Recurring Revenue as Recession Resistance
There was a time when it was a night watchman who sounded the alarm when a fire broke out. It was his job to patrol industrial and commercial facilities as well as city streets. Today, it’s an automatic fire alarm system that detects the fire, alerting the authorities in one of several ways.
These technological advances have made it possible to detect fire and smoke, often before loss of life can occur. This represents a tremendous profit opportunity for companies that specialize in these systems. This is true not only by way of fire detection equipment sales and installation, but also a number of value-added services that contain an inherent recurring monthly revenue (RMR) component.
RMR is important now more than ever as economic experts predict gloom and doom for the U.S. economy. Although experts say the U.S. dollar is in a slump, adding RMR to your firm’s financial picture will help protect it by adding additional cash flow — something you really want in times of trouble.
This month, we’ll take a look at some of the ways your firm can expand its profit potential. The best part is you won’t have to “bet the farm” to realize the benefits of RMR.
Central Station Monitoring
Although it’s nice to make money on the installations you do, RMR helps insulate alarm firms from the rigors of a fluctuating economy by generating dependable recurring income. Because the source of this income is distributed among many customers, the negative effects of a struggling economy are not as apt to intrude on the firm’s everyday operations.
The most common source of RMR in the intrusion and fire alarm market is 24/7 central station monitoring. When you look at the profit potential associated with this most lucrative source of cash, you have to agree that it’s a good deal for the client as well as the alarm company that provides the service. It’s been said that the average monitored account has a longevity factor of seven to 10 years. Since the profit potential associated with the average monitored account includes an 80-percent markup, it goes without saying that central station monitoring is one of the most profitable sources of cash flow an alarm company can have. The fact is, from a long-term perspective, most alarm companies are not as concerned about upfront profit as they are RMR.
Any low-voltage company that installs fire and intrusion alarm systems can enter the central station business, even if they don’t own their own central station. This is made possible through the use of third-party services that subcontract with the alarm company to provide monitoring services. A series of toll-free numbers are used to send signals to the central station, thus minimizing phone charges to their clients.
Back-up Signal Path
Another important source of RMR is radio- and Internet-based backup alarm reporting. In many cases they are the only means of communication with the central station. This is because of the proliferation of voice over Internet protocol (VoIP) technology throughout society.
Radio- and IP-based reporting has become somewhat popular as of late. The need was actually the result of fire code that specifically calls for two separate signal paths from a fire alarm panel’s digital alarm communicator transmitter (DACT) to the central station. Their use increases the likelihood that the central station will receive the data when a fire is detected.
There are two basic types of radio technology used for this purpose. One uses a private radio system under the control of a particular carrier while the other uses the cellular network.
Not only is radio backup an important part of a client’s central station reporting capability, but it’s also a great source of RMR because of the additional monthly charge associated with the service. Radio backup can add $10 to $15 a month to the client’s bill.
Another attractive source of RMR for fire alarm firms is maintenance contracts. In many cases it’s the potential for service after the warranty period, as well as yearly inspections, that makes the fire alarm business attractive. This is even true when a client has no intention of buying central station monitoring.
One of the most common ways to compute what a maintenance contract is worth on a monthly basis involves replacement cost. This computation should include the fire alarm panel, batteries, power supplies, smoke and heat detectors, manual fire pulls, notification appliance devices, control interface devices, and any other component that attaches to the fire alarm system.
To determine the monthly cost, figure 10 percent of the total system replacement cost and divide that by 12. This will provide you with the monthly dollar amount.
One way to make maintenance attractive to a potential client is to roll that monthly figure into a single contract along with the central station monitoring. The fact that the client only pays a single billing each month makes this an attractive program.
No matter which method of RMR you decide to work on, the idea of deriving a monthly fee for value-added services rendered offers a solid, dependable source of much-needed cash flow.
Contract and Payment Options Help Overcome Client Objections
There are several ways to entice alarm owners to purchase central station monitoring and several more ways for them to make the payments. Truth be known, often the way you present the payment options has a bearing on whether the client buys into it.
The most common way alarm firms charge for central station monitoring is by the quarter or by the year. This also requires either a 36- or 60-month contract. Some of the national providers also offer credit or debit card payments on a monthly basis. In most cases a credit check is required to assure the alarm company’s investment of time and merchandise is worth the effort.
Another way to attract buyers is to offer a number of payment options. For example, if the client is willing to sign a 36-month agreement, the price might be $25 per month. With a 24-month agreement the alarm firm may charge $30 per month, and $35 per month with an annual agreement. The goal here is to provide a number of options that enable you, the salesperson, to solve the client’s objections. It’s pretty hard to do that when a company only offers one payment plan.
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