What You Need to Know About Offering Security Equipment-as-a-Service
Security integrators can learn insights how to pivot to an RMR-generating security-as-a-service subscription model in this time of COVID-19.
Paul Metzheiser is managing partner at managed services enabler TAMCO, focusing on revenue generation and business development for the company. He joins the conversation to discuss his work helping security integrator (as opposed to alarm dealers) leadership teams pivot to an RMR-generating security-as-a-service subscription model.
In the midst of the coronavirus pandemic, what is one of the biggest financial challenges that systems integrators are facing today in terms of keeping their business operational?
For the majority of integrators the biggest challenge they will face will be about cash flow. If they were solely dependent on net new sales and their current backlog, the cash flow will be a direct result of that business with an abrupt sunset. That’s where it gets scary because beyond that the anticipated cash flow would come from opportunities that were forecasted over the next 30, 60, 90 days. As we know those are mainly on pause and some projects will push way out or just not happen at all.
On the other hand, security integrators who have a healthy amount of contracted multiyear service agreements will benefit from recurring revenue. Hopefully most or all were able to apply and receive the Paycheck Protection Program through their bank via the Small Business Administration. This will help but the question is will it be enough because we just don’t know how long this will last. Each company’s financial structure going into the pandemic was different. If they were heavily leveraged, obviously it’s going to be more difficult. Businesses that were liquid with cash reserves will be far better off.
How can integrators change their cash flow situation? Is it something they can do today?
They can and should do it today but unfortunately it won’t have an instant positive change to their cash flow position. When we make a recommendation about pivoting to a service model and selling security equipment-as-a-service, it’s about selling more multiyear services at the point of sale. It’s about building up your recurring revenue and extending the customer lifetime value, contractually. We have helped many integrators during this pandemic take the steps to sell an as-a-service model and that will put them in a position to build more recurring revenue but it will take a little time to see the results.
What percentage of integrators would you estimate have adopted an equipment-as-a-service approach and service contracts as part of their sales process?
It’s the minority, with less than 10%. Here’s the quandary. Those integrator leaders who have made the mindset shift, and it’s very few, face a sales obstacle with the current way of selling and payment offering. Well over 90% of all security solutions are capital expenditures and most of that is cash. The industry has trained the buyer to pay cash. The sales obstacle is trying to sell multiyear services with a cash offer, unfortunately, it just doesn’t happen successfully. We applaud the leadership teams that have vowed to make service a priority, but most struggle to sell it successfully at the point of sale with a new solution when used with a cash offer.
How is this going to be critical as it relates to how integrators operate in the future?
COVID-19 is a lot of things and it’s also the mother of all business lessons. Taking a proactive position to change your model will be critical for survival and future relevance. It’s one thing to change your business model for your best interest and it certainly helps when that model is now being embraced worldwide. The subscription consumption model has gained favor over the past few years. All customers in some form have procured this way, so there is familiarity whether it’s Microsoft or Apple. You name it, ownership is dying. The critical point for all integrators is twofold; their financial well-being and having a relevant offering to respond to the new needs of customers.
The sales team will need to be well trained on the value proposition. What are key factors?
This is truly a critical point. With the habit and history of presenting commoditized cash sale proposals, the mindset of the sales team must be reset to the subtitles of positioning the value and relevance of a security equipment-as-a-service solution. But the responsibility of communicating that value to the end-user customer goes beyond the sales team, to marketing, support and the organization as a whole. Sales training, website content, marketing materials, communication campaigns and service delivery must all contribute to a cohesive message of value to the customer.
Is this approach really for everyone or just large integration companies?
Everyone can, and we get that question all the time. If you have the ability to deliver on a service offering, meaning you have multiyear service products, all you need is the leadership buy-in to start. It doesn’t matter if your business is large or small. This is about being an agent of change within your organization as a leader. It’s about educating your company as to why with logic. There’s good and bad about being a large integrator and the downside is it can take longer and be more challenging to pivot on any initiative.
What are the costs and time associated with bringing a security-as-a-service offering to market?
Human capital and doing the uncomfortable. There are no economic costs or risks. Our model pays the integrator for the entire solution upfront, similar to how they gain revenue today. Our model allows them to bundle the services into the monthly payment for the term, which is usually 60 months. The entire offering is packaged as a service. We then remit those monthly services upon receipt — monthly — from the customer to the integrator. There is no cost; actually they will pick up incremental revenue by differentiating themselves and more monthly income.
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