Transcript Ways to Earn Recurring Monthly Revenue & Service

Selling Service Agreements & Other
Recurring Revenue Options
Jason Knott, CE Pro
Agenda
• Review 15 different ways to earn recurring
monthly revenue (RMR)… not just alarms..
using “Success Stories” from actual CE pros
• Focus on Service Agreements
• Sample 2-tier Service Plan, Sample Service
Contract (alarmcontracts.com)
Industry Benchmarks
Small ESCs
4.1% Median Operating Profit
19.6% Median Discretionary Profit (including owner’s compensation)
Larger ESCs
2.4% Median Operating Profit
11.8% Median Discretionary Profit – (including owner’s compensation)
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Median Revenue Per Employee = $135,000
Median Gross Profit Per Employee = $48,740
85% Provide “Fixed Fee” Pricing; 15% T&M
Targets: 50% gross margin on equipment & 50% gross margin on
labor – Steve Firszt, Fast Forward Business Coaching
Source: CEDIA 2012 Benchmarking Study
Sound
familiar?
RMR Data
• 25% of integrators = $0 in RMR
• Among CE pros who do offer RMR, it averages
8% of revenues
• Service contracts – 58% of dealers offer
• Alarms – 49%
• Home health – 11%
Why CE pros Do Not Offer RMR?
• Lack of sales and service structure to sell recurring
revenue
• It just does not fit their business model/plan
• They are worried about liability and licensing issues
related to security and aging-in-place systems
• They worry about collections issues
• Fear that subsidized installations will put further
price pressure on the non-subsidized portion of their
business, such as audio and video
WHY Profit and Recurring Revenue Are
Important
• Cash Flow
• Differentiation & Positioning
• Upselling Opportunity to Existing Customers
• Higher Customer Satisfaction
• Increased Company Valuation
Calculating Increased Value
“Recurring revenue is important because it represents almost the
entire value of your business.”
– John Mack, Imperial Capital
Example 1 :
• 500 security accounts @ $30/month each = $15,000/month
• At sale of your company @ 25x – 50x monthly revenue =
$375,000 to $750,000 payout
• Current multiple being paid is about 35X with variances based
on # of accounts, consistency of equipment, etc.
Example 2:
• 500 Warranty service contracts @ $8/month each =
$4,000/month
• At sale, @ 12x monthly revenue = $48,000 payout
Recurring Revenue Model
• Avg. Residential Monitoring
Fee = $23/month
• Typical 3rd Party Central
Station Residential Monitoring
Fee = $6/month (some advertise
as little as $1.50/month dealer
cost)
• Dealer Profit per Account =
$17/month
Source: Security Sales & Integration
Other Security Monitoring Add-ons
• Latchkey Kid Notification = $5 to $7/month (with a monthly Open/Close
Report)
• Backup Transmission/Line-Cut Protection = $16/month (long-range radio
or cellular)
• Annual Inspection/Equipment Warranty = 6% of total system cost
• IP Camera Remote Image Storage = $20-$25 per camera/month (12% of
all video surveillance cameras are now installed residentially)
• Medical Alert = $28/month
• Patrol = $50/month
• Access Control (MDUs) = $5 per door/month?
• Deadbolt Monitoring = $12.95/month (Schlage, B&D)
Bottom Line… $50/month is not unrealistic for
monitoring a residential security account!
Alarm Monitoring Success Story
American Alarm, Arlington, MA
2009 vs. 2102
• 2012: $865K/RMR; 16,000 accts.; 159
employees ($159K/emp.); $24.5M rev.
• 2009: New installs down 30%
• 2009: Revenue down $2M
• 2009: 17,000 accts.; $800,000/RMR;
$23M rev.;
• 140 employees ($165K/emp.)
Recurring revenue helps sustain a company during market fluctuations.
They have lost 1,000 accounts in 3 years but increased RMR by $1.5M.
