The Service Agreement Power Law: Why Your Top 10% of SAs Often Generate Most of Your SA Revenue

Not All Service Agreements Are Equal

Most contractors think about their SA book as a portfolio: X number of agreements, Y dollars in annual contract value. Divide Y by X and you get your average ACV. Simple.

But averages hide the truth. Service agreement revenue doesn't distribute evenly. It often follows a concentrated pattern: a small number of large agreements carry a disproportionate share of total SA revenue, while the long tail of small agreements can consume a disproportionate share of your delivery and admin effort.

After reviewing the SA economics of hundreds of contractors, in private equity, building financial products for commercial contractors, and now at Level, I see this pattern often, but we haven't published a measured share of portfolios that follow it, so test it on your own book. The contractors who understand their own concentration make fundamentally different decisions than those who don't.

The Distribution

The table below is an illustrative planning pattern, not a measured benchmark. No sample size or source dataset is documented for these ranges. Segments are ranked by agreement value within one portfolio, so the ACV column shows how a commercial-heavy book might look. It is not a cutoff. A residential-heavy book can have most of its agreements under $5K. If another page, such as the renewal-rates analysis, shows a much larger under-$5K share, check whether it buckets pooled agreements across many contractors by a fixed dollar band. That measures something different from ranking within one portfolio.

Illustrative pattern for a commercial-heavy portfolio:

Fictional illustration: a portfolio of 260 service agreements where the top 25 agreements (about 10%) carry 60% of SA revenue and the bottom 100 (about 38%) carry under 5%. To test your own book, sort agreements by annual contract value. Then divide the total ACV of the top 10% of agreements by total ACV.

The implications are significant:

1. Your largest agreements are your most valuable assets. Losing one $150K agreement has the same revenue impact as losing fifty $3K agreements. But many contractors don't have a differentiated retention strategy for their top accounts.

2. Your smallest agreements may be unprofitable. A $2,000 annual SA that requires two PM visits, drive time, parts, and admin scheduling may cost $2,500 to deliver. If the pull-through revenue doesn't materialize, you're paying to keep that customer.

3. Portfolio management trumps volume. Adding 50 residential SAs at $1,200 each ($60K total) has less revenue impact than upgrading 5 commercial SAs from $30K to $50K each ($100K increase).

The Renewal Rate Gap

Concentration can show up in attrition too, but only if you measure retention the same way across tiers. Three measures get confused:

The cancellation rate page reports pooled figures. Check which of these definitions it uses before comparing it with your tiers. We have not published a sourced retention rate by ACV tier, so this page does not quote one.

Here is a fictional example of why the definitions diverge. Start the year with 10 Platinum agreements. Seven are on multi-year or evergreen terms, so they never reach a renewal date. Three come up for renewal and two are formally renewed. Continued-agreement retention is 9 of 10 (90%). The formal renewal rate is 2 of 3 (67%). A dataset that divides formal renewal events by all 10 agreements would show 20%. Same customers, three different numbers.

Where larger commercial agreements do retain better, a common reason is that they're tied to building management requirements, insurance mandates, or compliance needs, so the SA is often operationally required. Small residential agreements are more discretionary: the homeowner decides each year whether the maintenance plan is "worth it."

The strategic implication: don't treat all cancellations the same. Losing a $3K residential SA is normal attrition. Losing a $150K commercial SA is a crisis that should trigger an executive-level save effort.

SA Revenue Per Employee

One metric that reveals the efficiency of your SA operations: SA revenue per employee.

Level Index directional observation: annual service-agreement revenue divided by employee count across 217 eligible companies with annual SA revenue and employee counts. The sample is cross-trade, not a separate HVAC or plumbing subset, and the figures are not a staffing target.

The spread is massive: $5,900 to $150,500. A contractor with 20 employees at the median generates $570K in SA revenue. At the 75th percentile, that same 20-person team generates $1.28M, more than double.

The data doesn't isolate the cause. Likely drivers to check are SA pricing, customer mix (larger commercial ACVs), and how much of the headcount works on agreements versus installs or projects. Pull-through is not part of this metric. The metric divides agreement revenue only, so repair and replacement work sold to SA customers shows up in the pull-through metric below, not here. Tight scheduling helps margin and capacity, but it raises SA revenue per employee only if the freed time is used to deliver more agreements.

The Active vs. Expired Problem

A pattern worth checking in your CRM: expired agreements piling up next to active ones. We haven't published how often this occurs across contractors, so treat it as a check, not a statistic.

Run three counts as of today: active agreements, expired agreements (end date passed, with no renewal and no cancellation recorded) and canceled agreements. Then compare average annual contract value per agreement, not total book value, for active versus expired.

Fictional illustration: 120 active agreements averaging $8,000 ACV ($960,000 total) and 100 expired agreements averaging $16,000 ACV ($1,600,000 total). Per agreement, the expired ones average twice the active ones. That $1.6M is not recoverable revenue. It is the prior contract value of customers who might renew if someone asked, and some of them have moved to a competitor, sold the building or stopped needing the service. A batch of agreements nearing expiration with no renewal workflow is how that pile grows.

Concentration makes this worse. If the expired agreements skew large, for example because larger customers have longer decision cycles, the revenue impact of lapsed agreements can far exceed what the count suggests.

How to Manage an SA Portfolio Like an Asset

1. Tier Your Agreements

Create three to four tiers based on ACV:

Your Platinum accounts get personal attention because losing one is catastrophic. Your Bronze accounts get automated management because the unit economics don't support high-touch service.

