Customer lifetime value (CLV) has been a standard business phrase for decades. In the simplest terms, it represents the cumulative financial value of a customer relationship from beginning to end. Quantifying it precisely can require some college-level mathematics. But understanding it in general is really not too difficult. 

Today, almost every type of industry holds itself out as being customer-oriented, so the idea of CLV fits right into current business dynamics. That said, we believe we have come up with a better way of reflecting the one-two combination of initial construction and subsequent service related to erecting and then maintaining a building or facility.

CLV versus FLV

We have coined—and are now promoting—what we believe to be a more apt expression when we talk about electrical service and maintenance: facility lifetime value (FLV). Here’s why.

From time to time, commercial buildings and other facilities may change hands. Their owners, and tenants, may come and go. But electrical systems remain. The challenge for an electrical contractor, therefore, is to continue as the incumbent service and maintenance provider. After all, who knows these systems better? 

By shifting the spotlight from CLV to FLV, we are also underscoring the likelihood that during the facility’s useful life, more than four times the dollar value of its original electrical construction contract will go to its electrical maintenance and improvements. 

Researchers have pegged the exact ratio at 83:17. For simplicity, we’ll just go with 4:1. If the original electrical construction contract was $1 million, over the useful life of the building, the total expenditure associated with service and maintenance of its electrical system could run $4 million, or more. 

There is an even more stunning statistic in this: since the profit margin for professionally managed electrical service and maintenance is routinely three times or more the profit margin in new construction, over the lifetime of a facility, the gross margin from its electrical service and maintenance might be a dozen times the gross margin from its original construction. 

The profit margins in manufacturers’ aftermarket services versus their initial factory production—typically 3:1—parallel the typical profit ratios of electrical contractors’ service activities versus their new construction work.

Like new construction, manufacturing is cyclical: it has its ups and downs. So, the opportunity to generate recurring revenues from aftermarket sales has become increasingly attractive to manufacturers. They have come to recognize that most businesses (and households) spend hundreds of millions of dollars each year on items they have already purchased. These manufacturers chant the mantra of “recurring revenues” as fervently as service contractors have been known to do.

For electrical contractors, the secret to achieving those scalable recurring revenues depends squarely on software specifically focused on opportunities for service and maintenance in customers’ facilities.

And that brings us back to the concept of FLV.

Bundled offerings

Electrical contractors that have built organizations with a healthy balance between new construction and service-related revenues understand the competitive advantage from that organizational strategy. At the right point in the construction schedule, they introduce their service team as a segue into an ongoing service/maintenance relationship. 

Conversely, at some future time, once they are confidently positioned in the facility, the service team can help tee up the construction team’s involvement in negotiated work opportunities. 

In essence, with a view toward the long-term revenue potential of whatever kind of project they may be sizing up, these contractors can approach prospective customers anticipating a “bundled offering,” combining new construction opportunities with those of the necessary service and maintenance, defining the potential FLV. 

Of course, every truly professional contractor has a duty to anticipate and serve the needs of their customers, who they would naturally prefer to keep forever. Placing your services at the center of those needs is the point here. By focusing on the FLV of the buildings or other assets involved, contractors will never lose sight of long-term potential in the strategic combination of construction and service. 

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