I was fortunate enough to be able to sit in on a couple of educational sessions I had handpicked as being among the most intriguing on the ISC West schedule. One was titled “Structural Challenges in Converting Product Companies and Product Offerings Into RMR” and featured Brian Lohse of Secure-i and ASG Security’s Bob Ryan.
One of the great things about the RMR model is it is a win-win for the company and the customer since the latter obtains products/services for a low upfront cost while the former winds up with at least three times the value. RMR is all about building incremental value for the business. They walked attendees through the three-step process of:
- developing an RMR model
- creating a sales model
- instilling an RMR cultural change
Lohse and Ryan pointed out how a project-based business and a perpetual business are entirely different propositions. In fact, they said owners/operators should look at the business as being an RMR enterprise rather than specifically security or anything else. The model should be based on four elements:
- properly structured contracts
- automatic payment
- fixed term with evergreen clause
- the ability to institute price increases
Not so coincidentally, those are also key factors both prospective buyers of the company and creditors look for as well.
Lohse and Ryan offered some formulas to help better illustrate RMR concepts. They said while it takes about $20 (products, labor, etc.) to create $1 of RMR, that $1 becomes worth $50. In other words, $100 RMR costs $2,000 but is worth $5,000. The Rate Creation Multiple (RCM) is an important metric that is calculated by determining the number of months required to pay off the cost of acquiring a customer. RCM variables are: equipment + labor + sales commission = direct job cost. And so the RCM formula is: direct job cost – customer installation charge = net investment / RMR = RCM (direct and excluding overhead that would yield fully loaded RCM).
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