Contractor Finance Glossary
What is Service Agreement?
Definition reviewed . Source observations retain their stated periods.
Also called: maintenance agreement, maintenance contract, service contract
A service agreement is a recurring contract where a customer pays a recurring fee for scheduled maintenance visits and listed benefits such as priority service. Repair coverage depends on the agreement.
Service agreements create a recurring fee and visit schedule. They can support steadier demand and opportunities to find repair work, but seasonality, visit costs, cancellations and customer behavior determine the actual result.
The trap is treating the agreement fee as the whole prize. A well-run agreement is priced to cover its own delivery cost and valued for the associated repair and project work. A badly run one loses money on every visit and still gets renewed out of habit, which is why agreement margin has to be measured on its own.
Compare member repair/replacement gross profit with similar non-member customers after discounts and delivery costs. This is an association test, not proof the agreement caused the repair work.
How it is calculated
Service agreement gross margin = (fee revenue earned over the agreement term minus matched delivery cost of scheduled visits) divided by earned fee revenue. Specify burdened labor, drive time and materials; defer unearned prepaid fees under the applicable accounting policy. The Level Index reports 37.9% median and 53.5% P75 for n=259 companies with at least $10K agreement revenue, within overall 2022-2026 research. The public aggregate does not fully specify delivery-cost allocation, so verify comparability before using it as a target.
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