The February issue of SECURITY SALES & INTEGRATION includes the feature article “Service With a Recurring Revenue Smile,” which addresses how to successfully incorporate service and maintenance agreements into an installing company’s portfolio. One of the sources cited in the piece was Mike Vertolli, CEO of Vineland, N.J.-based ComTec Systems.
Vertolli, who joined the company as a member of its technical engineering team in 1989, offers a unique perspective for electronic security professionals since his firm began in telecommunications and expanded its success there into IT and security. Following is the second of a two-part Under Surveillance interview in which Vertolli talks about how he is extending what he learned in those allied fields into security and the great opportunities he sees.
When it comes to service and maintenance agreements, is that an area that’s been growing for your company or did you cultivate it all along? What’s been the pattern in that particular area?
Mike Vertolli: Really, we’re actually a unique company because we didn’t grow up in the industry as a security firm. We actually originated as a telecommunications firm. Telecom is a very standard procedure to have maintenance agreements. Maintenance agreements normally cover the cost of having our engineers available and also free software upgrades and customer service, so it was a little bit more than actually the typical gist of maintained goods and services under a given agreement. As the company grew, we grew into an IT division and a security division. As we advanced our security division, we said, ‘What were some of the successful things that we did in growing our telecommunications division?’ And that was having building customer loyalty, having a reason customers could reach out to us at any given point and us feel it was not only worth our time but was something they had already paid for.
Out of the systems you are deploying and the customer partnerships you’re striking up, roughly what percentage of those are going ahead with ongoing service maintenance contracts?
If I had to give a percentage, I would probably say 80 percent of our customers are selecting a form of a maintenance agreement. There is always a small few that only put the application in as a reactive approach to something that may happen. But for the customers who have taken security seriously, and the larger customers, the ratio of selecting some form of service agreement rises dramatically.
For those that don’t, do you go back and try to get them after the fact?
Yeah. Historically, and this is with any and every part of our verticals that we support and every technology initiative that we install, the biggest issue when people don’t have a maintenance agreement is they haven’t quite budgeted for the potential costs associated with not having one. If a DVR goes down they might not have $4,000 or $5,000 in an account to repair it. If it is repairable, there is always the discussion of who is going to put something in temporarily and the cost associated with that. During troubleshooting, it can get very expensive with labor. What we always talk about is not if a problem will occur, and that’s regardless of brand, it’s when it will occur. When it occurs, are you prepared? We want to get ahead of the curve and make sure we always have a proactive, positive relationship, so we’re upfront addressing the things that will happen. Having some sort of support agreement in place makes sense for both parties. For me running a company, I want to make sure I have ample number of technicians servicing accounts, ample number of parts in stock to get them back up and running, and a customer service department in place that knows their position is to make sure we’re a positive reinforcement to whatever our customers need.
Do you specifically create or have any marketing initiatives in this area or do you just have your representatives discuss it with them? Do you actively market service maintenance?
We’re always actively marketing the company through a number of ways in new construction and with architectural and engineering firms. We might be a value-add to them so they can offer their customers the best possible solution in a new environment. But we’re also marketing to our existing customer base and talking about what types of technologies are available. In another side of the company that deals with government, we’re talking to agencies and local municipalities about some of the applications and how they can support the community.
You must have some problematic accounts that are especially demanding. If you have this contract with them, I would think you would feel somewhat beholden to them no matter what the demands. Have encountered that? If so, how do you manage it?
Sure. That counts for most of our larger customers. Most of our larger customers sort of reach that pinnacle in our business where it goes from being an application that runs on their network to an application that runs their company. And the people that have security applications that run their company, they are much more demanding than a typical company. So if there is not an opportunity for systems to go down, proactively we talk about redundancy; we talk about support; we talk about opening up ports to their network. A big part of having demanding companies is recognizing it upfront and proactively setting up the redundant things that will satisfy them. That may include storage applications that we have here, where we remotely store some of their video footage for X amount of days. We actually have a system set up here that we can log in and see whatever they are seeing on their monitor screens to maybe help them or walk them through, creating a new tour or downloading information. We have spare equipment in stock. We make sure that if there is a critical piece of component that may go down or may be defective we either have in stock or it’s something that is readily available.
What about managing your service calls when you actually have to go onsite? What is your objective in terms of responsiveness and turnaround time? How do you manage that and give fast response and service?
Response to us is not physically being on the site. We tell our customers we offer a response time, usually reflective of their contract. Our No. 1 step would be to remotely log in and see what issues are taking place. For the most part, we can log in to any site and diagnose DVR problems, upload software, etc. We can see almost every camera on their network. If it escalates and actually requires somebody onsite, we put in a ticket. We usually have anywhere from 20 to 30 people on the road, roughly maybe 10 percent of them are involved in just service and maintenance. It might take them two to three hours to arrive onsite. If it’s a critical issue where it involves the complete network outage or complete DVR or network access control outage, we would prioritize based on the overall circumstance. When customers do have an issue, we service and maintain our maintenance customers first.
Out of all the three divisions you have, which one requires the least amount of effort and expense on the maintenance side? Which one requires the most?
Within each division, communications, security and IT, we approach maintenance differently. A lot of our larger customers actually buy preblocks of hours. In that capacity, the maintenance, when I say we have a variety of different programs, if they by preblocks of hours, we sell equipment very discounted and they may be willing to buy equipment when it’s in need. But we’re at least guaranteed a certain number of hours at a reduced rate, and we’ve already been paid, so it gives us a really good opportunity to be proactive and apply great service. IT is a division where they almost always buy hours, so we’re almost never potentially hurt in that division. Communications and security involve a lot more equipment where we might take a liability of the equipment. Security may go down more often; however, a replaceable component and getting equipment repaired from manufacturers effectively is much easier on the security side than it is on the communications side. Having an inventory that doesn’t have the overall costs associated with it, I lean more toward security maintenance for that reason, as well as we find the costs for us quarterly or on a yearly basis actually drop. So just initiating any form of contract upfront, we know that long-term, over the course of that contract, our profitability rises because of the cost of the physical product decreases.
Did the recession affect the business much? Did you have to cut people more breaks on pricing or services? Was it tougher to get people to sign up for certain things?
No. One of the nicer things about security that you don’t have with IT or telecom is it’s very difficult for two or three companies to come in and provide like proposals between storage and capabilities and the type of lenses and the different applications that they might want to run. If they’re really looking at the business decision, it’s difficult to compare physical pricing as well. In a bad economy, what we’re finding is that security becomes more of an issue. There is a little bit more theft; there are a little bit more employee issues; they are looking more at the bottom line. When they start considering those things, they start thinking about all the potential areas that they lose. So most of our manufacturing customers and retail, actually as the economy got worse, we found a higher need and more requests for security cameras and applications.