For SSI’s June issue I reported a story about dealer programs, concentrating on how third-party monitoring providers are helping independent installing security contractors compete in the marketplace. You can read “Central Station Dealer Programs Want You, if…” here.
As the headline suggests, wholesale monitoring providers that operate dealer programs will have specific criteria in mind to identify the right partners for their organizations. Likewise, dealers need to put their prospective program partners through their paces as well. One aspect not discussed in the story is a cautionary tale to those dealers who sell their accounts to infuse their organizations with cash. The danger here is the potential for unnecessarily relinquishing some or all of that all too precious recurring monthly revenue.
Bob Harris, owner and president of Attrition Busters, broached this issue in the course of discussing dealer programs in general and I wanted to share his perspective with you. Harris provides consulting services and workshops to independent installing security contractors across the nation; he has seen firsthand that not all dealer programs are good for the dealer.
“My advice is that anyone entertaining the idea of getting involved with a dealer program should consider the significance of any tradeoff between getting paid upfront for a new account versus giving away their future in terms of the RMR,” says Harris who is a member of SSI’s Editorial Advisory Board.
Harris is quick to emphasize there are plenty of dealers out there who do very well working with various dealer programs. At the same time, however, there are many other dealers who basically give away their future in exchange for money today. When new sales are slow for a certain period, they have little or no recurring revenue to carry them through those lean periods.
“The folks running these programs certainly aren’t doing it for their health. They’re typically keeping some or all of the recurring revenue the dealer would keep if he was creating his own sales, buying his own equipment and selling systems at a reasonable profit to begin with,” Harris says. “Few small dealers who install free systems can afford to subsidize those installations. As a result, they sell off or factor that install to a dealer program who offers upfront money in exchange for the recurring revenue.”
Harris notes most installing security contractors doing this would ultimately be better off by learning how to sell as opposed to give away alarm systems. Those who know how to make a profit at the time of installation — or at worst case at least cover the majority of the cost associated with the install — enjoy a far brighter future as recurring revenue continues to grow.
The assertion here, of course, is all that residual income is going somewhere. It might as well be to you.
“There are many dealer program business models out there. Some allow the dealer to keep some of the recurring revenue or at some point all of it,” he says. “Dealer programs work for some folks and enable them to make a living. The question is what business model works best for you?”