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 BenchmarksSmall ESCs4.1% Median Operating Profit19.6% Median Discretionary Profit (including owner’s compensation)Larger ESCs2.4% Median Operating Profit 11.8% Median Discretionary Profit – (including owner’s compensation)
• 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/monthSource: 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 StoryAmerican Alarm, Arlington, MA2009 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
• 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 SolutionsFlorence, KY• 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 StoryFront Point Security McLean, Va.• 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 SecurityLancaster, 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 SecurityBeltsville, 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 ServiceConcierge 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
SimplyHomeNorth 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
Home Health Business Model
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
• 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!
Richardson, Texas
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 non-dedicated)
$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.
Creative Sound & Integration, Scottsdale, AZ
2-tiered service plan
Success Story
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 StoryAudio Video InteriorsMiddleburg 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 StoryFusion Audio and VideoGreenville, 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 StoryHome Theater Design GroupAddison, 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.
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
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.
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
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.
Most Frequent Products That Need Repair
1. A/V Components2. Interfaces3. Home Networks4. Control Systems Programming5. Security/Surveillance Systems6. Media Servers7. Lighting Control8. Flat Panel TVs9. Wiring/Cable10.Telephone/Intercom
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 = -$1,295Are 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
• 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 2-Man
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
Keys to Profitable Service (cont.)
Sample Extended Service ContractKey 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