enx magazine

I often receive emails from the readers of my columns that ask questions that require a lengthy reply in order to be answered properly. Unfortunately, I do not have the time or energy to send a thousand word email reply to such questions. I often respond by saying, “Great question. I will answer you in an upcoming ENX article.”

A common request I receive is for guidance on writing, pricing and selling service agreements. The following are some basic guidelines that should be considered before finalizing your maintenance agreement policies. I repeat, these are basic guidelines. Every dealer and piece of equipment is unique. There is never just one appropriate answer for all situations. All the prices I have listed below are mere guidelines. I am not suggesting individual dealers should use my listed pricing.

Maintenance Agreement Guidelines

1. Industry standards for acceptable service profitability range between 45%-55% gross margins within the service department. A minimally acceptable rate is 40%.

2. Profitable maintenance agreements are the backbone of a successful service department and company.

3. The term ‘Maintenance Agreement’ is less demanding than ‘Service Contract’.

4. If you do not know the cost of your service hourly burden rate, you cannot accurately calculate your maintenance agreement costs.

5. Never trust manufacturer-issued cost-per-click calculations to be appropriate for your company.

6. Manufacturer’s CPC calculations seldom include profit for the dealer.

7. Include in your written MA terms and conditions, ‘Agreement will periodically increase at the then prevailing rates.’ This gives you additional options to increase your rates. You are not limited to only yearly increases of a specific percentage.

Maintenance Agreement pg 1 pg 2 pg3 pg4 pg5 Print Word Document

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