Everything You Need to Know About RMR

Everything You Need to Know About RMR

Traditional alarm dealers have long embraced the recurring monthly revenue (RMR) model for obvious reasons. It provides sorely needed peace of mind — especially during uncertain economic times — that money will keep coming in. Systems integrators that deploy enterprise-level systems on a project-by-project basis, on the other hand, typically have not had that certainty. But the tide seems to be turning as, increasingly, ever more security professionals are seeing the myriad benefits that a steady flow of RMR can have on their businesses.

Here, subject matter experts Paul Metzheiser, managing partner for technology-as-a-service subscription specialist TAMCO Corp., and Kenneth Kirschenbaum, an attorney at law specializing in contracts, who is managing partner at Kirschenbaum and Kirschenbaum PC, share their insights on how working with an RMR-centric model can ramp up your company's revenues and increase its valuation. Embracing RMR is, in fact, a fundamental strategy to position your business to be more profitable.

That's because, as Metzheiser explains,

He continues, “RMR helps leadership make pivotal decisions on the business. There's the known revenue and the projected revenue, [the latter of] which is obviously more volatile than known revenue.” What's more, service sales that generate RMR have much higher margins than one-time project sales do.

RMR opportunities abound

There's no doubt that RMR opportunities abound these days. As Kirschenbaum notes, there are the obvious ones, of course. Burglar alarms have long been a lucrative and easy add-on, with 24-hour alarm monitoring services. That transitions to today when countless consumers have DIY smartphone monitoring. The market for integrators and installers to offer warranties and maintenance services is quite ripe.

Fire and life-safety monitoring are also incredibly easy sells. The key is for integrators to emphasize to prospects, as well as existing customers, the critical importance of fast and accurate professional monitoring when life, home and property are at stake. And, surprisingly enough, water damage actually tops fire damage in terms of property-loss insurance claims. That, of course, makes water-leak monitoring a strong RMR driver for savvy installers and integrators.

Selling monitoring of Personal Emergency Response Systems (PERS) is another easy RMR win. Even though the installation and equipment costs are low, the RMR potential is high. Customers with elderly loved ones will welcome the peace of mind that PERS monitoring affords, thus enabling their cherished family members and friends to safely age in place.

Remote video-monitoring capabilities

During the pandemic, lockdowns and closed offices brought with them a surge in end-user demand for remote video-monitoring capabilities. The pandemic is thankfully in the rearview mirror, but end users' desire to have remote access to their surveillance footage is here to stay. And that continuing desire has opened the floodgates for a whole new generation of RMR opportunities. Conveying to prospects and customers that professional alarm-monitoring services alert not only the central station but also the police and fire dispatch center can motivate them to make the investment and, thus, support your business' RMR ambitions.

Not to be overlooked is the opportunity to offer Access-Control-as-a-Service (ACaaS). Indeed, ever more dealers and integrators are coming to embrace cloud-based monitoring for their access control systems.

Yet another attractive RMR opportunity for integrators and installers is offering remote maintenance services. For integrators, it means avoiding a truck roll and resolving the technical issue remotely; for customers, it means minimal downtime, which results in higher satisfaction rates.

Technology advances translate into more RMR

Integration businesses that focus on increasing RMR opportunities have advances in technology (e.g., broadband and cloud) to thank for increased customer demand for RMR-friendly products and services. Many end users have grown accustomed to paying for these services in other areas; naturally, that means it shouldn't be a difficult sell to get them to embrace paid services for securing and controlling their sites. The fact that, increasingly, software and related security equipment is being hosted in the cloud translates not only to additional RMR streams for dealers and integrators but also to lower upfront capital costs for end users. What's more, end users can keep a close pulse on their monthly expenses, thanks to flat monthly fees, while also enjoying reduced operating expenses. After all, if integrator partners can manage ongoing service and support, it reduces (or eliminates) the need for paid staff to manage internal technology deployments.

Security clients, more than any other type of client, are focused on guaranteeing positive outcomes. After all, security is mission critical. (Audiovisual solutions, for example, might be “business critical,” but security professionals' systems literally protect people's lives.) That fact means security dealers and integrators are especially well positioned to sell outcome-guaranteeing service and support, earning healthy RMR along the way.

