selling service agreements & other recurring revenue options jason knott, ce pro

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

Service Call Data


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!


… 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


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


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!


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

Thank you

Jason [email protected]

selling service agreements & other recurring revenue options jason knott, ce pro

Documents

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month source

month typical

monitoring company

month patrol

month schlage

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