Presentation on theme: "Agenda Review 15 different ways to earn recurring monthly revenue (RMR)… not just alarms.. using “Success Stories” from actual CE pros Focus on Service."— Presentation transcript:
1Selling Service Agreements & Other Recurring Revenue Options Jason Knott, CE Pro
2AgendaReview 15 different ways to earn recurring monthly revenue (RMR)… not just alarms.. using “Success Stories” from actual CE prosFocus on Service AgreementsSample 2-tier Service Plan, Sample Service Contract (alarmcontracts.com)
3Industry Benchmarks Small ESCs 4.1% Median Operating Profit 19.6% Median Discretionary Profit (including owner’s compensation)Larger ESCs2.4% Median Operating Profit11.8% Median Discretionary Profit – (including owner’s compensation)Median Revenue Per Employee = $135,000Median Gross Profit Per Employee = $48,74085% Provide “Fixed Fee” Pricing; 15% T&MTargets: 50% gross margin on equipment & 50% gross margin on labor – Steve Firszt, Fast Forward Business CoachingSource: CEDIA 2012 Benchmarking Study
6RMR Data 25% of integrators = $0 in RMR Among CE pros who do offer RMR, it averages 8% of revenuesService contracts – 58% of dealers offerAlarms – 49%Home health – 11%
7Why CE pros Do Not Offer RMR? Lack of sales and service structure to sell recurring revenueIt just does not fit their business model/planThey are worried about liability and licensing issues related to security and aging-in-place systemsThey worry about collections issuesFear that subsidized installations will put further price pressure on the non-subsidized portion of their business, such as audio and video
8WHY Profit and Recurring Revenue Are Important Cash FlowDifferentiation & PositioningUpselling Opportunity to Existing CustomersHigher Customer SatisfactionIncreased Company Valuation
9Calculating Increased Value “Recurring revenue is important because it represents almost the entire value of your business.”– John Mack, Imperial CapitalExample 1 :500 security $30/month each = $15,000/monthAt sale of your 25x – 50x monthly revenue = $375,000 to $750,000 payoutCurrent multiple being paid is about 35X with variances based on # of accounts, consistency of equipment, etc.Example 2:500 Warranty service $8/month each = $4,000/monthAt 12x monthly revenue = $48,000 payout
10Recurring Revenue Model Avg. Residential Monitoring Fee = $23/monthTypical 3rd Party Central Station Residential Monitoring Fee = $6/month (some advertise as little as $1.50/month dealer cost)Dealer Profit per Account = $17/monthI am going to run through several recurring revenue business models First – security and first lets go through some background. Here is basic data on what the market is built on financially. This is why so many companies can get bank funding and offer subsidized installations.Source: Security Sales & Integration
11Other 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 costIP Camera Remote Image Storage = $20-$25 per camera/month (12% of all video surveillance cameras are now installed residentially)Medical Alert = $28/monthPatrol = $50/monthAccess Control (MDUs) = $5 per door/month?Deadbolt Monitoring = $12.95/month (Schlage, B&D)RMR can keep adding up.Bottom Line… $50/month is not unrealistic for monitoring a residential security account!
12Alarm Monitoring Success Story American Alarm, Arlington, MA2009 vs. 21022012: $865K/RMR; 16,000 accts.; 159 employees ($159K/emp.); $24.5M rev.2009: New installs down 30%2009: Revenue down $2M2009: 17,000 accts.; $800,000/RMR; $23M rev.;140 employees ($165K/emp.)Cash flow.Recurring revenue helps sustain a company during market fluctuations. They have lost 1,000 accounts in 3 years but increased RMR by $1.5M.
