How Maintenance & Service Maintains Profitability
Maintenance and service (M&S) business is a vital element in building security dealer or integrator company value and profitability. Learn out how to promote and structure M&S in most if not all contracts.
By Erin Harrington
BEING ABLE TO COUNT ON a solid and steady stream of recurring monthly revenue (RMR) is always cause to smile. It’s a key consideration in the business plans of many security dealers and integrators, and with good reason. One of the most straightforward and lucrative offerings to boost RMR is maintenance and service (M&S) agreements.
When SSI readers were recently asked to identify the top offering to pursue in order to increase RMR, M&S contracts were easily the leading choice among more than 58% of respondents. And, when asked the leading ways security contractors are “leaving money on the table,” not selling M&S contracts again ranked high on the list. M&S business is critical to building company value and profitability, as well as end-user satisfaction and loyalty.
“It’s [M&S contacts] really a sign of a healthy company,” says Drew Cassara, inside sales manager for Bay Shore, N.Y.-based A+ Technology & Security Solutions. “It facilitates growth and profitability, and enables a company to reinvest with that RMR. And, we find that our happiest customers are those who have contracts with us. They know we have their backs. We’re very familiar with their systems and they’re familiar with us and who they interact with for support. It builds a very personal and comfortable relationship.”
A recent research report from IHS Markit on the global market for security systems integration concurs with Cassara’s perspective. In his findings, Oliver Philippou, senior analyst, IHS Markit, remarks that service agreements allow integrators to further develop customer relationships, increasing the chance for future upgrades, retrofits and new installations. Revenue from M&S, which reached $14.5 billion in 2015, is expected to rise to $18.8 billion in 2020, according to the report.
Philippou also forecasts that from 2015 to 2020, the services market – encompassing design and consultancy, installation, and service and maintenance – is predicted to be the fastest-growing sector. So it’s no surprise M&S is viewed by most security systems integrators as a primary profit center, because such contracts typically generate a predictable revenue stream.
That’s been the case for SMG Security Systems of Elk Grove Village, Ill. Wayne Schricker, SMG’s vice president and general manager, believes offering M&S contracts allows building up a company’s infrastructure so as to be able to better serve customers.
“Usually as part of the service contract we’ll provide an annual inspection of the system to assure the subscriber and us that the system is working properly and has not been tampered with,” he says. “This interaction keeps them happy and reduces the chances of losing that RMR to an unhappy customer. In most cases, we’ve found we are able to profit with the service contract, as the service required doesn’t match the amount we are paid. The subscriber feels better, because they have a fixed budget for their security without any surprise T&M service call invoices.”
Let’s take a gander at what the demand levels typically are for service compared to maintenance needs, pricing considerations and learn about a dealer’s experience adopting an M&S scheme into a legacy business.
Service & Maintenance Dynamics
Schricker notes that requests for service vs. maintenance are pretty evenly split. The company has many active programs that offer the subscriber the option of buying into a service contract as an offset to paying for the first service call.
“We offer the maintenance cost upfront in all of our sales presentations,” he says. “Many times the system is warranted for the first year, so we show a savings to amortize the maintenance over a fiveyear contract. We also have a customer service rep who follows up on service calls and after the first year of service to promote a service agreement.”
In his Service and Maintenance report, Philippou notes that large projects almost always include M&S contracts. However, they are usually single-site projects, which can limit revenue potential. Although retail and commercial installations do not always include maintenance contracts, there is still good revenue potential in these markets, as commercial business and retailers with multiple locations can generate substantially more service revenue than a single airport project, for example.
He adds that maintenance contracts vary by the type of product and the vertical market in which it is used. In most cases, contracts are renegotiated after three to five years, and it is not uncommon for maintenance contracts to reduce in value at this renegotiation stage.
For A+ Technology and Security Solutions, requests are mainly for service. Cassara explains that maintenance is something they do on a regular basis.
“We’ll do a login and check the health of the cameras to see if any are down or having problems,” he says. “We get alerts to it on our own, so it preempts a real problem. We’ll know before the customer knows, and it gives our customers peace of mind that we were diagnosing and correcting any camera issues proactively on our own and they didn’t even know it.”
Schricker notes that most of the systems his company currently installs have some level of remote diagnostic ability, so techs and other associates are able to reset panels, make programming changes and update user codes if needed. “It’s a step in our service dispatch area that is followed, prior to sending a truck.”
If you enjoyed this article and want to receive more valuable industry content like this, click here to sign up for our FREE digital newsletters!
Security Is Our Business, Too
For professionals who recommend, buy and install all types of electronic security equipment, a free subscription to Security Sales & Integration is like having a consultant on call. You’ll find an ideal balance of technology and business coverage, with installation tips and techniques for products and updates on how to add sales to your bottom line.
A free subscription to the #1 resource for the residential and commercial security industry will prove to be invaluable. Subscribe today!