Every commercial mechanical or electrical contracting company has a hierarchy of attention, and it almost never matches the hierarchy of profit.
The $10 million new-construction win gets the press release, the kickoff meeting, the project manager, the war room. The $100,000 preventive maintenance contract gets handled quietly, by one person, folded into whatever else is on their plate that week. Nobody throws a party for a PM renewal.
Andrew Epp, an industry advisor at ServiceTitan who spent years in and around the trade — including four as a key operator at Kraun Electric — has watched that mismatch play out at the P&L level more times than he can count. He's seen a shop close $30 million in new construction and net only $1 million in profit some years. A leaner operation down the street runs $5 million in preventive maintenance contracts and nets the same dollar. Same profit. Six times less revenue required to get there.
"Preventative maintenance is not sexy at the end of the day," Epp said. But the math tells a different story.
Why the highest-margin work is the easiest to overlook
The reason PM contracts don't get celebrated isn't performance. It's visibility. A $10 million project shows up on a dashboard, a bid list, a company-wide announcement. A PM contract shows up as a line item, renewed automatically, managed by one coordinator, easy to lose track of in a spreadsheet full of much larger numbers.
"Why don't we celebrate this at all? Because it was invisible," Epp said. "The irony is that when you look at what actually matters — the profit — these smaller PM contracts consistently outperform."
That invisibility has a cost beyond internal recognition. A contract nobody is watching closely is a contract nobody is protecting, pricing correctly, or expanding. And the shops that have started running the actual numbers on service agreement profitability are finding a pattern: it's rarely the biggest contracts making the most money per dollar of revenue. It's the smallest ones that scale efficiently, priced right, and don't require a project team to deliver.
The valuation question hiding in your margin
For a CEO or CFO, the profitability of a service agreement book isn't just an operating detail. It shapes what the whole company is worth.
Private equity has been paying close attention to exactly this. Deal data compiled from FMI Capital Advisors' mechanical contracting benchmarks shows why: scaled platforms with recurring service revenue above 40% of total revenue command 9x to 11x adjusted EBITDA in current M&A activity, compared with roughly 6.5x to 8.5x for contractors below that threshold. Buyers aren't paying more because service revenue is nicer to have. They're paying more because it's predictable, it's sticky, and — as Epp's math shows — it often carries the better margin.
That means the answer to "which contracts make you money" isn't just an accounting exercise. For a company that might sell, recapitalize, or bring in outside capital in the next several years, it's one of the numbers a buyer will look at first.
The compounding problem: billing complexity grows with the book
There's a reason service agreement books don't scale as cleanly as they should. As the number of contracts grows, so does the complexity behind each one — different service level agreements, different billing cycles, different renewal terms, different equipment covered under each plan. Without a system tracking margin at the contract level, that complexity hides inside an aggregate number that looks healthy on the surface while individual contracts quietly lose money underneath it.
This is the same dynamic that shows up in billing more broadly across commercial contracting: complexity that compounds with scale, invisible until someone goes looking for it contract by contract instead of trusting the total.
Three questions worth asking before the next renewal cycle
What is the true margin on each service agreement tier, once labor, overhead, and truck time are allocated honestly — not just the revenue collected?
What percentage of total revenue is contracted and recurring, and how does that compare to the service-revenue mix buyers are currently paying premium multiples for?
If we could only keep 20% of our current contracts, which ones would we protect first — and does that list match where the sales team is currently spending its time?
The third question tends to be the most revealing. In most companies, it doesn't match.
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The math your org chart is missing
The $10 million project will always get attention. The real risk sits elsewhere: a service agreement book growing in size but not in visibility, profitable in aggregate, unexamined at the contract level, quietly shaping a valuation multiple nobody's watching closely enough.
For a CEO or CFO deciding where to look next: which contract, per dollar of revenue, is making the company money — and do current priorities reflect that?