Ankle Bracelet Monitoring Success Story
Moon Security, Pasco/Kirkland, WA
• Ankle Bracelet Monitoring for
Alcohol/House ArrestTook over
monitoring from City
• Recurring Daily Revenue - Client pays
daily rate of $17 - $18 per day
• From $8K-$12K/month to
$100K-$200K/month
• Saving city $250K/month
• iSecureTrac
Photo fabrication
Entry Level Home Automation Success Story
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Vivint -- sold for $2 Billion last year
673,000 accounts #3 on SDM 100; #3 on CE Pro 100
$130 million in residential installation revenue in 2012
Sells 3 Home Automation Packages
2008 =$9.9M in RMR; 2012 = $27.8M in RMR
Total revenues = $397M in 2012
Subsidized installation with 2-year breakeven
Avg. alarm client keeps same monitoring company 11 years
Boosted RMR by adding solar, pet monitoring, tornado
warnings and home automation
Entry-Level Home Automation
Success Story
SimpTech Solutions
Florence, KY
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Before: 6-men, $20K-$25K avg. job
Now: 2-man shop = $8K-$10K range
Using 2Gig Go!Control panel
$2500 security installs, $60/month monitoring
via Alarm.com
DIY Security Success Story
Front Point Security
McLean, Va.
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3 “Easy Install” options – self install by client
$35 to $50/month monitoring
$100 to buy system with 3-year monitoring deal
$375 to buy system with one-year contract
Cameras sold separately for $180-$400; Z-wave
lighting modules = $50/each; keypads = $80;
touchscreen = $140
• Typical upsell = $200 to $350 per client
Cellular Conversion Success Story
Craig Metzger,
GuardMe Security,
Old Bridge, NJ
Before: Earned $23/month for alarm
monitoring only
Now: Earns $34.95/month for alarm
monitoring + $32.95/month for IP cameras
using Honeywell Total Connect = Earns
$67.90 per month (most of it profit minus 3rd
party monitoring costs)
--Also converting commercial accounts
Fire Extinguisher Monitoring Success Story
Select Security
Lancaster, Pa.
Fire extinguishers need to
be inspected
Bought a fire extinguisher
company and converting
them to monthly
contracts vs. billing clients
after every inspection…
all about cash flow!
Remote IP Video Surveillance Storage
ASG Security
Beltsville, Md.
•Hosting IP video – no DVR on-site
•“Fresh and exciting. We have it all to
ourselves”
•Produces RMR from CCTV on a per-camera
basis – routinely $20 to $25 per month per
camera, according to Axis Communications
•To ease bandwidth concerns: H.264
compression – 3 frames per second
transmission
•Onsite – recording done to HD storage DVR
at 30 frames per second if client wants it.
Success Story: Concierge Service
Concierge Direct,
New York City
• Created full concierge service
(dog walking, restaurant
reservations, dry cleaning,
personal shopping, etc.)
• Started with The Plaza
• $25/door just for the right to
access the service + the cost of
the service with a mark-up
• www.cdi247.com
Home Health Business Model
SimplyHome
North Carolina
• Since 2003
• Apts./condos housing
people with disabilities
• On-call staff are notified
via text, email, phone calls,
and a speaker in their
office of various events
throughout a complex
PERS Success
Story
Select Security,
Lancaster, Pa.
SelectCompanion
•Wireless home health
wristband
•No monthly contract
•$0 installation cost
•$39.95/month
Digital Music Success Story
Jamieson’’s AV – Toledo, Ohio
• Earns recurring revenue by
creating a subscription
service whereby monthly
Sonos clients gets list of cool
new Internet radio stations
to add to their systems
Calibration Success Story
Richardson, Texas
• Acoustics engineering and video calibration
• Plasma and LCD panels, Direct view (tube) TVs, and
computer monitors: $300
• Rear projection TVs (DLP, LCD & LCOS): $300
• Projectors (DLP, LCD & LCOS): $350
• Rear projection (CRT), and Projectors (CRT): Call for
quote
Don’t Hide It… Put it Up on Your Website!
Residential Sprinklers
• Sept. 2008 ICC – Sprinklers in all new homes and
townhouses (Code RB64)
• To take effect in 2009 as part of new International
Residential Code (IRC)
• IRC used by 46 states
• FYI: adds $2-$12 per square ft. (builder cost)
• Opportunity?
– Integrate with alarms and security alerts
– Team with local fire-protection services
– Additional monitoring fees for entry/exit reports,
waterflow device activation, email/cell phone alerts, wet
systems water backup signals, etc.
