Episode 51: How I Grew My Business $23M with Service Agreements

Jaime DiDomenico, President and CEO of Cool Today, has grown his business exponentially by focusing on service agreements. Business owners need to be focused on what makes them successful besides the people that you have employed and the products you carry. Jaime understands that your existing loyal customers are your best channel for revenue dollars, and utilized that channel to explode from 15 million in 2010 to 50 million in 2020! Of course, there were plenty of other factors that went into growing his business, but service agreements were and are an integral component of this rapid growth and success.

Jaime’s Journey Through the Trades

Jaime didn’t find the trades, the trades found him! Unlike many in the industry, Jaime didn’t have any family in the home services. He dropped out of college about 40 years ago and moved from New York to Florida to start a new life. Jaime found a job working the night shift at a heating, cooling, plumbing, and electrical contractor selling whole-home service contracts. He moved into warehousing, then accounting, and eventually into operations. While he never turned a wrench, Jaime has done just about every job that supports the field, which is where his profound respect for the field comes from.

In 1998, Jaime joined Blue Dot and several big names came with him like Paul Kelly and Ken Haines. When Blue Dot went belly-up due to some poor investments made by upper management and had to sell, Jaime and others bought up some of the companies to run. In 2004, Jaime had his own company with 17 employees, and worked hard to grow it. He believes in a 1968 Harvard study that demonstrates that people who write down their long-term goals and work towards those goals every day are 900 times more successful than people who don’t. With a 15-20 year plan for growth, Jaime set the course.

In 2010, Cool Today joined the Nexstar Network, and they were impressed with the number of service agreements Jaime had. He’d always focused on them, but knew he had a lot of room to improve those numbers with both new and existing customers. He was only converting about 12% of his opportunities to lock in service agreements, so he set a goal to get that number to 40%. From 2010 to 2020, Jaime grew his number of agreements from 5,000 to 20,000! The Wrench Group acquired Cool Today in 2019, and Jaime continues to run the company, projecting for about 50 million in 2020.

Incorporating Real Value into Service Agreements

10 years ago, Cool Today was offering the same maintenance plan as everybody else. It’s the usual priority service, some discounts and perks, and a 32-point checkup. Jaime started to really consider what the customer actually wants and expects from a service agreement. They want you to keep their systems running, extend the lifespan of the equipment, priority service (specified in time frames), guarantees, and they don’t want to be hassled. That led Jaime to change up his service agreements, adding in things like a 4-hour guaranteed response time for the highest tier. The customer can put a value on that! It shows them that they will be the priority. Regular service agreements come with same-day service guarantees, which still equates to a time frame that is tangible for the customer. It also comes with up to 2 pounds of freon and filters for life from a system they’ve installed—more real, raw benefits that have a clear value assigned that the customer can easily perceive. By building these measurable benefits into the pricing structure of the service agreement, both the customer and Cool Today benefit.

It’s easy for a customer to see things like 2 pounds of freon and free filters and know the value of not needing to pay for those things. After all, the perceived value is the most important thing to a homeowner. Business owners are looking for ROI on everything, and service agreements don’t always have that immediate return. This shortsightedness ignores the fact that a service agreement is a long-term investment. It’s building something today for success tomorrow. It’s not a standalone accessory, it’s the most valuable part of your company!

Subscription models are increasingly desirable in our economy, and we can look to Netflix as a great example of why service agreements are useful. The value of Netflix isn’t based on revenue, but by the number of recurring subscriptions they have. Similarly, companies in the trades are becoming increasingly valued by the number of service agreements they have. EBITDA is always going to be important, but multiples are really going to adjust when potential acquirers are looking at longevity. Service agreements provide customer retention, employee retention, and clear long-term value for your company. When it’s time to hang up your hat, having a plan for acquisition is a must. Great service agreement numbers are going to be key down the line!

A Measurement of Customer Loyalty

A line that’s always stayed with Jaime is from an old manager of his, and it goes “if you don’t measure it, you’re not managing it”. Most HVAC companies aren’t really measuring and monitoring their numbers like conversion rates, renewal rates, and attrition. They simply don’t give it any attention. For Jaime, he’s focused on the tripod of success: lifelong relationships with customers, employees, and the community. If you’re going to be successful, you have to be able to measure loyalty. The best way to achieve this is by measuring how many customers are willing to pay your company an annual renewal fee to ensure it’s your technicians/plumbers/electricians that come out every year to make sure their plumbing, HVAC, and electrical systems are running in tip-top shape.

Jaime focuses on conversion rates for his service agreements, aiming for 50% for HVAC, 30% for plumbing, and 20% for electrical. When his team members fall below those rates, he knows there is a coaching opportunity at hand. By measuring the average length of time a customer stays on the plan, he can identify a number of success factors like customer satisfaction. These are already your customers, so why not lock them in and make sure you’re the only company they call for service? Of course, you have to believe in it, or it’s not going to work. Even if you’re a smaller company, get a plan together and figure out if you’re the right person to champion your service agreements or if someone else, even a technician, is a better fit to push things forward.

Go Crush 2021

If you don’t have a service agreement or aren’t focusing on your current one, it’s never too late to start! Jaime suggests having two tiers. Customers love having options, and having a basic and more robust agreement allows for you to have different structures that accommodate a larger segment of your customer base. By focusing on customer retention instead of acquisition, you can set yourself up for long-term success. After all, shouldn’t you be leaving acquisition to your marketing company?

It’s the beginning of the year, so get in gear. It’s never too late to switch things up and try something new to get a fresh start in 2021. Get your gloves off and go crush the new year!