver value and try to get them to join eventually.

So, my instinct is that the objection to the price increase is way bigger in our head than our customers. Your customers don’t know what you charge. You’re going to have to justify whatever your price is every time you go in. In other words, you’re never going to be able to go in and say, “Mr. homeowner, this is an igniter. We charge $235 for it and that’s what we’ve charged for it for five years.” You’re still going to have to justify why you charge $235 for it.

So, if you raise that to $265, you have to justify the same way you would at $235. 99% of the problem is in our own head around our own misconceptions, our own fears, our own preconceptions, our own heightened expectations of pushback from the homeowner. Your homeowners don’t remember how much you charged them two years ago, they just remember how you made them feel. Do you make them feel that you’re worth the $235 or that you’re worth $265?

The fear is in your head. So, take a deep breath. If you think you need to raise your prices, then raise your prices. By the way, you have a report card. It’s called your financial statement. If your financial statement says that you’re not making enough money and your gross margins aren’t what they should be, you can’t afford to not raise your prices. Quit dragging it out. Take a deep breath and do it. Just go in there and deliver more value. If you think you’re worth the increased price, your customers will too!

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