BTHE BARATELLI INSTITUTE · Mentoring at Scale
FOR EQUIPMENT DEALERS · SOLAR INSTALLERS · HVAC · UPS RESELLERS · ANYONE SELLING HARDWARE PLUS ONGOING SERVICE

Hardware margin is one number. Service contract margin is the real business.

You sold the unit once. You charged it as hardware, took your 15-20%, moved on. Meanwhile the service contract sitting on top of it pays for 8 years at 60%+ gross margin, with renewal economics that look more like SaaS than equipment. Most dealers run the hardware book by gut and the service book by accident. This tool runs both as one 5-year customer LTV.

5-Year LTV
Per customer
Attach Rate
The lever
Renewal $
The annuity
Margin Mix
HW vs SV
YOUR HW + SV ECONOMICS
1
The hardware sale
2
Service contract terms
3
Cost to serve
4
Attach & renewal
5
Results
STAGE 1 OF 5

The hardware sale

Defaults are typical for a mid-size dealer selling a $90K piece of equipment / install at ~18% gross margin.

Free text — shapes the recommendation narrative, not the math.
Per unit / per install, customer-paid, before service-contract attach. Equipment: $50-250K. Solar residential: $25-60K. Commercial HVAC: $15-80K.
$
Sales price minus product cost, minus install labor, minus delivery. Equipment dealer: 12-22%. Solar installer: 15-25%. HVAC: 18-28%. UPS: 20-30%.
%
Salesperson commission + marketing share + sales-engineer time, all-in per closed hardware sale. Equipment dealer: 4-7% of price. Solar: 8-15%. HVAC: 3-6%.
$
Annual hardware unit volume on this product / model. Used to scale the business case.
Why this tool matters. The dealer who sells a $90K piece of equipment at 18% margin is making $16,200 once. The dealer who sells the same unit and attaches a $6K/year service contract for 7 years is making $16,200 plus another $25,000-30,000 of high-margin service revenue. Same customer, same field crew, dramatically different business. Most dealers don't run the math because hardware is what shows up on the P&L this month, and service is what shows up on the P&L for the next eight years.
STAGE 2 OF 5

Service contract terms

The shape of the annuity. Typical: 5-7 year term, 6-10% of hardware price per year, annual escalation, automatic renewal.

What the customer pays per year for the service contract. Common rule of thumb: 7-10% of hardware price for equipment, 1-2% for solar O&M, 10-15% for full preventive maintenance HVAC.
$
Term locked in at signature. Equipment dealer: 3-5 years standard. Solar O&M: 10-20. HVAC: 1-3 typical, 5+ for premium.
Built-in price bump each year. Typically tied to CPI or fixed 3-5%. Critical for protecting margin over a long contract. If you don't have one, set to 0 — but read the recommendation card.
%
Of customers who reach the end of their first contract, what share renews. Equipment dealer: 70-85%. Solar O&M: 60-75%. HVAC: 55-70%. Best-in-class: 85%+.
%
Length of typical renewal cycle. Often shorter than initial term — month-to-month or 1-year is common.
STAGE 3 OF 5

Cost to serve — the real margin lives here

The dirty secret of service contracts: dealers price them well but cost-account them poorly. We rebuild the cost stack to find true margin.

Scheduled PM visits + reactive callouts combined. Equipment: 2-4. HVAC PM: 2 (spring + fall) + 1-2 unscheduled. Solar O&M: 1-2 + remote.
Fully-loaded tech hours × hourly cost. Includes drive time, work time, paperwork. Typical: $280-480 per visit for a 3-4 hour roll with $90-130/hr loaded cost.
$
Wearing parts, filters, lubricants, replacement components covered under contract. Climbs in years 4-7. Average across the contract life: $400-1200 for HVAC, $800-2500 for equipment.
$
Parts costs typically inflate faster than service revenue. Default 5% to model the real spread. If your escalation clause is 4% and parts inflate at 5%, you lose 1pt margin per year.
%
Dispatcher, parts manager, service-manager time allocated to the contract book. Often forgotten in the service margin calc. Typical: $200-600.
$
Money set aside for out-of-scope repairs you eat to keep the relationship. Best-in-class books a 2-4% reserve. If you don't, the surprise eats next year's margin.
%
The scope-creep problem. Service contracts written without crisp scope language drift over time. "Annual PM visit" becomes "any time anything goes wrong, you come fix it." Year-3 margin erosion on a service book is almost always scope creep, not pricing failure. The single most valuable contract clause is the one defining what's out of scope and billable separately.
STAGE 4 OF 5

Attach rate & renewal economics

The attach rate is the single most powerful number in this business. Moving from 25% to 60% attach roughly doubles 5-year customer value with no new field cost.

Of hardware customers, what share signs a service contract at point of sale. Equipment dealer typical: 35-55%. Best-in-class: 70%+. Most operators don't know their number — pull it from CRM.
%
What you think is achievable in 18-24 months with better sales scripts, bundled pricing at hardware quote, and incentive alignment for the sales team.
%
Used to NPV the future service cash flows. Cost-of-capital plus some risk margin. Default 10% reflects an operator's hurdle rate.
%
Length of customer LTV horizon. Default 5 captures initial term + first renewal. For long-life equipment, set to 8-10.
Extra sales effort to attach the service contract after hardware is sold. If bundled at point-of-sale, often near-zero. If sold separately by a service-sales rep, $400-1500.
$
STAGE 5 OF 5

Results — the real business

5-year customer LTV under three scenarios: hardware only, hardware + service at your current attach, hardware + service at target attach.

HERE, TRY THESE. THEY MAY HELP.

Service contract economics is one piece of the operating system.

The full hardware-plus-recurring-revenue playbook lives in two practitioner guides and roughly 70 free tools. Read the guides when you have an hour. Run the tools when you have a question. No forms, no gates, no follow-up calls.

CFO & Controller's Guide Business Operators Blueprint All free tools
Not financial / accounting advice. Operating economics vary by industry, region, contract structure, and customer mix. Use these as decision-support frameworks, not as substitutes for your CFO, controller, or operating partner's judgment.
WANT THE METHODOLOGY BEHIND THIS TOOL?
Read more in the CFO Guide.
The tool gives you the answer. The guide gives you the argument — the case law, the worked examples, the negotiation playbook, the cross-check tables, the exception cases.
The methodology behind this calculator is in CFO Guide + Business Operators Blueprint of the reference guide.
Read more in the CFO Guide → Browse all 22 guides
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