Find out if your maintenance contracts are actually profitable — after visit costs, add-on revenue, renewal rates, and customer lifetime value.
| Year | Customers Remaining | Contract Revenue | Add-On Revenue | Total Revenue | Cumulative LTV |
|---|
Service agreements are often sold as the holy grail of HVAC business — recurring revenue, loyal customers, predictable cash flow. That's all true when the program is structured correctly. But many HVAC companies run agreement programs that are barely breaking even or actually losing money, because they don't account for the true cost of each maintenance visit.
Most contractors estimate $40–60 per visit, but the true number when properly loaded with labor burden and overhead is typically $65–95. Here's the breakdown: a 90-minute visit at a $36/hr burdened labor rate is $54 in labor alone. Add $8–12 in consumables (filters, refrigerant, lubricants), $6 in truck cost, and $15 in overhead allocation — your true cost is $83–87 per visit. If you're charging $199/year for two visits, you're covering $174 in costs and netting $25 before the customer calls for a repair.
A 65% renewal rate vs. an 80% renewal rate doesn't sound dramatic, but over 5 years it means the difference between half your customers remaining and three-quarters. At $249/year with 120 customers, going from 65% to 80% renewal represents $18,000–$24,000 in additional annual revenue by year 3 — just from better customer retention, with no new marketing spend.
Companies with renewal rates above 80% typically do three things: they call customers 6 weeks before renewal (not 2 weeks), they offer multi-year agreements at a modest discount, and their techs are trained to reinforce the value of the agreement on every visit. The biggest driver of non-renewal is customers who forgot they had one.
Your agreement price should be set to cover true visit costs plus overhead, generate a margin on the contract itself, and still feel like good value to the customer. A common formula: true cost per visit × number of visits × 1.35 (markup for agreement margin) = contract floor price. Then add a modest customer incentive (10–15% off repairs) which increases add-on attachment and perceived value without meaningfully reducing revenue.