13Ankle Bracelet Monitoring Success Story Moon Security, Pasco/Kirkland, WAAnkle Bracelet Monitoring for Alcohol/House ArrestTook over monitoring from CityRecurring Daily Revenue - Client pays daily rate of $17 - $18 per dayFrom $8K-$12K/month to $100K-$200K/monthSaving city $250K/monthiSecureTracPhoto fabrication
14Entry Level Home Automation Success Story Vivint -- sold for $2 Billion last year673,000 accounts #3 on SDM 100; #3 on CE Pro 100$130 million in residential installation revenue in 2012Sells 3 Home Automation Packages2008 =$9.9M in RMR; 2012 = $27.8M in RMRTotal revenues = $397M in 2012Subsidized installation with 2-year breakevenAvg. alarm client keeps same monitoring company 11 yearsBoosted RMR by adding solar, pet monitoring, tornado warnings and home automation
15Entry-Level Home Automation Success Story SimpTech SolutionsFlorence, KYBefore: 6-men, $20K-$25K avg. jobNow: 2-man shop = $8K-$10K rangeUsing 2Gig Go!Control panel$2500 security installs, $60/month monitoring via Alarm.com
16DIY Security Success Story Front Point SecurityMcLean, 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 contractCameras sold separately for $180-$400; Z-wave lighting modules = $50/each; keypads = $80; touchscreen = $140Typical upsell = $200 to $350 per client
17Cellular 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
18Fire Extinguisher Monitoring Success Story Select SecurityLancaster, Pa.Fire extinguishers need to be inspectedBought a fire extinguisher company and converting them to monthly contracts vs. billing clients after every inspection… all about cash flow!
19Remote 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 CommunicationsTo ease bandwidth concerns: H.264 compression – 3 frames per second transmissionOnsite – recording done to HD storage DVR at 30 frames per second if client wants it.Bob Ryan, sr. vp of sales/marketing
20Success Story: Concierge Service Concierge Direct,New York CityCreated 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
21Home Health Business Model SimplyHomeNorth CarolinaSince 2003Apts./condos housing people with disabilitiesOn-call staff are notified via text, , phone calls, and a speaker in their office of various events throughout a complexI promised one business model that didn’t work in the title of this webinar. Home health might be it.Home health has become a tough business model but here is one that works, because they are targeting facilities, not individual homeowners.21
22PERS Success Story Select Security, Lancaster, Pa. SelectCompanion Wireless home health wristbandNo monthly contract$0 installation cost$39.95/month
23Digital Music Success Story Jamieson’’s AV – Toledo, OhioEarns recurring revenue by creating a subscription service whereby monthly Sonos clients gets list of cool new Internet radio stations to add to their systems
24Calibration Success Story Richardson, TexasAcoustics engineering and video calibrationPlasma and LCD panels, Direct view (tube) TVs, and computer monitors: $300Rear projection TVs (DLP, LCD & LCOS): $300Projectors (DLP, LCD & LCOS): $350Rear projection (CRT), and Projectors (CRT): Call for quoteDon’t Hide It… Put it Up on Your Website!
25Digital Signage Success Story Audio Video Planners, Oakdale, Minn.Digital signage content creation: highly billable laborEquipment = 33% (no margin on flat panels; high margin on servers, mounts)Installation Labor = 33%Software/content programming/training labor = 33% (sequencing/rotation changes every avg. of 15 seconds)Monitoring/maintenance contracts are required to maintain content quality (cost varies on # of displays, locations, etc.)AVP sells “content packages” in 10, 20, 30-hour increments
26Digital Signage Success Story Logic Integration, Centennial, Colo.Digital Signage in Car WashesShare ad revenue with car wash 50/50Run ads for Logic Integration services8,000 to 10,000 people per month in car wash$5K- $10K in ad revenue per year + new clients
27Residential Sprinklers Sept 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 statesFYI: adds $2-$12 per square ft. (builder cost)Opportunity?Integrate with alarms and security alertsTeam with local fire-protection servicesAdditional monitoring fees for entry/exit reports, waterflow device activation, /cell phone alerts, wet systems water backup signals, etc.
28VoIP Phone ServiceOnly 38% of integrators install digital phone systemsOnSIP – 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/monthNo long-term contract signed by client, month to monthSales technique “Don’t you want to get rid of Verizon?” Everyone loves to hate the phone companyLess 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
29Service Agreement Data 59% of integrators offer Service Agreements17% of clients actually buy Service Agreements85% of service calls are not covered by a service agreement69% of integrators say they earn a profit on their service8% of service calls are handled remotely
30Service 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.
