How do I price a 5 year service contract?
Hello all, I have a small mechanical contracting company that is faced with an old customer who due to management changes wants to use a service contract instead of our t/m approach.What kind of material, software, etc, is available to help me price this so that I can provide a high level of service, remain competitive and profitable? I would really appreciate some real world advice from some of you old dogs who have BT/Dt a time or two. This customer has 22 Carrier RTU's ranging in age from 2-15 years old. It is a smelting plant with lots of dirt and corrosives. Thanks, for your help, I will be glad to help with some of your problems. Dwight
Its a crap shoot bidding full maintanence contracts. I have bid 100's of them over the years, some proffitable and some losers. You have one advantage, you know the history and your costs. Average out the last few years of labor and material taking into account rate increases, you shouldnt bid any less expensive than this cost. The equipment is not going to improve with time, especialy in a harsh environment. After figuring out your base price add 5% to 10% per year.
If your customer thinks hes going to save money like this, most likely another contractor has been in your account beating his ear. Put exclusions in the contract for corrosion, erosion, damage by others, acts of god, etc. It's basicaly a CYA game. Sometimes you win and some times you lose. If you can't get the money you need to due the work at a profit, let the customer go!! Theres plenty of wh&^%'s out there that will drop their pants to get the work at no margins or at a loss. JMHO
All you have to do is figure how much time it will take to PM the units 4 times a year, you have the experience so you know what it takes. Multiply that times 5 and add cost of living if you want and don't forget travel. You can give them a rate break if they sign for 5 yrs. And all repairs are T&M. If its like the foundries I've worked you may want to do some PM monthly on critical areas.
Everything will depend on the PM procedure. Is the client providing it or are you providing it?
What about repairs? Are you doing them or just recording them? Will they supply materials or do you?
You need a sit down with the client to see what it is they want to contract out. From that point you can do a take off on cost/profit
You will also need to define who your contact person or persons will be, because you dont want everyone from the secretary to the maintenance personnel telling you what needs to be done while you show up to work on the property.
Is that x 5 or x .5?
Like absrtek stated, you already know the cost to service and maintain the job, this should give you an edge to put a "real" number on a full coverage agreement.
A lot of profitable companies would rather sell full coverage than T and M, because more money can be made if it handled correctly. Get in the game and try it.
If the customer wants to go the full service route and you don't want to go broke, Have an agreement with the customer that a tech must first go through each unit with a fine tooth comb and fix what needs to be fixed using T/M or quoted billing before you can insure the equipment under a full maintenance contract. Signing a full maintenance contract then finding out alot of parts like compressors were bad before you took it over and now your eating it, Is not a good thing.
Thats a double edged sword in this case. How do you go to an existing customer with a pre-existing conditions list when you have been servicing them for years? If you do that it shows your not doing your job. JMHO
Originally Posted by jimbob73
one thing you might consider is to put in the agreement that the customer replace one unit per year during the contract. From the age of some units and the enviroment at the site it sounds like its needed. Its a win/win for you and the customer. You can make some money on new units as well as have units now in warranty (no cost to you). It would help offset the cost of those "hairball" units that kill a contract, and after 5 years the customer has 5 newer units that were really needed anyway!
Hmmmm, let me think about that , do I want to make money or not..
Originally Posted by softtail
I agree absrbrtek. I did not read the entire 1st post and was thinking more of a first time customer. My bad
price it 1 year at a time, prices of everything will be different in 5 years!
Originally Posted by spoonplug
... anything > 12 years old gets trashed.
... anything > 7 years old & major repairs .. T & M
... Service Contract <= 7 years old
Or Push your Luck
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Although there are lots of programs available they cost money and I dont think they will help you in the long run unless you have lots of work to track and little help to tack it.
When you are talking about older equipment with dirt and corrosives a software program will not help .You need to inspect everything possible leaving room for all the little screw ups like bolts that need to be drilled and tapped.
Having a five year contract could be good for you and also good for the customer. That is the trick to being successful. A good way to start is to ask what the customer has in mind.