2. Track Pull-Through by Tier

Pull-through revenue is the additional repair, replacement and project work sold to service-agreement customers, often found on PM visits. It is frequently where the bigger dollars live. The rate can vary by tier, but the benchmark below is portfolio-level, not split by tier.

Level Index: additional repair, replacement and project revenue from service-agreement customers divided by annual service-agreement revenue, across 386 eligible companies. "Top Quartile" is the 75th percentile and "Top 10%" is the 90th. It is a revenue ratio, not the share of customers or visits that buy more work. The sample is cross-trade, not an HVAC-only subset.

Large commercial agreements often generate the most pull-through in absolute dollars (a PM visit that discovers a failing compressor on a commercial HVAC system is a $15K repair opportunity), but small residential agreements can have higher pull-through rates (the PM visit finds a cracked heat exchanger that turns a $200 maintenance call into a $5,000 equipment replacement).

Track pull-through by tier. If your Platinum accounts have 5% pull-through, check whether techs are recording deficiencies before assuming a sales problem. A recently replaced system may simply need little work. If your Bronze accounts have 40% pull-through, the agreement might be too cheap and the customer is using it as a discount vehicle for repairs they'd need anyway.

3. Audit Profitability by Agreement (Not in Aggregate)

The median SA margin is 37.9% in the Level Index, defined as gross margin on service-agreement revenue across 259 companies with at least $10K in SA revenue. That's a company-level median, and the spread is wide: the 10th percentile is -30.4% and the 90th is 70.3%. Inside one company, individual agreements can spread even wider than the company figure suggests. Running a profitability audit at the individual agreement level reveals which accounts to grow, which to reprice, and which to let go.

The audit is straightforward:

1. Total revenue per agreement (contract value, plus pull-through if you want an account view)
2. Total direct cost per agreement: labor hours × loaded direct cost rate (not bill rate), materials and drive time, plus the direct cost of any pull-through work you included in step 1
3. Gross margin per agreement, then a separate line for admin allocation if you want contribution after overhead

Use the agreement-only view (no pull-through, no admin allocation) when comparing with the 37.9% median, because that benchmark is gross margin on agreement revenue. Count each technician hour once. If drive time is already inside the loaded labor hours, don't add it again.

Sort by margin. The bottom 20% will surprise you. If they're also small (Bronze tier), consider whether the resources they consume would be better deployed on growing your Platinum accounts.

4. Build a Renewal Pipeline

Treat SA renewals like a sales pipeline:

• 120 days out: Platinum accounts get a renewal call with a business review presentation
• 90 days out: Gold accounts get a renewal email with updated pricing
• 60 days out: Silver and Bronze get auto-renewal notices with escalation pricing
• 30 days out: Any non-renewed agreement gets escalated to the sales or ops manager

Contract terms override this schedule. An agreement may require notice of non-renewal or a price change by a set date, or a state auto-renewal law may require a specific notice. In either case that deadline comes first, so build the pipeline backward from it.

When agreements approach expiration without an assigned owner, review the workflow and contact history. An expired record alone cannot show whether the customer left, continued under a new record or received a renewal request.

The Billing Pattern

One more dimension that affects SA cash flow: how you bill. The split below has no documented source sample or population on this page. Treat it as an illustrative pattern, not a benchmark, and run the same split on your own agreements:

In that pattern, about two-thirds of agreements bill on a recurring cadence, which spreads billings over time. Monthly billing creates predictable, steady billings and cash inflow that can match your service delivery costs. The revenue itself is still earned as you deliver the service, so don't treat amounts billed ahead of service as earned revenue.

But a third bill on service completion, meaning cash only comes in when the visit happens. That's fine for scheduling, but it concentrates cash inflow into specific months and creates gaps. If all your SAs are bill-on-completion and you do most PM visits in spring and fall, you have a seasonal cash flow problem built into your billing structure.

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The Bottom Line

Service agreement revenue is often highly concentrated. Check whether your top 10% of agreements carry the majority of your SA revenue, and if they do, treat them accordingly: tier your portfolio, differentiate your retention strategy, track profitability at the agreement level, and build a renewal pipeline that starts 120 days before expiration.

The contractors who manage their SA book like an asset, not just a scheduling obligation, are better positioned to raise SA revenue per employee, retain their most valuable accounts, and catch the margin-destroying agreements before they quietly drain cash.

Q: How does Level help with SA portfolio management? A: We build a tiered SA dashboard showing ACV, margin, renewal date, and pull-through rate for every agreement. We flag agreements expiring in the next 90 days, identify negative-margin contracts that need repricing, and calculate your revenue concentration so you can see the power law in your own portfolio. The first audit is free.

Q: Should I drop my unprofitable small agreements? A: Not automatically. First, check whether those agreements generate enough pull-through gross profit to cover the loss. Fictional example: a $2,000 SA costs $2,500 to deliver, a $500 loss. If the customer also buys $8,000 of repairs at a 40% gross margin, that adds $3,200 of gross profit, so the account nets $2,700. Revenue alone doesn't settle the question, so use the repair work's actual margin. If they're genuinely unprofitable with no pull-through, consider raising the price, then recheck margin on the customers who stay. Measure retained contribution and capacity after the change; the accounts that leave can have different costs from those that stay.

Benchmark source scope

Measured Level Index comparisons on this page come from the canonical aggregate dataset. Each metric retains its own eligible population and definition; the broader founding-team research universe of 2,242 contractors and $13.25B of job revenue is provenance, not a count of Level clients or the sample of every metric. Fictional scenarios and legacy, unverified references are labeled separately.