Annual maintenance contracts are the backbone of many service businesses: predictable revenue, loyal customers and a steady flow of work. But predictable revenue is not the same as profit. A contract priced years ago for new equipment may now cover ageing machines that break down every month. A customer may receive far more visits than the contract assumed. Parts included in the contract may cost more than expected. Without contract profitability analysis, these losses hide inside the overall numbers until the business wonders why it is busy but not profitable.
Why contract profitability is often invisible
Revenue per contract is easy to see — it is on the invoice. Costs are spread across salaries, fuel, vehicle expenses, parts purchases and subcontractor bills. Accounts records them by type, not by contract. Unless visits, time, travel and parts are recorded against each contract in your service system, nobody can tell which contracts make money.
Capturing costs per contract
- Labour — technician time on site, recorded through check-in and check-out on each job, multiplied by a loaded hourly cost.
- Travel — time and distance to and from the site, or a fixed travel cost per visit by area.
- Parts and consumables — issued against the job at cost price, whether chargeable or included in the contract.
- Subcontractors — partner or specialist charges for work on the contract.
- Special costs — equipment hire, access equipment, permits, overtime for emergency calls.
The technician app makes most of this automatic: every job belongs to a contract and equipment, with time, travel and parts recorded as part of normal work.
Loaded labour cost
A technician's cost per hour is more than salary divided by hours. Include benefits, vehicle or travel allowances, tools, phones, training and the reality that not every paid hour is productive. A loaded hourly cost based on productive hours gives a realistic picture. The same calculation helps with pricing.
Allocating overheads
Coordinators, supervisors, call centre staff, office rent and software also exist to serve contracts. Allocate them on a simple, fair basis — per visit, per hour or as a percentage of direct cost. Precision matters less than consistency; the aim is to compare contracts fairly.
Reading the results
For each contract, compare revenue for the period with direct costs and allocated overheads. Look at:
- Margin per contract — sorted from worst to best.
- Visits per equipment versus the contract assumption — planned visits plus breakdown calls.
- Parts cost as a share of revenue — for comprehensive contracts especially.
- Cost per equipment by model and age.
- Travel share — remote sites may consume more time travelling than working.
Patterns usually emerge quickly: a handful of contracts and equipment types account for most of the losses.
Common causes of loss-making contracts
- Pricing based on new equipment, applied to ageing equipment.
- Comprehensive contracts covering expensive parts without limits.
- More breakdown calls than expected, often because preventive work is weak.
- Scope creep — work outside the contract done without charging.
- Remote or difficult-access sites priced like city sites.
- Discounts given to win the contract and never recovered.
- Repeat visits because of first-visit failures.
Acting on the analysis
Reprice at renewal. Show the customer the actual service history — visits, breakdowns, parts — and propose a price that reflects it. Evidence makes these conversations far easier.
Change the scope. Move from comprehensive to non-comprehensive, cap parts coverage, exclude certain components or charge for calls above a number.
Improve equipment condition. An overhaul or replacement of problem components may reduce breakdowns enough to restore profitability — and can be sold as a separate job.
Improve efficiency. Better first-time fix rates, grouped visits by area and better-stocked vans reduce cost per visit.
Charge for out-of-scope work. Record it as chargeable jobs with approval, instead of absorbing it.
Exit if necessary. Some contracts cannot be made profitable. Letting them go frees technicians for better work.
Using data to price new contracts
With history by equipment model, age and site type, new contracts can be priced on evidence: expected visits, likely parts consumption and travel. Pricing tables built from your own data are more reliable than rules of thumb or competitor prices.
Example
A lift maintenance company had 400 contracts and healthy revenue but thin margins. After recording visits, hours and parts against contracts for six months, the analysis showed that 15 percent of contracts — mostly older lifts on comprehensive contracts — consumed nearly half of all breakdown visits and parts cost. At renewal, those customers were shown their service history and offered either a revised price, a non-comprehensive contract or a modernisation proposal. Most accepted one of the options, a few contracts were not renewed, and overall contract margin improved within a year.
Summary
Contract profitability analysis brings hidden losses into view. Record labour, travel, parts and subcontract costs per contract and equipment, use a realistic loaded labour cost, allocate overheads consistently, and review margins monthly and before every renewal. Use the evidence to reprice, rescope, improve or exit — and to price new contracts properly from the start.
Frequently asked questions
Why don't our accounts show contract profitability?
Accounting systems usually record revenue and costs by account, not by contract. Contract profitability needs operational data — visits, hours, travel and parts per contract — from your service system.
Which costs should be included?
At minimum, technician labour time, travel, parts and consumables, and subcontractor charges per contract. Overheads such as coordination, vehicles and tools can be allocated on a fair basis.
What should we do with loss-making contracts?
First find out why — under-priced, older equipment, unexpected breakdowns, scope creep or inefficient visits. Then reprice at renewal, change the scope, improve the equipment's condition or, if necessary, exit.
Can we analyse profitability by equipment model?
Yes. If visits and parts are recorded against specific equipment, you can see which models or ages cost most to maintain — valuable for pricing new contracts.
How often should we review contract profitability?
Monthly for an overview, and in detail before each renewal so the renewal price is based on actual cost history.
