How to price a maintenance contract

The short answer: price a maintenance contract from the work it will really take: the number of visits, the hours each one takes, travel, and the parts and consumables you will use, all at a rate that covers your costs. Then write terms that deal with price rises, extra work and cancellation, because the contract has to stay profitable for its whole term, not just the first month.

Why contracts go wrong

Recurring work is valuable: it fills your calendar in quiet months and makes cash flow predictable. But a contract priced as a discount to win the customer, or priced once and never reviewed, can quietly lose money on every visit for years. The usual causes are underestimated visit times, forgotten travel, parts that were “included” without a limit, and costs that rise while the contract price doesn’t.

Work out the real cost

1. List every visit

How many scheduled visits a year, and what each one involves. Split the work into the tasks you will actually do, not a one-line “annual service”.

2. Time each visit honestly

Use real times from past jobs if you have them, including setting up, packing up, writing the job sheet and dealing with the customer on site. If two people are needed for part of the job, count both.

3. Add travel

Time on the road costs the same as time on the tools. Add travel time for each visit, and fuel or a per-kilometre rate for sites far from your base.

4. Price parts and consumables separately

Filters, oils, belts and other consumables you use every visit can be built in. Anything that is only replaced when it fails should be charged when it is used, at your normal markup, or capped with a clear dollar allowance.

5. Use a rate that covers your costs

Multiply the hours by an hourly rate that covers wages, super, vehicles, insurance, tools, admin and profit. If you are not sure yours does, run it through the hourly rate calculator.

A worked example (illustrative numbers)

Four visits a year, each 3 hours on site plus 1 hour of travel, at $120 an hour: 4 × 4 hours × $120 = $1,920. Consumables of $80 a visit add $320. That is $2,240 a year before any repairs, or about $187 a month if the customer pays monthly. Any discount for a longer term should come off that number knowingly, not by accident.

Terms that keep it profitable

• What is included. The tasks each visit covers, how many visits, and when.
• What is not. Repairs, breakdown callouts and parts beyond any allowance, and the rate you charge for them.
• Callouts and response times. If you promise a response time, price it. A 4-hour response costs more than next business day.
• Price reviews. How and when the price changes, for example once a year by a stated percentage or in line with the consumer price index.
• Term, renewal and cancellation. How long it runs, whether it renews, and how either side can end it.
• Payment. Monthly, quarterly or annually in advance, and when invoices are due.

Watch for unfair contract terms

If you use the same contract for every customer (a standard form contract), the unfair contract terms laws apply when your customer is a consumer or a small business. Since 9 November 2023 a small business is covered if it has fewer than 100 employees or less than $10 million in annual turnover, and proposing, using or relying on an unfair term is illegal, with penalties.

The ACCC says a term is unfair if it causes a significant imbalance in the parties’ rights, isn’t reasonably necessary to protect the legitimate interests of the party it favours, and would cause the other party harm if enforced. It gives one-sided examples such as terms that let only one party end the contract. Its example of a price-rise clause shows the same clause can be unfair on its own but fair when the customer can also leave without penalty. So if your contract lets you raise the price, give the customer a genuine way out.

Review it every year

Once a year, compare what each contract earned with the hours, travel and parts it actually used. Contracts that are losing money need a price review or different terms at renewal. The ones making good money are the customers to look after.

Quoting the contract? See how to write a trade quote that wins the job.