A maintenance agreement customer is worth the yearly margin they bring (agreement fee minus visit cost, plus the margin on repairs they buy from you) multiplied by how many years they stay. With a decent renewal rate that usually comes to several times the agreement fee, which tells you how much you can afford to spend to sign one and how much a lost renewal costs.
Most companies price agreements by looking at what the shop down the road charges. That answers "what will people pay," but not "what is a member worth to us," which is the number that should drive how hard you sell them and how well you run the visits.
The formula
Work it in three steps.
1. Yearly margin per member
M = (Fee − Visit cost × Visits) + (Repair revenue × Repair margin)
The visit cost is what the visits cost you to run: labor, drive, vehicle and the parts included in the plan. Repair revenue is what members spend with you on top of the plan in a typical year.
2. Expected years as a member
If a share R of members renew each year, the average member stays about:
Years ≈ 1 ÷ (1 − R)
At 80% renewal that is 5 years. At 60% it is 2.5. This is a simplification, but it is close enough to make decisions with.
3. Lifetime value
LTV ≈ M × Years
A worked example
Every number below is invented for the example. Use your own.
Two things fall out.
The plan itself barely pays. Here, the fee clears the visit cost by $70. Almost all the value is the repair margin. That is normal. It means a plan priced to "make money on its own" is often priced too high to sell, and a plan priced too low is fine if it fills the repair pipeline.
Renewal rate matters more than the fee. Raising renewal from 60% to 80% doubles the member's value. Raising the fee by $40 adds about $100 to $200. Most owners spend their attention on the second.
This leaves out equipment replacements. If members replace systems with you more often than non-members do, add the margin on those, spread over the years they stay. That can be the largest number of all, but use your own replacement history, not a guess.
What the number is for
How much you can spend to sign one
If a member is worth $1,475 in margin, you can afford a real spiff for the tech who sells the plan, or a discount on the first year, and still come out well ahead. Set the ceiling at a fraction of LTV, not of the first year's fee.
What a missed visit costs
Members renew because the visits happen on time and feel worth it. A member whose spring tune-up slips to July is a renewal risk. If one in ten skipped or late visits costs a renewal, and the member is worth $1,475, each skipped visit costs about $150 in expected value. The maintenance agreement scheduling entry and the preventive maintenance scheduling guide cover how to keep those visits on the calendar.
When to book the visits
Members are flexible on date, which makes them the best filler for slow weeks. Book them into the shoulder season and into gaps near other work, so a busy week is not spent on tune-ups. Booking visits next to other jobs in the same area also cuts the visit cost in the formula.
The "it depends" factors
- Trade. HVAC, plumbing, pest control, pool and water treatment plans all work differently. Recurring-visit trades like pest control have more visits per year and thinner per-visit margin.
- Who joins. Members who sign up after a big repair may spend less the next year. Members who join with an old system may spend more.
- What's included. Discounts on repairs reduce repair margin. Include them in the margin rate you use.
- Priority service. If members get first call on busy days, that has a cost in non-member work you turn away during peak season.
For the contract side of agreements, see service contracts. For repair spend per visit, track your average ticket for members and non-members separately.
What to take away
- Yearly margin M = (fee − visit cost) + repair revenue × repair margin.
- Expected years ≈ 1 ÷ (1 − renewal rate); LTV ≈ M × years.
- Most of the value is repair margin, not the plan fee.
- Renewal rate moves LTV far more than the fee does.
- Use LTV to set what you spend to sign members and to price the cost of a missed visit.
Common questions
What is a good renewal rate for maintenance agreements?
It varies by trade, market and how the plan is run. Measure your own: the share of members due for renewal in a period who renewed. Then work on it, because each point of renewal moves lifetime value more than a fee change does.
Should a maintenance agreement make a profit on its own?
It should at least cover the cost of the visits. Most of a member's value comes from the repairs and replacements they buy from you, so a plan priced to profit on its own can be too expensive to sell in volume.
How do I find my repair revenue per member?
Pull a year of invoices, tag the customers who were members during that year, and divide their non-plan revenue by the member count. Do the same for non-members to see the difference.
Should I count equipment replacements in lifetime value?
Yes, if your own records show members replace with you. Spread the replacement margin over the years they stay. If you don't have the history yet, leave it out and treat it as upside.