Growing the Recurring Monthly Revenue Pipeline
By: Jon Polly | Apr 06, 2022
Talk to any security system integrator and ask them about their sales pipeline and most will smile from ear to ear and talk about how healthy that pipeline is. No, they probably are not lying; they have a healthy pipeline of projects. Now, ask that same group of system integrators how healthy their recurring revenue pipeline is and it’s very possible to get a mixed bag of answers.
According to Security Business Magazine’s State of the Industry report, more than 50% of system integrators rely on recurring monthly revenue (RMR) for less than 50% of the business. The struggle is real, and it became very apparent to many system integrators during the COVID-19 pandemic when the sales pipelines dried and there was minimal revenue coming in due to closed businesses. While the industry is seeing a shift back to normalcy, many system integrators pushed that part of the pandemic aside and have moved forward, forgetting the struggle until the next time.
Recurring revenue, whether it be monthly or annually recurring, has a positive way of strengthening and growing a business. The purpose of RMR is to keep money flowing, whether sales are good or not. RMR should provide at least provide the minimum amount of income for the business to “keep the lights on.” This number will be different for every business, but it is the absolute number that keeps everything going, including keeping people employed, holding insurances, trucks, fuel, training costs, and building expenses. The list goes on.
When RMR meets these needs monthly, revenue from selling new projects becomes extra, allowing growth. The remarkable thing about having a reliable RMR strategy is that with each new project sold, additional RMR can be recognized as well. The benefits of RMR are not just dollars into the company, but a peace of mind for management that if a sale is missed, or a project is delayed, there may not be a constant battle with the calendar to ensure there is work for each employee. Recurring revenue should provide a level of freedom. But be warned: developing a RMR model, as many system integrators have found, is not necessarily easy or without risk.
The RMR Continuum is a pathway to RMR. Some integrators are further ahead in some areas, but not all. The more areas that RMR can be recognized will increase the system integrators’ chance of selling RMR to customers.
Alarm Monitoring and Video Verification
Alarm monitoring has been around for many years. This was a simple RMR strategy that most system integrators chose. Many still believe in alarm monitoring, or the added benefits of monitoring stations offering video verification. The problem with alarm monitoring as the only form of RMR is that to make the revenue to “keep the lights on,” hundreds of alarm accounts must be installed and maintained. While not impossible, the upfront sales effort may be stifling.
Service Level Agreement (SLA)
The next tier of RMR has typically been the Service Level Agreement (SLA). The SLA, sometimes referred to as a maintenance agreement, involves some form of risk. Whatever the reason, most system integrators that choose not to pursue this avenue are afraid they will price it wrong and lose money. This idea is not always inaccurate but should not be negated. Proper SLA management should be between 13% and 20% of all equipment costs. Knowing the direct costs or more importantly, ways to save, indirectly can make SLAs very lucrative and more secure than many realize. The key benefits of the SLA, aside from recurring revenue, are that the system integrator is a good partner to the customer; providing not only much needed services, but also opportunities to upsell and keep constant contact with the customer.
“Something” as a Service
In the last few years, the concept of “(Insert X Technology Here)” as a Service (“X”aaS) has become very palatable for many end-users. This may be because many of the systems they already have implemented have migrated to a version of “Something” as a Service. In the past few years, many IT departments have evaluated these software approaches to lower-cost services and reduce time to implementation and scalability from the heavier on-premise solutions, which has invariably led to other departments evaluating software the same. SaaS spending has increased more than 50% in the last two years, with more security industry software moving in that direction. A service application typically requires a cloud-hosted solution and may not be the right fit for every customer. This may be due to regulatory compliance or simply because the cloud is someone else’s data center, however, both arguments are going away as more options for cloud hosting become available. “Things” as a Service have become a strong part of the RMR solution.
Managed Services Provider (MSP)
Managed Services is yet another step in the RMR Continuum, but not necessarily separate from the above services. A managed services provider (MSP) offers the customer an entire suite of services, many of which were accounted for above, for the customer’s entire security ecosystem and beyond. The MSP is the ultimate long-term partner. MSP’s typically purchase and manage all equipment with a monthly or yearly recurring cost, responsible for all aspects of service. Typically, there are Key Performance Indicators (KPIs) that the customer will mandate. While this is very much a step up from the traditional SLA; the MSP now has additional resources at their disposal, including financing terms through major partners such as BCD or Seneca when dealing with video surveillance. The extent of the MSP offer can be customer specific, with some MSPs offering on-premise servers or cloud-hosting, while others manage entire datacenters for the purpose of offering managed services. While managed services may seem like they could only be offered only by the largest of system integrators, this is not always the case. Admittedly, offering managed services to customers comes with a significant amount of risk; but those willing to take the risk can find great reward.
RMR to “keep the lights on” at a minimum should be one goal for system integrators, to bring peace of mind and freedom. RMR can create a great partnership with customers, while offering a platform for upselling new and additional services. Can RMR be a risk? Sure. A certain level of risk is expected; but such is owning a company. Evaluating ways to create RMR, both direct costs and indirect savings, may help system integrators realize that an effective RMR strategy can be at their fingertips.