What is the one thing that a typical alarm dealer lives for besides a good rest after a hard day’s work? Here’s a hint: What is the foundation that all successful alarm companies are built on? If you said a big-dollar sale, you are only partially correct. The actual answer to this question is recurring monthly revenue (RMR), a topic you surely already know a thing or two about. But let’s expand our view of the ways in which you can increase your company’s RMR with service contracts.
Historically, RMR takes on several forms for progressive alarm companies. Probably the No. 1 source is central station monitoring, which applies to most security firms today. However, there are other revenue sources that should not be ignored, given their capacity to greatly add to your financial bottom line.
According to AFS Acquisition & Funding Services, the following are four reasons why security dealers and integrators need to expand their concept of recurring revenue:
- To increase the profitability of their company.
- To increase the value of their company.
- RMR allows alarm companies to pay particular attention to current trends, such as the Internet of Things (IoT) phenomenon.
- RMR allows owners to exit the business as profitably as possible.
“Focusing on service contract offerings sets your company apart by accenting what makes your solutions different and better than your local competitors,” says Brian Rockett, owner of business services firm Rockett Communications of Danvers, Mass.
RELATED: 6 Ways to Increase Your Service Contract Sales
Those who already produce monitoring- based RMR know the earning power this brings to the table, but do you fully appreciate the additional revenue potential that service contracts present? Let’s delve into how service contract offerings can help achieve larger base sales, as well as increase recurring revenue, margins, among other advantages.
Defining ‘Maintenance’ and ‘Service’
There are three basic RMR-oriented service contracts that alarm companies sell to new and existing clients. They are: 1) service only, 2) service with equipment and 3) service with equipment in addition to periodic inspections. A fourth type of service contract is available and it’s called a maintenance agreement, which is not exactly the same as a service contract.
A service contract, whether it includes routine inspections or not, is fairly straightforward and is based on the age of the system, how well it was cared for in the past, availability of parts, etc. This is especially important when taking over another alarm company’s account. In this case, it really pays to go visit the jobsite and review the entire system so you can get a good idea how much future work there might be in maintaining it in the years to come.
A service agreement is not the same thing as a maintenance contract. A maintenance contract is where the alarm company knows when the client’s system is not working and they take care of it on their own. A service contract is where the customer has to call us to tell us that there’s a problem, and then we go fix it.
“We don’t sell systems, we install, lease and monitor them,” says Gary Greenblott, president of security provider Alarmco of Las Vegas. “We don’t sell systems and walk away from them. We include service as an integral part of our contractual agreements.”
Tom Wilson, owner of Alarmco, further defined the differences between maintenance and service contracts: “In my opinion, a service agreement is not the same thing as a maintenance contract. A maintenance contract is where the alarm company knows when the client’s system is not working and they take care of it on their own,” he says. “A service contract is where the customer has to call us to tell us that there’s a problem, and then we go fix it.”
Unfortunately, there are still those alarm dealers whose involvement with a contract begin and end with the central monitoring station’s own subscriber agreement, which is not sufficient by itself to protect the alarm company that installs and/or monitors the system. Most companies do have an installation agreement that provides additional legal protection for the alarm company, but in many of them there is no provision for adding a service component to the RMR portion.
“We have spaces in our contracts that allow us to provide custom conditions. These spaces allow our salesmen to add routine service, with or without equipment, inspections, as well as preventative maintenance if needed,” says Greenblott. “We also offer runner service where we send one of our own security officers to investigate an alarm.”
Some alarm companies also work under a service agreement as a subcontractor for a large national, third-party corporation. A case in point involves subcontract work for companies like Checkpoint Systems, Scarsdale Security Systems and Vector Security.
“We work for companies like Interface, Vector, Securitas and Bass,” says John Collier, owner of WESCO Security Systems of Warner Robins, Ga. “Vector is my number one. I really like working with [their national sales division] as they are first class as far as I’m concerned.”
Collier says that one problem he’s run into with third-party contracts is that the company involved may not allow enough time to do certain types of services as well as inspections. Most of them, he says, stick to the conditions of the contract, so be sure the hourly rate offered is going to be enough to cover those unforeseen things that can come up.
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