Benchmark Data
Service Agreement Profitability Benchmarks
Real margin distributions, renewal rates, and pull-through revenue data from HVAC and plumbing contractors. Most shops are either underpricing their agreements or misreporting the margin entirely.
Data sourced from financial reviews, interviews, and benchmarking analysis across HVAC, plumbing, and mechanical contractors.
40–45%
Median SA gross margin
70%+
Top 10% SA margin
35.8%
Expired agreement rate
2x
Avg value of expired vs active
Gross Margin Distribution by Percentile
Gross margin calculated as: SA revenue minus direct labor, parts used on maintenance visits, and direct callbacks. Overhead is excluded from the gross margin calculation — it is applied at the EBITDA level.
| Percentile | Gross Margin Range |
|---|---|
| Top 10% | 70%+ |
| Top Quartile | 55–70% |
| MedianIndustry Median | 40–45% |
| Bottom Quartile | 20–35% |
| Bottom 10% | Below 20% or negative |
Real example: one HVAC contractor discovered their SA book was running at -23% gross margin — they were losing $3.8M per year servicing agreements priced years earlier without cost adjustments.
Common Misconception
The 18% Myth
The 18–22% figure cited in industry benchmarks and ACCA publications typically measures net margin after full overhead allocation — not gross margin. When overhead, management time, call center costs, and truck depreciation are loaded onto the SA book, the net number collapses.
But gross margin is the right lever to manage. Overhead is largely fixed. If your SA gross margin is 40%, you have room to absorb overhead and still run a profitable book. If it is 18% at the gross level, you are losing money before the lights are even on.
18–22% net margin (often cited)
After overhead, management, dispatch — misleading as a pricing target
40–45% gross margin (actual industry median)
Direct labor + parts only — the number that actually matters for pricing
Price to gross, not to net
Set your SA price to hit 40–45% gross. Net takes care of itself.
Renewal Rate Reality: What the Data Shows
Below is a snapshot from an actual HVAC service agreement book. These are real numbers, not industry averages.
105
Active Agreements
40.4% of book
Avg value $35K each
93
Expired Agreements
35.8% of book
Avg value $69K each — 2x active
52
Canceled Agreements
20.0% of book
Lost revenue, lost relationship
Critical Finding
Expired agreements averaged $69K each. Active agreements averaged $35K. The best customers left.
This is the pattern we find consistently: the highest-value customers — larger equipment loads, more locations, higher replacement value — let their agreements lapse because nobody followed up. Meanwhile, smaller residential customers renewed automatically via credit card. The revenue that matters most is the hardest to retain without a system.
23 agreements expiring in 90 days — no automated renewal
In this same book, 23 agreements were inside their 90-day renewal window with no outreach scheduled and no automated trigger in place. At $69K average value, that is $1.6M of revenue at risk of lapsing. Most service companies track this nowhere outside of a spreadsheet nobody updates.
Pull-Through Revenue: The Multiplier Most Shops Miss
SA gross margin only tells part of the story. The real value of a service agreement book is what it generates beyond the agreement fee itself.
Repair revenue
SA customers call you first when something breaks. A well-run SA book drives 2–4x more repair revenue per customer than non-SA customers, because you are the trusted provider on record.
2–4x more repair revenue per customer
Replacement conversion
Annual maintenance visits are the best opportunity to identify aging equipment. Top shops convert 8–14% of SA visits into equipment replacements. Average shops convert under 3%.
8–14% replacement conversion rate (top quartile)
Customer retention
SA customers churn at 12–18% per year versus 40–60% for non-agreement customers. Over a 5-year period, an SA customer is worth 3–5x more in total lifetime value.
12–18% annual churn vs. 40–60% non-SA
Deep Dives
Why Your Service Agreements Are Probably Mispriced
Most HVAC and plumbing contractors set SA prices once and forget them. Inflation, labor cost increases, and callback creep erode margins quietly until the book becomes a liability.
Read more
Service Agreement Renewal Rates: What the Data Says
A 65% renewal rate sounds fine until you realize which customers are leaving. A breakdown of renewal patterns, value concentration, and the systems that separate top performers.
Read more
Frequently Asked Questions
What is a good gross margin for service agreements?
The median SA gross margin is 40–45% (specifically 43.8% in our data). Top quartile contractors run 55–70%, and the top 10% exceed 70%. The range is enormous: from -23% (losing money on every agreement) to 92%+. This is the most variable metric in contractor financials.
Why do some sources cite 18% SA margins instead of 44%?
The commonly cited 18–22% figure from ACCA and industry publications measures net margin after full overhead allocation — management time, call center costs, truck depreciation, and administrative burden. The 40–45% median is gross margin (direct labor + parts only). Gross margin is the right lever to manage because overhead is largely fixed. Price your SAs to hit 40–45% gross, and net takes care of itself.
What is a good service agreement renewal rate?
The median renewal rate is 70–75%, with top quartile hitting 85%+. A critical finding: expired agreements in our data averaged $69K in value versus $35K for active agreements. The highest-value customers are the most likely to lapse — because they require proactive renewal outreach, not passive auto-renewal.
How much additional revenue do service agreements generate?
SA customers generate 2–4x more repair revenue than non-SA customers. Top shops convert 8–14% of SA maintenance visits into equipment replacements. SA customer churn runs 12–18% annually versus 40–60% for non-agreement customers — making a 5-year SA customer worth 3–5x more in total lifetime value.
Find out where your SA book actually stands
We audit your service agreement pricing, renewal rates, and pull-through revenue. Free. No commitment.