Service/Maintenance Survey

Typically, most sign companies make most of their money fabricating and installing new signs, but sign maintenance contributes significantly to the bottom line in both good and lean times. In good times, the sheer number of new sign projects produces a glut of service/maintenance work, and, in leaner times, repairs help maintain signs and also keep sign/service companies afloat.

Large-volume builders, auto dealers and shopping centers frequently hire or subcontract sign companies to fulfill long-term service contracts. Regional/national chains tend to use national service agencies, or large electrical contractors, instead of sign companies; thus, electric companies that provide service might seek work from local businesses, property-management companies and “mom-and-pop” stores.

The 54 companies that responded to our Service/Maintenance Survey thrived or endured during the economic downturn by increasingly turning to service work, pricing jobs more “competitively,” at a smaller margin, or even removing signs from failed businesses.

The downturn in the economy spurred ST to see if service/maintenance work had provided some ballast in the storm. Bill Dundas, ST’s former technical editor and now the International Sign Assn.’s director of technical and regulatory affairs, contributed his more than 20 years of sign-service work to reviewing, and adding to, the survey questionnaire.

Who answered
The questionnaire was emailed to 332 of the companies that advertise in ST’s Sign Erection and Maintenance Services Directory (SEMSD). Of the 54 that responded, 42 (78%) offer electric signs, 26 (62%) render maintenance/installation services, and eight (15%) produce non-electric signs. Nine (17%) specialize in maintenance/installation, and 10 (19%) provide maintenance and electric signs; six (11%) checked all three categories.

To compare variations, we sorted the 50 respondents’ sales volumes into four groups: 19 (38%) reported up to $1 million; 13 (26%), $1 million to $1,999,999; 11 (22%), $2 million to $2,999,999, and 7 (14%), $3 million and more. The majority (five of nine) that performed only maintenance/installation fell in the “up to a million” category, while none of the $3 million+ companies exclusively rely on maintenance/service.

Advertisement

One respondent said, “I checked both electric signs and maintenance because we do mainly wholesale installation/service work for national sign companies, although we still fabricate to a small extent. In the distant past, we were a wholesale fabrication shop, but eventually morphed into the present niche market.”

Sales and employees
Fifty respondents reported $86,683,000 total sales and averaged $1,733,660. Maintenance contributed $19,531,850, or 23%, to total income. An $11 million company, the highest sales volume reported, said maintenance contributed only 5%. Two, $6-million- sales-volume companies similarly recorded 5% and 15% maintenance percentages; the $3+ million group averaged an 8% maintenance contribution. The highest individual maintenance percentages, 95% and 90%, came from companies that focused on parking-lot lights and awnings, and both reported sales volumes under $1 million.

Fifty-two companies averaged 13.5 employees, with the median and mode both being 10. For 50 respondents, roughly 2.33 employees are dedicated to only maintenance/service.

Contract terms
The 52 companies that reported their maintenance-contract terms accept on-call (or, as needed) service contracts; 11 (21%) signed annual pacts, and 10 (19%) agreed to monthly terms. Four (8%) juggled all three, while 36 (69%) were on-call exclusively. One said the company offered two-year service contracts.

Most respondents’ contracts began according to customer specifications (21, 68%); while six (19%) listed various times and 4 (13%) began their contracts at the beginning of the year. Two of the six “others” said “after warranties,” one said “job date,” and another said “a year after the installation date.” However, 60% said they didn’t record the warranty-expiration date on their invoices. “But it might be a good idea,” one said. “My secretary is going to kill me.”

Tim Brosnahan, in his October 2001 “Nuts and Bolts” column (page 40), explained that, tradition¬ally, maintenance contracts begin 90 days after project completion, with the first three months covered by the warranty portion of manufacturing costs.

Advertisement

Estimates and pricing
Maintenance costs usually accelerate toward the end of a contract. However, most sign components (such as HO lamps, ballasts, neon tubes and transformers) last well beyond the usual, 60-month maintenance period, which calls for replacements and service calls.

After having serviced and repaired similar signs, sign compa¬nies can provide ballpark estimates of the repair cost without inspecting the sign. Most companies like to quote customers a flat-rate, inspection/estimate fee.

In addition to desired profit margins, hourly rates must include the total hourly cost of equipment and labor. So, companies estimate how much it costs per year for the equipment’s purchase, maintenance, insurance, licenses and fuel. Other cost factors include project difficulty, equipment, access, distance of travel, and per-diem, crew-travel expenses. Prime-cost overhead typically equals 35%, while gross-profit margin is typically 50% for maintenance work.

For the 49 companies who request estimates, 34 (69%) said they charge a flat rate, compared with 15 (31%) who don’t. Out of 51 respondents, only one, the sign company who reported the largest sales volume, didn’t charge by time and materials on sign-maintenance jobs.

One respondent said, “We don’t give free estimates on service. If someone calls about the cost of sign service, I can give them a ‘worst case’ estimate. I’ve been doing this for so long that I can almost ‘diagnose’ signs by what a customer tells me over the phone. LEDs, however, will change that for a while until I get more used to them.”

