Service Agreements

There are few topics that get a robust conversation going among independent haulers more than opinions on using Service Agreements in their business.  We all have horror stories about cell phone, uniform service or other contracts with vendors that create animosity between contractor and customer.  But it doesn’t have to be that way.

I believe a Service Agreement can be a valuable tool for your business, and a bigger part of a well planned sales strategy.  Many of us believe “my service is so good I don’t need a contract!”  That works great, until a well funded national company marches into your town with a team of sales representatives offering rates 50% of what you are charging.  At that point, it may be too late to save your business.  Once they find your customers are unsecured, they will snatch up as much business as quickly as they can.  However, if they find your customers are under some sort of agreement, they may go on to easier pickings.

A Service Agreement doesn’t need to be a weapon to use against your customers, but can be an effective sales tool to make your service more valuable to both your customers and your company.

 

Some reasons Service Agreements can benefit your business:

• Its good business practice. Setting the terms up front begins the relationship with your customer in an atmosphere of professionalism.  A Service Agreement brings order to the relationship.

 

• Sets the customer’s and the company’s expectations in writing.

 

• Provides understanding what payment terms, late fees and service cancellation procedures will be.

 

• Protects company from liability for property damage. You can document any damage that was present before you began servicing this location, and you can include a damage waiver in the terms and conditions agreeing the access to the service location is safe and adequate for your equipment.

 

• A well written Service Agreement will specifically exclude waste materials that are hazardous or not allowed to be legally collected by your company. It will also provide environmental liability protection if your customer knowingly or unknowingly disposes of hazardous material in your containers, and an expensive cleanup or remediation is necessary.

 

• A Service Agreement can specify what type of materials a customer’s rate is based on and what materials are acceptable or not. If the weight or compaction characteristics of a customer’s material changes through the course of your service, you need to be able to adjust their rate.

 

• Especially in the case of Homeowner’s Associations, municipalities and many non-profit organizations where officers regularly turnover, a Service Agreement memorializes what was agreed to when the relationship began. Trying to remember what was discussed and agreed years earlier with officers who are no longer around is a position that is hard to defend.

 

• A Service Agreement can provide protection to your company in the event of unforeseen circumstances, such as fluctuating recycling fees, a disposal site closing, a new governmental tax or surcharge or catastrophic fuel cost increases.

 

• Provides a level of security to your bank or financing institution.  You are more likely to receive funding for equipment at a better rate when you can show your revenue stream is secured with Service Agreements.

 

• There comes a time when businesses are sold either intentionally or unintentionally. Retirement and illness are just a couple of reasons businesses close or are sold.  Customers under contract have a higher value to a buyer as it provides a better likelihood customers will stick around for a new owner, assuming customer service has been satisfactory and continues to be after a sale.

 

• Your business deserves to have a commitment from a customer. You may have invested hundreds or thousands of dollars in equipment for them to use at their facility.  Your company is entitled to a return on this investment.

 

 

Some things to consider as you think about using Service Agreements in your business:

• Design a Service Agreement that gives a customer benefits, like a service guarantee, or rates and increases committed to upfront. Let them know exactly what they can expect.

 

• Make the term of the Service Agreement flexible. Perhaps a small commercial account can be a 1 year term, a large customer requiring a higher level of investment on the part of the contractor may dictate a 3 or 5 year (or longer) term contract.

 

• In a sales presentation, make the signing of a Service Agreement a positive experience. Perhaps a gift of appropriate value would be in order to show your appreciation.

 

• Give serious thought to including or not including a “Right to Compete” and an automatically renewing clause in your agreement. Both of these clauses can have advantages and disadvantages.  These terms are common in the service agreements of large companies, and this may be a place where an independent local company may be able to differentiate themselves from a national company.

 

• Identify what items in your Service Agreement are negotiable and which are cast in stone.  Be ready to offer a modification to those items that are less important, and to hold firm on those that are more important.

 

• If your Service Agreements are not auto renewing, use the time of renewal as a time to thank the customer for his past business, ask how the quality of your service has been, then ask for a renewal to continue the relationship.

 

I hope this discussion has been helpful.  Every market is different, and what is common practice in one market may be unacceptable in another.  Be sensitive to your market, but always watch for ways to raise the bar and be a leader among your peers.

If you need assistance in designing a Service Agreement that will be effective in serving both your customers and your company, please feel free to contact us here at Van Tholen & Associates for help.

If you have any comments, please click the “comments” link at the top of the page!