It remains a hot topic with HVAC company owners. I can almost certainly guarantee the question will come up in between breakout sessions at a conference.
“I have XX maintenance agreements, is that good?”
For a long time, we’ve been saying that you should concentrate on selling maintenance agreements to your customers if you want to maximize the value of your company. That advice hasn’t changed, but how PMA’s are valued has.
It used to be a pretty direct calculation, for example:
$250 annual maintenance agreement x 350 customers = $87,500. When it was time to sell, a buyer may offer anywhere from a 2x to 10x multiple on that number equating to $175,000 to $875,000.
Today, buyers are still valuing PMA’s, but it’s more of an indicator of the health of the business. When I list new companies, I now lead with this information because it’s so telling and of interest to buyers.
When you emphasize maintenance agreements, you build in automatic triggers to be back in front of that customer. Train your reps on asking the right questions to turn that regular maintenance call into a profit-generating event.
Rep: Mrs. customer, does anyone in your household suffer from asthma?
Customer: Yes, my daughter moved back in with us and doesn’t go anywhere without her inhaler
Rep: I’m glad I asked because you would probably be interested in this germicidal blue light that kills 99.9% of harmful bacteria. I have one in the truck and can install it today.
Customer: That would be great. Please charge my card on file.
It can be that easy. Without this one-on-one interaction, it would be much harder to make the add-on sale. To generate the same opportunity you may be forced to spend thousands of dollars on advertising. Whereas, having a conversation when you’re on-site, is free.
This is finally what buyers understand now. Having maintenance agreements tells them there is more growth to be had and the business has processes and procedures. A company that has active PMA’s is a company that is well run. It’s a leading indicator that shows buyers it’s a solid business. The business owner is smart and is building wealth.
There is no standard number of how many PMA’s buyers are looking for. However, in my experience selling more HVAC companies than anyone else in the last 3 years, the companies that sell the fastest and for good multiples have about 20% of their revenues coming from PMA’s. If you can beat that number, you’re doing better than most. New sales will always be a larger number, and that’s the point. Maintenance agreements feed new sales.
Rather than focus on the number of PMA’s, focus on the practice of selling them. If you can get good at that, everything else will fall in line. When you’re ready to sell, a buyer will reward you handsomely for the effort.
About Patrick Lange
Patrick Lange is an experienced HVAC-specific business broker with Business Modification Group based in Horseshoe Beach, Florida. He has a unique background in financial planning and has even owned an HVAC business himself. This makes him well suited to working with some of the most successful HVAC business owners in the country. Specializing in companies with 1-10 million dollars in revenue, he maintains a network of buyers and sellers in the industry. He has sold more HVAC businesses than any other broker in the United States over the last 12 months and is currently the Vice President of the Business Brokers of Florida (North Florida District.)