VoIP Phone Service
• Only 38% of integrators install digital phone systems
• OnSIP – Partnered with Panasonic (80% marketshare)
• Up to 20% of monthly phone service fee to the
integrator
• ‘Flat pay’ program (not based on individual seats) =
$50/month, so integrator gets $10/month
• No long-term contract signed by client, month to
month
• Sales technique “Don’t you want to get rid of
Verizon?” Everyone loves to hate the phone company
• Less upfront revenue -- $100/phone vs. $50,000
installation but opens up digital phone installation
market to new clients who may not have bought a
more expensive option
Service Agreement Data
• 59% of integrators offer Service Agreements
• 17% of clients actually buy Service
Agreements
• 85% of service calls are not covered by a
service agreement
• 69% of integrators say they earn a profit on
their service
• 8% of service calls are handled remotely
Service Department Profile
2 -- Median number of technicians per company
that handle service (dedicated and nondedicated)
$83/hour – Avg. service rate charged by CE pros
$15.80/hour – Avg. wage for entry level technician
$27.30/hour – Avg. wage for service technician
$1,000 – Median parts inventory kept by CE pros
$7,500 – Avg. tool investment for service dept.
Success
Story
Creative
Sound &
Integration,
Scottsdale, AZ
2-tiered
service plan
IT Service Plan Success Story
Logic Integration,
Englewood, Colo.
• Extended Service contracts
(covers VPNs, NAS devices,
LANs + A/V, cleaning
service for equipment,
calibration)
• 5% of total system cost
(10% discount on labor for
any upgrades)
IT/ Networking Success Story
Audio Video Interiors
Middleburg Heights, OH
• $100,000 in network service in first
year
• Always replaces homeowner’s
existing wireless network
• Bills annually
• Contract offers certain number of
“free” service hours
Remote System Status Monitoring
• Manufacturers: Ihiji, CytexOne, Certified Cyber Solutions,
Nuage Nine, eServices/Varan
• Single “black box” component that monitors all devices in a
home theater are plugged in to. Device monitors the status of
every component in the HT and sends communication to
dealer w/ system failures/warnings placed in daily dashboard
for dealers (lamp life, overheating, etc.)
• $2 to $3 per device per month
• Typical HT w/ 5 components = $15/month or $180 per job per
year
• @ 30 jobs per year = $5,400 per year
Remote Service Success Story
Fusion Audio and Video
Greenville, SC
• Started charging $15/month
to clients for BlueBOLT
monitoring for time to re-boot
systems remotely, etc… nearly
100% acceptance rate
• Started security several years
ago after partnering for many
years… now built up to several
hundred accounts
Remote Status Success Story
Home Theater Design Group
Addison, Texas
• Husband/wife owners; 6-person
company
• Service is disruptive
• Rely heavily on BlueBOLT
connection to every system –
Required part of every installation
• No response time guarantee; clients
seem OK with it since the system
detects problems before they do
Tips for Selling Service Agreements
• Try to sell one for every install
• Make it easy for customers to see the cost of adding a service contract
• Make the contract scalable… maybe just the theater room and not other
rooms?
• Allow sales reps and key service technicians to sell service contracts, pay
them commission for renewals
• Send reminders to clients when contract is due to expire
• Explain the bottom line costs with and without a service contract
• Don’t wait until after the installation to start discussing a service contract
Service Call Data
Are You Losing Money on Service Calls?
Copyright © 2010 EH Publishing Inc. All
content contained herein is the property
of the respective creator.
Service Call Data
Are You Losing Money on Service Calls?
Copyright © 2010 EH Publishing Inc. All
content contained herein is the property
of the respective creator.
Service Call Data
Are You Losing Money on Service Calls?
Copyright © 2010 EH Publishing Inc. All
content contained herein is the property
of the respective creator.
Service Call Data
Are You Losing Money on Service Calls?
Copyright © 2010 EH Publishing Inc. All
content contained herein is the property
of the respective creator.
Service Call Data
Most Frequent Products That Need Repair
1. A/V Components
2. Interfaces
3. Home Networks
4. Control Systems Programming
5. Security/Surveillance Systems
6. Media Servers
7. Lighting Control
8. Flat Panel TVs
9. Wiring/Cable
10.Telephone/Intercom
Are You Losing Money on Service Calls?
Copyright © 2010 EH Publishing Inc. All content contained
herein is the property of the respective creator.
