Service/Maintenance Contracts Are the Best Source of RMR
Service and maintenance agreements have become a leading weapon to fend off economic evils while helping security companies survive to grow another day. Discover their advantages and how to successfully integrate them into your business.
Recent economic challenges have driven home how critical it is that businesses either have deep cash reserves and/or a money source that continues to flow during even the leanest of times. For installing security contractors, the latter means establishing a solid base of recurring revenue and getting a higher return on every account. One of the best ways to accomplish this is via service and maintenance agreements that extend the customer relationship and financial commitment.
The benefits of emphasizing service and maintenance are numerous. They include lowering attrition by increasing customer retention; uncovering upsell opportunities; making cash flow more predictable and legitimizing the business in the eyes of creditors/investors; resolving false alarm issues and ingratiating first responders; and increasing the long-term value of the entire enterprise in a way that makes it appealing to potential suitors.
No wonder providers have begun to concentrate on these agreements. A recent report by IMS Research projects service and maintenance will account for 33.4 percent of America’s security systems integration market by 2014. “Companies offering a value-added service contract are seeing strong growth and greater resistance to the economic downturn,” says IMS’ Ewan Lamont. “Companies with high levels of RMR [recurring monthly revenue] are also more attractive to investors and acquirers.”
Two CEOs who have had great success making service and maintenance a core part of their businesses along with a consultant specializing in this area offer guideposts to help others take advantage of a golden opportunity. They explain how to incorporate it into contracts and the standard course of operations while effectively managing costs and maximizing profitability.
What to Include, Exclude
While the notion of service and maintenance contracting may seem foreign to some security dealers and systems integrators, it has long been a significant facet of how other professions conduct their business. Examples include HVAC contractors (e.g. $85 for semiannual inspections); phone and gas companies ($5/month for interior line protection); cell phone service providers ($4.50/month for device insurance); appliance vendor ($89/year for a maintenance plan). So why should security be any different?
“We originated as a telecommunications firm where it’s a very standard procedure to have maintenance agreements,” says Michael Vertolli, CEO of Vineland, N.J.-based ComTec Systems, whose company expanded into security in 2006. “As we grew into IT and security, we looked at the successful things we did in growing telecom. And that was creating customer loyalty, having a reason customers could reach out to us and us feel it was not only worth our time but was something they had already paid for.”
That last point speaks to the logic in making service and maintenance an inclusive element of just about any installation or other client contract. Building it in from the outset eliminates having to sell it as an add-on and makes life easier for both your company and the customer so there are no surprises. When handling service calls for existing customers without service agreements (instead being handled on a time and materials basis), offer a deal that discounts or makes that visit free.
“Such an agreement helps outline and define the specifics of what’s included, excluded, terms and pricing, etc. to maintain the security or life-safety system,” says John Brady, principal of Old Saybrook, Conn.-based TRG Associates. “It also presents the opportunity to offer special incentives such as replacement parts at a discount.”
Examples of what to include in a service pact are: labor only; labor and parts; inspections for fire code, health-care or child care compliance; preventative maintenance; and system testing. Examples of possible exclusions include: acts of God; homeowner do-it-yourself (DIY) repairs; system abuse; service performed by a third party; power or utility failure; war or terrorist acts; riots; floods; and earthquakes or other natural disasters.
In addition to leaving little room for ambiguity and setting reasonable expectations for when service or repairs are needed, bundling maintenance within a basic client contract helps ensure your operational and time/labor costs are covered from the get-go. Sometimes, it can even help you look like a hero to your customers.
“We do an annual review of each client’s service plans, and do a cost accounting as to what it has actually cost us to do that. If we find that we’re actually ahead of the game, then we send the client a notice saying that we’ve done the experienced modification and the next year’s bill has been decreased by X amount for that coming year,” says Matthew Ladd, president of Exton, Pa.-based The Protection Bureau. “That actually builds a lot of good will.”
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