The Service Agreement Playbook: From Zero to 30% Recurring Revenue

If there is one factor that consistently separates a 2.5x valuation multiple from a 5x+ multiple, it is recurring revenue. Service agreements, maintenance memberships, planned maintenance contracts—whatever you call them, they are the single most powerful lever you have to increase your business value, smooth your cash flow, and reduce your dependence on new sales.

The most successful HVAC and plumbing companies generate 30–50% of total revenue from service agreements. Companies with $1M+ in annual recurring revenue from agreements command premium multiples that can exceed 8x EBITDA. And yet most contractors treat memberships as an afterthought—something they will get to eventually, after the next busy season ends.

Why Recurring Revenue Changes Everything

Predictability. Recurring revenue shows up whether or not the owner is selling. It is the antidote to the feast-or-famine cycle that defines most trade businesses. Buyers—especially PE firms—value predictability above almost everything else.
Lower customer acquisition cost. Agreement customers are already in your system. You are not paying for a Google Ad or a referral to get them back. The marketing cost on recurring revenue is essentially zero.
Higher lifetime value. Industry data consistently shows that agreement customers spend 2–3x more over their relationship with you than one-time customers. They call you first for repairs. They buy replacements from you. They refer their neighbors.
Seasonal stability. Spring and fall—typically the slowest seasons—are when agreement work fills the schedule. Tune-ups and maintenance visits keep trucks rolling during months that would otherwise have scheduling gaps.
Customer diversification. A base of 500 agreement customers at $200 each is $100K in revenue spread across hundreds of relationships. That is infinitely more stable than $100K from two large commercial contracts.

Designing the Program

Keep it simple at launch

A basic residential HVAC agreement typically includes one to two annual tune-ups, priority scheduling (24-hour response instead of 48-hour), a discount on repairs (10–15%), and waived overtime or diagnostic charges. Price it at $150–$300 per year depending on your market, what is included, and whether the agreement covers one system or multiple.

Add tiers for revenue growth

Once the basic program is running, introduce tiers: a standard plan, a premium plan with additional inspections and deeper discounts, and a VIP plan with same-day service guarantees and extended warranties. Tiering increases average revenue per agreement because a meaningful percentage of customers will self-select into the higher tiers—especially if you frame the premium as the "most popular" option.

Price for profit, not just retention

A common mistake is pricing the agreement below the cost of delivering the included services, hoping to make it up on upsold repairs. That works sometimes, but it also means every agreement customer who does not need a repair costs you money. Price the agreement so that the included services are profitable on their own—and treat repair revenue as upside.

Training Your Technicians to Sell

Your technicians are your most effective sales force for agreements. They are already in the customer's home. They have already built trust by solving a problem. The moment after a successful service call is the highest-conversion opportunity you will ever have.

Give them a simple, natural script: "We just completed your [service]. To keep your system running at peak performance, we offer a maintenance plan that includes [key benefits]. Most of our customers find they save more than the membership cost in repair discounts and avoided emergencies. Would you like me to walk you through the options?"

Incentivize aggressively. $25–$50 per agreement sold is standard. Some companies pay $10–$15 on renewals as well. Monthly leaderboards with recognition—top seller gets a gift card, early schedule pick, or public acknowledgment—drive friendly competition. The cost of the incentive is trivial compared to the lifetime value of the customer you just locked in.

Automating Renewals

The biggest leak in most agreement programs is not acquisition—it is renewal. You sign 200 agreements in a year, 60 quietly expire without renewal, and you end the year with net growth of 140 instead of 200. Over three years, that leak costs you hundreds of customers.

The fix is systems: auto-billing on credit cards wherever possible (subscription model rather than annual renewal). For customers who will not auto-bill, send renewal reminders at 60, 30, and 7 days before expiration—email, text, and a phone call from the office. Make renewal the default state. Cancellation should require the customer to take action, not the other way around. Target a renewal rate of 75% or higher.

Metrics to Track Monthly

New agreements signed this month — Is the acquisition pipeline healthy?
Agreements lost (cancellations + non-renewals) — Is retention holding?
Net agreement growth — New minus lost. This must be positive every month.
Total active agreements — The cumulative base you are building.
Agreement revenue as % of total revenue — The number that moves your valuation multiple.
Renewal rate — Target 75%+. Below 65% means the program has a value perception problem.
Revenue per agreement — Track whether your tiering strategy is working.

Realistic Growth Timeline

Months 1–3: Design the program, train your technicians, set up billing systems. Target: 20–40 new agreements. Focus on signing every existing customer who comes in for service.
Months 4–6: Refine the pitch based on what is working. Add incentives. Begin marketing to your existing customer database (email campaigns, seasonal mailers). Target: 60–100 total active agreements.
Months 7–12: Scale through every customer touchpoint—installation handoffs, repair follow-ups, seasonal outreach. Target: 150–300 total active agreements.
Year 2: With strong renewal rates and continued acquisition, 400–700 agreements generating $80K–$200K in annual recurring revenue.
Year 3: 800–1,200+ agreements. At this point, recurring revenue should represent 25–35% of total revenue and the impact on your business valuation is substantial.

Every installation customer you do not convert to a service agreement is a relationship you are choosing to make temporary.

The Bottom Line

Recurring revenue transforms your business from a project-dependent operation into a predictable, scalable enterprise. It smooths cash flow, increases customer loyalty, fills slow-season schedules, and—when the time comes to sell—commands a meaningfully higher price. The compound effect of consistent agreement growth over two to three years is dramatic. Start today, even with one technician and one offer. The math works from day one.