Contractor Finance Glossary
What is Service Agreement?
Also called: maintenance agreement, maintenance contract, service contract
A service agreement is a recurring contract where a customer pays a fixed fee for scheduled maintenance visits, in exchange for priority service and predictable coverage of their equipment.
Service agreements are the closest thing a contractor has to recurring revenue. They smooth out seasonal demand, keep technicians busy in slow months, and, more importantly, put a crew in front of the customer on a schedule, which is where replacement and repair work gets found.
The trap is treating the agreement fee as the whole prize. A well-run agreement is priced to cover its own delivery cost and valued for the repair and project work it pulls through. A badly run one loses money on every visit and still gets renewed out of habit, which is why agreement margin has to be measured on its own.
How it is calculated
Service agreement gross margin = (agreement fee revenue minus the cost of delivering the scheduled visits) divided by agreement fee revenue. The Level benchmark dataset puts the median at 37.9%, with the top quartile near 53%.
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