The Money-Making Math of HVAC Service Membership Plans
When you understand the simple math of HVAC membership plans you’re on your way to real business growth. Numbers don’t lie. Especially numbers that represent a model based on decades of field service business experience.
My team and I built an extremely profitable plumbing and HVAC business based on 1) high operating efficiency to maximize profits, and 2) an irresistible membership plan to expand our service base with a steady, dependable flow of new business.
After selling that business I started thinking about ways to bottle our success formula so other service businesses could benefit from it. Sera Systems is the result, offering a total business solution that focuses on the processes and key performance indicators that matter most – Efficiency, Money, Margins, and Memberships.
Our Working Research Laboratory
Any service business can implement Sera field service management software in a few days, not months. To prove that, we started a new plumbing and HVAC company from scratch using our software. We call it billyGO.
In three years, that business grew from $0 to $7.5 million in annual revenue and more than 2,000 subscribers in the plumbing and HVAC membership plan. The membership fees ($99 per year) produced $200,000 in recurring revenue and set us up for $1.6 million of new HVAC business in year four.
More importantly, the average sale per member was more than 2.5 times that of non-members.
Furthermore, members accounted for 256% more revenue than non-members!
A Membership Plan Model
The consumer-side math will make or break a subscriber plan. A great offer will produce great results and be a win-win all around. billyGO NOW! is the name of our laboratory company’s combined plumbing and HVAC membership plan, which features:
- Annual heating, and A/C tune-up service to all units in your home
- Annual plumbing inspection
- No dispatch fees ($50 savings)
- Automatic 15% discount for all billyGO services
- Automatic $50 discount on any Holiday service
- VIP priority service and repairs from dedicated service technicians
- Priority 24/7 emergency plumbing, heating, and air service
- 15% savings on new and upgraded plumbing and HVAC equipment
The 500 to 1,000,000 Ratio
We know from decades of experience that you need 500 members for every $1 million in revenue. If you don’t meet that ratio, you won’t be able to keep your techs busy enough year-round. Let’s look at just the AC side of the business to see how the numbers work.
Members get a spring AC tune up and a fall heater tune up. That generates two calls per member each year:
- $1,000,000 annual revenue with 500 members
- 40% – estimate of the 500 members who will schedule tune ups = 200
- 400 – number of annual tune ups (200 AC + 200 heater)
- 4 – the number of tune ups a tech can do per day
- 3 – number of techs
- 400 (tune ups) ÷ 4 (tune ups per tech per day) = 100 days of work
100 (days of work) ÷ 3 (techs) = 33 days of work for each tech
The numbers make it obvious that if you have only 100 or 200 members you won’t have much work lined up. The solution is to increase the number of members, improve the percentage of people who schedule tune ups, or both.
The Multiplier Effect
Increasing the 40% participation rate to 50% by tweaking customer communication would provide nearly two additional weeks of work for each tech, increasing days of work from 33 to 42.
500 (tune ups) ÷ 4 (tune ups per tech per day) = 125 days of work
125 (days of work) ÷ 3 (techs) = 42 days of work each
Now, let’s say in addition to increasing participation to 50% you also add 100 members, bringing the total to 600. That means 600 tune ups, which makes 150 days of work, or 50 days per tech.
600 (tune ups) ÷ 4 (tune ups per tech per day) = 150 days of work
150 (days of work) ÷ 3 (techs) = 50 days of work each
This data enables you to plan your growth. Your numbers may vary slightly, but whatever they are you can tell when you need to hire more help by looking at the numbers. When you get to the level of 75-90 days of work per tech level, it’s definitely time.
It’s a tight market for good techs, but when you keep them busy year around it doesn’t take long for word to spread that, “Hey, they always have work for me here. There’s very little slow time. I work every week.”
Membership Plans Create Sales Opportunities
The key to a successful membership plan for HVAC or any kind of field service business is to get as many members as you can, as fast as you can. Your techs are building long-term relationships and trust every time they are in front of customers, which makes it far easier to get repairs and new equipment sales.
In the HVAC business, we know a system is going to fail about every 12 years, on average. That means about 8% of your members will experience HVAC system failures each year.
The Sera-generated service record below shows a customer’s regular use of the membership plan, including an AC system estimate (which was sold) and a water heater installation. This view and others, including copies of all invoices, are automatically generated in the Sera Customer Hub that members use.
Now, let’s say you now have 1000 members and $2 million in revenues. That means you could expect about 80 HVAC system failures each year in your membership base alone. If the average replacement price is $10,000, that’s $800,000 in potential AC replacement revenue.
Continuing with this example, you have the potential to grow from $2 million to $2.8 million of revenues in one year, even if you add no new customers. You won’t make every sale, but you will do very well because these are members you are dealing with now, not strangers. It’s your business to lose or win.
To keep the ratio of members-to-revenue on track when you grow from $2 million to $2.8 million you need to add another 400 members. Those new membership fees add $40,000 more revenue, bringing total revenue to $2.84 million, and recurring membership revenue to $140,000. Time to add another tech or two!
Getting as many members as you can as fast as you can is the key to successful membership programs that drive rapid business growth – and pave the way for expansion.
Don’t let me or anyone else limit your thinking. You can do better than these numbers. One plumbing business that had $1.1 million in sales installed Sera and concentrated on selling memberships. They added 1,000 members the first year and tripled revenue to $3 million!
Along the way, they expanded their business to include HVAC, and then sent those 1,000 members emails to tell them they now could get AC and heater tune ups at no additional cost.
This article spells out even more benefits of membership plans for HVAC, plumbing, and other field service businesses and explains how easy it is to get started now.
Keep Membership Plans Simple
A wise salesman once said there are two kinds of sales: the easy ones and the ones you don’t get. Make it easy for customers to sell themselves. Complicated HVAC service plans take longer to explain and can confuse customers. The last thing you want to hear is, “Let me think it over.”
Simple works best. I’ve seen this in my own businesses and Sera customers’ businesses. Several have sold more memberships the first month than they had sold in total up until that time! Sera simplifies the message and automatically generates proposals that make it easy for customers to see that membership is an investment, not an expense.
I like to keep payments simple, too. You can offer monthly payments on a credit card tap, but annual payments are a lot less hassle. The biggest problem I see with monthly payments is that you give your customers 12 opportunities to cancel each year.
Membership plans are the best and fastest way to grow and expand your field service business, no matter what size or where it’s located. Members spend more with you than non-members and should account for the majority of your revenue.
When people become members they are saying they trust you, and they have giving you permission to stay in contact with them on a regular basis.
When your business has 500 members for every $1 million of revenue it reduces or eliminates slow times and keeps techs working. This produces better business results and helps you recruit and pay the best talent.
The best membership plans are simple and are presented in a compelling way that demonstrates real consumer value. The more complicated a plan is, the more difficult it is to understand and the fewer you will sell.
Sera Systems field service management software has membership plan management built in. What else would you like to know about HVAC service membership plans?