Why Most Dealers Think their Service
Department Is Profitable
Typical Service Call : 30 minutes on the job site … loose cable,
cable box reboot, or tripped power conditioner
Technician Cost = $13.50 (based on $27/hour wage)
Charge Hourly to Customer = $83/hour (bill only in one-hour
increments)
Profit = $55.50
If every service call was like this… it would mean a
handsome profit!
Are You Losing Money on Service Calls?
Copyright © 2010 EH Publishing Inc. All
content contained herein is the property
of the respective creator.
… But What About Travel Time or Lost
Productivity
Typical Service Call : 30 minutes on job. 30 minutes travel (15
minutes each way)
Technician Cost = $27.00
1 Hour Lost Productivity on Another Job (that you cannot bill
the other client for) = $70
Charge Hourly to Service Customer = $83/hour
Your total Cost = $97
Loss = -$14
Are You Losing Money on Service Calls?
Copyright © 2010 EH Publishing Inc. All
content contained herein is the property
of the respective creator.
And Even Worse…
Difficult Service Call : 1 hour on job. 30 minutes travel (15
minutes each way)
Technician Cost = $40.50
1 Hour Lost Productivity on Another Job (that you don’t bill
other client for @ $70/hour) = $140
Charge Hourly to Service Customer = $83/hour
Your total Cost = $180.50
Loss = -$97.50
Are You Losing Money on Service Calls?
Copyright © 2010 EH Publishing Inc. All
content contained herein is the property
of the respective creator.
And Even Worse…
Nightmare Warrantied Flat Panel Replacement Service Call : 4
hours on job over 3 visits (diagnosis, replacement unit installation,
repaired unit re-installed) + 60 minutes travel
Technician(s) Cost = $510.00 (9 hours for one tech + 2 hours for a
second @$12/hour)
Lost Productivity on Another Job (that you cannot bill the other client
for) = $770
Inventory Cost for Repackaging/Handling/Loading Repair Unit =
$15 (one hour)
Charge Hourly to Service Customer = $0
Your Total Loss = -$1,295
Are You Losing Money on Service Calls?
Copyright © 2010 EH Publishing Inc. All
content contained herein is the property
of the respective creator.
Do the Math!
Just one nightmare job eliminates the profit
on 23 “smooth” profitable jobs!
Are You Losing Money on Service Calls?
Copyright © 2010 EH Publishing Inc. All
content contained herein is the property
of the respective creator.
Keys to Profitable Service
• Go 24/7/365 = Are you willing to do it?
• Institute Remote Managed Service
• Outsource Service
• Set Geographic Boundaries
• Adopt “Mission Critical” Systems – burg, fire, CCTV, IT
• Limit Sales Department Promises
• Don’t Handle Firmware Updates for Clients
• Crosstrain Technicians
• Only Do Warranty Claims You Get Paid For
• Maintain Product Consistency Wherever Possible
Keys to Profitable Service (cont.)
• Incentivize Technicians to Upsell/Upgrade
• Stock Replacement Parts on All Vehicles
• Anticipate Replacement Parts based on System Type and
Customer Call
• Solicit Preventive Maintenance Agreement (test and inspection)
on All Service Calls
• Prioritize Calls by “Emergencies” First – Send closest technician.
Avoid the “Throw out the schedule for the day” syndrome
• Establish a “Floating” Technician/Helper Position to Assist on 2Man Service Calls
Keys to Profitable Service (cont.)
• Provide Two-Hour Service Windows (technician calls customer if he
misses window)
• Policy Guideline: Set a 20-minute “Decision Time” by Technician to
Determine if He Can Repair the System within Allotted Time – If not,
leave and set up new, longer service window
• Always Document: “What You Found, What You Did, Time on Call,
Parts Used/Replaced” – Never get caught “Not doing anything” on the
call
• Establish Strict Service Charge Policy that includes Payment for
Travel Time from “Shop to Job” or “Job to Job” – Train technicians on
your pricing
• Train and Promote a “One Trip Fix” system
Sample Extended Service Contract
Key clauses
• If we can’t service it, we will replace it; we have the right to replace
the unit with a comparable unit
• The service cost on a single piece of equipment will never exceed
the original purchase price of that component
• Tampering with the system by someone voids the agreement; client
must follow owner’s manual instructions for individual components
• Programming and touchpanel graphics upgrades not included
• Travel costs are not included and will be billed separately
Thank you
Jason Knott
[email protected]