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Selling Service Agreements & Other Recurring Revenue Options Jason Knott, CE Pro.

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Presentation on theme: "Selling Service Agreements & Other Recurring Revenue Options Jason Knott, CE Pro."— Presentation transcript:

1 Selling Service Agreements & Other Recurring Revenue Options Jason Knott, CE Pro

2 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)

3 Industry Benchmarks Small ESCs 4.1% Median Operating Profit 19.6% Median Discretionary Profit (including owners compensation) Larger ESCs 2.4% Median Operating Profit 11.8% Median Discretionary Profit – (including owners 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

4 Sound familiar?

5

6 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%

7 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

8 WHY Profit and Recurring Revenue Are Important Cash Flow Differentiation & Positioning Upselling Opportunity to Existing Customers Higher Customer Satisfaction Increased Company Valuation

9 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

10 Recurring Revenue Model Avg. Residential Monitoring Fee = $23/month Typical 3 rd 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

11 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!

12 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.

13 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

14 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

15 Entry-Level Home Automation Success Story SimpTech Solutions Florence, 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

16 DIY Security Success Story Front 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

17 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

18 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!

19 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.

20 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

21 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 Home Health Business Model

22 PERS Success Story Select Security, Lancaster, Pa. SelectCompanion Wireless home health wristband No monthly contract $0 installation cost $39.95/month

23 Digital Music Success Story Jamiesons 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

24 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 Dont Hide It… Put it Up on Your Website! Richardson, Texas

25 Digital Signage Success Story Audio Video Planners, Oakdale, Minn. Digital signage content creation: highly billable labor – Equipment = 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

26 Digital Signage Success Story Logic Integration, Centennial, Colo. Digital Signage in Car Washes Share ad revenue with car wash 50/50 Run ads for Logic Integration services 8,000 to 10,000 people per month in car wash $5K- $10K in ad revenue per year + new clients

27 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.

28 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 Dont 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

29 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

30 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.

31 Creative Sound & Integration, Scottsdale, AZ 2-tiered service plan Success Story

32 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)

33 IT/ Networking Success Story Audio Video Interiors Middleburg Heights, OH $100,000 in network service in first year Always replaces homeowners existing wireless network Bills annually Contract offers certain number of free service hours

34 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

35 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

36 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

37 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 Dont wait until after the installation to start discussing a service contract

38 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.

39 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

40 Are You Losing Money on Service Calls? Copyright © 2010 EH Publishing Inc. All content contained herein is the property of the respective creator.

41 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

42 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 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

43 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.

44 … 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.

45 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 dont 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.

46 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.

47 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.

48 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 Dont Handle Firmware Updates for Clients Crosstrain Technicians Only Do Warranty Claims You Get Paid For Maintain Product Consistency Wherever Possible

49 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.)

50 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.)

51 Sample Extended Service Contract Key clauses If we cant 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 owners manual instructions for individual components Programming and touchpanel graphics upgrades not included Travel costs are not included and will be billed separately

52 Thank you Jason Knott jknott@ehpub.com


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