How much are my maintenance agreements worth to a buyer?

Of everything you can change in two years, maintenance agreements do the most for HVAC business value after getting the company to run without you. Next Era Legal calls members the single most important multiple driver in HVAC, and gives an example where adding $100K of agreement revenue adds $200K to $300K of value. This page shows what a buyer counts, what it is worth in dollars, the closing credit most owners do not see coming, and how to build the base in 18 months.

What a buyer counts

Buyers look at three numbers, and a fourth thing: whether you can prove them. Raincatcher says buyers want member counts, renewal rates, and how much replacement revenue traces back to the plan. Some platforms buy member books on purpose, as The Hardwire News reported in its coverage of Apex Service Partners' acquisitions. PE buyers run a cohort analysis on renewals. Individual buyers mostly check the count, but their SBA lender likes members because they carry the shoulder months.

Illustrative estimate

The member bands (150 and 400 per $1M of sales) are the cutoffs our calculator uses. They are our estimates, not a published standard. The 30% line Next Era Legal uses is a share of revenue from preventive maintenance, which is a different way to measure the same thing.

Self-check

Where does your maintenance base stand?

4 questions. Nothing is saved or sent anywhere.

1. About how many active maintenance members do you have for each $1M of yearly sales?

   None, or I'm not sureUnder 150150 to 399400 or more
2. Of the members due to renew last year, how many renewed?

   I don't track itUnder 70%70% to 85%Over 85%
3. How do most members pay?

   We send a yearly invoice and chase itA yearly card charge that renews by itselfA monthly charge that renews by itself
4. Could you print a member list today with each start date, last visit and next visit due?

   No, it's in my head or on paperPartly, it would take some diggingYes, straight from our field software

Answer every question to see where you stand.

What your members are worth in dollars

Here is what those estimates look like on a real-sized shop.

The plan is also worth money before you sell. Members fill slow months, keep your techs busy in spring and fall, and feed replacement sales, which is why buyers ask how much of your replacement revenue came from members.

Renewal rate and billing method

A plan that churns is not recurring revenue. PipelineOn's vendor benchmarks put top shops at 90% or more renewal and report that monthly auto-billed plans renew at 90% to 95%, against 75% to 85% for plans billed once a year. Below 70% is treated as a value problem.

Take the same 900 members. At 80% renewal (an annual-invoice shop in the middle of that range) you lose 180 members a year and have to sell 180 new plans just to stand still. At 92% (monthly auto-billing) you lose 72. Over three years, that gap is the difference between a base that grows and one you keep refilling. A buyer sees this in a cohort report and prices it.

The billing method also changes what you owe the buyer at closing, which is the next section.

The closing credit for unperformed visits

When a member pays $240 upfront for two visits and you have done one, you still owe the second visit. After the sale the buyer's techs will do it, but you already have the money. Buyers treat that as deferred revenue and expect a credit for it at closing, usually as a cut to the cash you receive or through the working capital adjustment. Owners who did not expect it often feel it as a surprise price cut.

Three things keep this from hurting. Keep visits on schedule so the backlog is small. Move members to monthly billing. And ask your CPA to show deferred revenue on your accrual books, so the number is known before a letter of intent rather than found in diligence. Our due diligence guide covers what else buyers check in that stage. How the credit is handled is a deal term, so ask your attorney and CPA how it should read in your agreement.

Red flags that shrink the credit you get

• No member list you can export. Buyers will not pay for members they cannot count. Fix: put every member in your field software with a start date, last visit and next visit due.
• Renewals not tracked. A count without a renewal rate gets discounted. Fix: run a renewal report every month, starting now, so you have at least a year of history.
• Most members on yearly invoices you chase. Lower renewal and a bigger closing credit. Fix: offer a small price break to switch to monthly automatic billing.
• Visits behind schedule. It shows up as unhappy members and a larger credit. Fix: book spring and fall visits as a block, months ahead.
• Plans that only you sell. If the plan depends on your relationships, it is part of owner dependence. Fix: train every tech to offer it on every call, and check the owner dependence test for the rest.

How to build the base in 18 months

Next Era Legal's point is that even a few hundred members built over a year can move your price. Here is a plain 18-month plan. The timing is our suggestion, not a published standard.

Months 1 to 3: set it up. Write one simple plan: two visits a year, priority scheduling and a repair discount. Price it, set it to bill monthly by card, and load it into your field software. Train every tech and CSR to offer it on every service call, and pay a small bonus for each plan sold.

Months 4 to 9: grow and convert. Track plans sold per tech each week. Call your yearly invoiced members and offer to move them to monthly billing. Book every member's spring and fall visits ahead of time.

Months 10 to 18: prove it. Run a monthly renewal report and keep it. Tag replacement jobs that came from members, so you can show a buyer the plan feeds sales. Clean out lapsed members so your count is honest. By month 18 you should have a member list, a year of renewal history and a replacement link you can hand to a buyer.

In two-season markets, with hot summers and cold winters, each member gets two useful visits, so plans are easier to sell. In mild coastal climates they are harder, in our view, and the plan may need to lean on priority service and heat pump checks.

When you have a few months of numbers, run the free HVAC estimate to see how your member count and renewal rate move your range, and read what makes an HVAC company worth more for the other four drivers.

Sources

1. Next Era Legal, Selling Your HVAC Business
2. Raincatcher, Private Equity in HVAC
3. PipelineOn, HVAC maintenance agreement benchmarks
4. The Hardwire News, Apex Service Partners HVAC roll-up