To cover the cost for lamps, ballasts and other electrical components, 27 (55%) said they charge cost plus a markup; 9 (18%) said keystone pricing (roughly double the cost); seven (14%) selected keystone pricing, plus labor and equipment; and six (12%) said they charge the list price. The markup averaged 35%, with the mode (the most frequently appearing number) being 30%. The under-a-million companies averaged the largest markup (45%), while the $3 million+ companies reported the lowest (22%).
One respondent said markup equaled cost plus 50 to 100% of cost, depending on the part. “Sometimes parts, such as wire nuts or wire, are at a higher markup, usually three to four times the price. Lamps [unless they’re a long lamp] are set at $12 each.”

Advertisement

When asked to rank (one being the highest, eight the lowest) the factors that determine a monthly maintenance rate for illuminated signs, 19 replied (from most to least important): size and type of signs; signage age and condition; number of transformers/ballasts; response-time requirements; extent of geographical area to be serviced; lighting components’ rated lifetimes; re-painting requirements; and requirements for scheduled cleanings (annually, bi-annually, etc.).

Vehicles
Could a maintenance/service company operate without a crane? Not according to the survey results – 48 of 52 respondents (92%) said they own a crane; 43 (83%) have bucket and pickup trucks; 25 (48%) own ladder trucks; and 15 (29%) have scissor lifts. Only five (9%) own all the vehicles listed, and 8 (15%) own, lease or rent all five. Scissor lifts were the only vehicle rented by three (6%).

EMCs
All companies surveyed, except two, service electronic message centers (EMCs). The two exceptions fell into the “under a million” category, and one exclusively maintains signs.

Types of companies that contract respondents are end users (33, or 69%), EMC manufacturers (30, or 63%), nationwide light-service companies (19, or 39%) and regional/local EMC distributors (12, or 25%).

Eight (16%) dealt with all four company types; seven (14%) contracted with only EMC manufac¬turers; 7 (14%) dealt with only the direct user; two (4%) dealt with only local distributors; and one (2%) signed with only national service companies. The most likely duos involve the EMC manufacturer and direct users (8%) and national service companies and direct users (4%).

Advertising and marketing
Because the survey targeted SEMSD advertisers, the ST directory unanimously tops the list of respondents’ advertising efforts. The Yellow Pages followed (68%), but has been undercut by the respondents’ websites (61%) and various industry websites (59%).
Thirty-one percent said they send out flyers. Only 7% advertise in other sign-industry magazines. Most diversify their marketing efforts. Other methods cited were word-of-mouth and mailing an offer just before one-year warranties expire.

One method of reaching a sign-maintenance customer is via nighttime lighting surveys. Sixty-nine percent said they performed “night patrols,” while 19% didn’t.
One, non-patrol respondent said, “We always take a walk around a mall after doing an installation and call any of our customers whose signs aren’t working properly.

Because many people primarily shop in malls, that has replaced the night patrol to some extent. I also keep an eye out when driving around at night. In the past, I sent people out at night, but it really wasn’t worth the effort since most everything is part of a chain any more.”

Economic Reflections
Out of the 45 that bravely reported how business fared compared to last year, 60% said it had declined, 37% said it remained the same and 2% (one company, actually) recorded an increase: “If this is a down year, bring it on.”
Here are the “down” comments, followed by a few “sames” and “ups”:
“Sign companies are going out of business. Customers are taking up to 120 days to pay.”
“People are slower to get anything done. We are removing lots of business signs.”
“I haven’t seen it this slow in 20 years.”
“Service work has almost stopped; customers don’t want to spend the money to repair a sign. They’ll just turn it off or do nothing.”
“Business is slow. It just started to pick up in May.”
“I’ve seen less service work. Customers are waiting longer to have their sign repaired.”
“This is the first time in 12 years we’ve slowed down. We’re pricing jobs more competitively at a smaller margin. We charge only one way for travel.”
“Customers who want maintenance also want a very low price. They’re reluctant to spend money because business is also struggling.”
“Many are holding back on service work to cut costs. There are fewer calls and a dramatic increase in payment terms.”
There’s a large reduction in the number of jobs. We’ve had layoffs and big pay cuts.”
“People are letting their signs go, because they don’t have the money to pay for the repairs.”
“Unless I want to low-ball my pricing, I can’t call around to the mom-and-pop stores to get their service work as much as we have in the past. Also, more stores [not the mom-and-pops] are part of a regional/national chain, and many use national service agencies instead of calling sign companies. I think this costs them more money in the long run, even if we’re sometimes paid to give an estimate on a repair. “For example, we often get a not-to-exceed [NTE] amount of roughly $150, and this isn’t enough to go out and do any more than change a single tube in a sign. We then write up an estimate to finish the repair, wait a week to get authorization and then go back. It’s actually making us more money, but is costing the customer in many cases, where we might be just over the NTE amount.”
“Sales have picked up, but sales for new signs are down.”
“Service and repair work helped us get through a hard winter.”
“We’re experiencing more service than normal, but customers who normally wouldn’t ask for costs are requesting quotes.”
“New construction has dried up, so maintenance is the most important part of our business now.”
“We slowed down briefly, but we’re back to normal.”
“Business was slow in the summer, as always, but we’re back to normal.”
“The economy has had a minimal impact, knock on wood.”
“Business has increased 20%. If these are bad times, bring it on.”