CapEx vs. OpEx

If you're an RMR-minded integrator, it's important to have a strong understanding of how much RMR your company takes in each year, as well as how your clients' budget pots are divided between capital expenditures (CapEx) and operating expenditures (OpEx). CapEx includes expenses accrued with a long-time horizon in mind, such as buildings, equipment, machinery and vehicles. OpEx, on the other hand, refers to day-to-day expenses, such as salaries, rent, utilities, property taxes and the cost of goods sold.

Just as embracing an RMR model is lucrative for integration businesses, so, too, is leaning into an OpEx-focused business model. Some potential and existing clients might have new, larger revenue streams that integrators can tap into by seeking OpEx dollars, rather than CapEx budget allocations.

More RMR means a higher valuation

Businesses with high levels of RMR have higher valuations than their project-heavy peers do.

Kirschenbaum makes the point that business owners should be acutely aware of their business' worth, as well as whether it's growing or shrinking. “How is this measured in the alarm industry?” he asks rhetorically. “There could be several answers…[several] different ways to measure growth.”

Kirschenbaum suggests installers and integrators consider the following questions:

• How much did ownership put in their pocket this year as compared to prior years?
• How many customers does the business have paying recurring charges — and is it more or fewer than in prior years?
• What's the business' net RMR for monitoring?
• What's the business' RMR for inspections? And what's the cost of providing inspections?
• What's the business' RMR for service? And what's the cost of providing service?
• How many new installations were done this year, as compared to prior years?
• What was the average profit margin on those installations?

Kirschenbaum concedes that, yes, all this is a lot to think about. Ultimately, he boils it down to just one calculation: “When you're asked what your company is worth,” he says, “it's your recurring monthly revenue.”

Metzheiser concurs, driving home the point that businesses with above-average levels of RMR are simply worth more. In fact, he explains, “if you try to sell your business, buyers will pay as much as 10x more for recurring revenue than they will for revenue from one-time project sales.” Granted, the amount buyers use as a multiple could vary, based on the term of the RMR and the type of service. And, of course, many valuation factors exist within the security integration ecosystem. But, at the end of the day, Metzheiser concludes, “the most important thing is, you'll have a higher multiple and a higher valuation the more RMR you have.”

Why are some integrators still hesitant?

We've already made some pretty clear points: (a) An RMR model facilitates a steady flow of reliable, predictable income; (b) traditional alarm and security dealers have for decades held this approach in esteem. So, why does resistance still remain on the part of some integrators? TAMCO has looked into this, and the company's site highlights some of the reasons. Ultimately, the company says, many integrators express hesitation about attempting to make recurring-revenue sales (for example, technology-as-a-service sales) because they falsely believe some or all of these interrelated misnomers:

• They will have to wait to receive all the revenue for the system portion of the sale.
• They will have to internalize all their costs to suppliers and distributors.
• It will take too long to build meaningful revenue results.

According to Kirschenbaum, those misconceptions are certainly a problem, but so, too, is some integrators' hesitance to look at all RMR opportunities at their disposal. He encourages the integration community not to limit itself to what providers presently know. “They have to learn how to sell the recurring service revenue items that are available to the industry,” he opines. “Monitoring, repair and inspection are the typical RMR items, but there are many more. If you have the technical skill and workforce to add to your repertoire of services, you should — especially if it's RMR that you're adding.”

Leveraging his experience with contract law, Kirschenbaum adds that it's important for integrators to have a proper contract to lock customers into mutually beneficial agreements.

Their greatest margin

“If you ask 10 integrators what their greatest margin is in their portfolio, all 10 would say service,” Metzheiser declares. Given the fact that integrators have this high-margin offering, he implores the dealer community to focus on services in their proposals right from the start. “Stand behind your services, and price [things] out,” Metzheiser exhorts.

Underscoring the point, Metzheiser adds, “You must make that part of your sale in the original proposal and solution. It shouldn't be an afterthought. [Many of] you already have these RMR services in your portfolio. So, it's not about changing what you sell; it's about changing how you sell.”

Today's most successful integration professionals will attest to this conclusion: The financial benefits of an RMR-driven business model are vast and rewarding.