31Success Story Creative Sound & Integration, Scottsdale, AZ 2-tiered service plan
32IT 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)
33IT/ Networking Success Story Audio Video InteriorsMiddleburg Heights, OH$100,000 in network service in first yearAlways replaces homeowner’s existing wireless networkBills annuallyContract offers certain number of “free” service hoursI could have used AVI as an example of a successful move into commercial also, but let’s just talk about what they’ve done to get into networking and service contracts. Like a lot of dealers, they now LEAD with the network in the sales discussion.
34Remote System Status Monitoring Manufacturers: Ihiji, CytexOne, Certified Cyber Solutions, Nuage Nine, eServices/VaranSingle “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 monthTypical HT w/ 5 components = $15/month or $180 per job per year@ 30 jobs per year = $5,400 per year
35Remote Service Success Story Fusion Audio and VideoGreenville, SCStarted charging $15/month to clients for BlueBOLT monitoring for time to re-boot systems remotely, etc… nearly 100% acceptance rateStarted security several years ago after partnering for many years… now built up to several hundred accounts
36Remote Status Success Story Home Theater Design GroupAddison, TexasHusband/wife owners; 6-person companyService is disruptiveRely heavily on BlueBOLT connection to every system – Required part of every installationNo response time guarantee; clients seem OK with it since the system detects problems before they do
37Tips for Selling Service Agreements Try to sell one for every installMake it easy for customers to see the cost of adding a service contractMake 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 renewalsSend reminders to clients when contract is due to expireExplain the bottom line costs with and without a service contractDon’t wait until after the installation to start discussing a service contract
48Keys to Profitable Service Go 24/7/365 = Are you willing to do it?Institute Remote Managed ServiceOutsource ServiceSet Geographic BoundariesAdopt “Mission Critical” Systems – burg, fire, CCTV, ITLimit Sales Department PromisesDon’t Handle Firmware Updates for ClientsCrosstrain TechniciansOnly Do Warranty Claims You Get Paid ForMaintain Product Consistency Wherever PossibleWith all the data as a background.. What are some of the keys to profitable service. This is data derived from various integrators who responded to the survey,First – if you really want people to pay for service or service contracts, you can move to a 24/7/365 response time. It means your service staff is on call. Most clients aren’t willing to do it for A/V however. “I will just watch another TV until you get here. “That means you have to adopt “Mission Criitical” types of systems for your service – that means security – but today – just as important – internet networking and IT repair. People are not willing to go without Web connections for any significant time.Remote managed service – Mike – devices that monitor, diagnose, repair and produce reports for everything in the home – not only allow you to skip rolling a truck, but give technicians a better idea of what exactly the problem is before they go, meaning the on-site service call is faster.Outsource – there are companies that for a one-time annual service fee will cover the service of certain equipment you have installed. In some cases, that fee is less than your cost for one mulitisite service call. Well worth it. The big drawback – you are letting another contractor meet your client. I have also heard that some dealers avoid third party service because they have jerryrigged their systems so much that they don’t want someone else to see it.Set Geographic boundaries --
49Keys to Profitable Service (cont.) Incentivize Technicians to Upsell/UpgradeStock Replacement Parts on All VehiclesAnticipate Replacement Parts based on System Type and Customer CallSolicit Preventive Maintenance Agreement (test and inspection) on All Service CallsPrioritize Calls by “Emergencies” First – Send closest technician. Avoid the “Throw out the schedule for the day” syndromeEstablish a “Floating” Technician/Helper Position to Assist on 2-Man Service Calls
50Keys 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 windowAlways Document: “What You Found, What You Did, Time on Call, Parts Used/Replaced” – Never get caught “Not doing anything” on the callEstablish Strict Service Charge Policy that includes Payment for Travel Time from “Shop to Job” or “Job to Job” – Train technicians on your pricingTrain and Promote a “One Trip Fix” system
51Sample Extended Service Contract Key clausesIf we can’t service it, we will replace it; we have the right to replace the unit with a comparable unitThe service cost on a single piece of equipment will never exceed the original purchase price of that componentTampering with the system by someone voids the agreement; client must follow owner’s manual instructions for individual componentsProgramming and touchpanel graphics upgrades not includedTravel costs are not included and will be billed separately