Why It’s Important To Develop And Market Recurring Revenue Sources
Retain Clients and Build Your Business for the Long Term with Smart Programs and Marketing
Mention recurring revenue sources, often referred to as RMR, to some in the custom integration industry, and you will get different perspectives. Many integrators understand the value of a repeatable services business, but many others are not focused on it. Some struggle with how to build a services model, price it, and promote it.
The custom integration industry has always been about great service. Repeat project business most often comes from satisfied customers and word of mouth from excellent customer experiences. Of course, OneFirefly offers a full range of marketing services for integrators to reach new customers and marketing new products and services to existing ones. But as the key differentiator in the industry becomes increasingly tilted from product to services, building new ways to retain customers and achieve dependable revenue streams is becoming more critical.
The Value Of Recurring Revenue
On the security side of the integration business, RMR is well understood. A security system will have upfront fees for equipment and installation and recurring monthly revenue for monitoring services. Security company valuations have traditionally been assessed as multiples of the monthly revenues. The larger the customer base, the higher the value. For example, for companies with 1000 active accounts, typical valuation ranges are in the 35-40X range. The multiples can go higher with larger bases. So, for a security business with 1000 accounts with an average of $30 a month net, the annual value of those customers is $360,000. At a valuation of 40X, that business is worth as much as $14.4 million.
The calculation above was an example and doesn't consider factors that can affect the multiple such as customer acquisition cost. On the other hand, an integration business without an RMR component might be valued at a much lower multiple, typically 3-5 times EBIT (earnings before interest and taxes). Companies with high RMR value will build more value in the long term.
Developing Service Products
What if you’re not in the security business? Why develop a services business? It enables integrators not only to build value; it makes for more predictable revenue streams and more stable businesses. A monthly revenue stream allows you to fund a services component to the business, and there are several ways to do that. For those that want to do it themselves, technology platforms like Ihiji Invision (now part of Control2/SnapAV), Domotz, and OvrC provide a way to offer remote monitoring and support services. Other platforms like OneVision and Parasol offer the integrator a partnered outsourced model to provide extensive first-line support services without building their own staff, but still under their own brand.
Another reason to develop formalized service plans is to enable an integration business to grow while achieving work-life balance. Many smaller integrators end up fielding client calls with issues after hours and on weekends, making the business feel like it's 24/7 nonstop. Service plans and policies can set customer expectations for support and delineate options for self-support, free services, and paid services.
What are some ways to think about service plans? Here are some thoughts based on OneFirefly’s experiences helping integrators with their marketing programs.
- Create clearly defined and differentiated services plans. Think about segmenting your market, perhaps around a budget, middle, and high-end segment. Don’t create complex pricing structures that make it challenging for clients to understand what they're getting for their dollar. We highly recommend a free tier, with basic support options that might include a self-service app and email and text communication. The free tier also sets customer support expectations!
- Be sure that support plans are a prominent part of your bids and showcase why the customer might need them. Consider offering a lower upfront cost to the project tied to a service contract that might include upgrades and maintenance to create a long-term relationship.
- For commercial clients, consider bundling product, installation, and services as a contract with no upfront fees, like a lease plus services. A boardroom AV and conferencing system might fit into this model. A long-term contract might involve specific technology upgrades as part of the deal, making for a stickier customer.
Get The Megaphone Out For Your Services
Make sure customers know about service plans. As a very first step, communicate your service plans and pricing clearly on a prominent, easy to find page on your website. To get into more detail about your service offerings, it's a good idea to create a digital brochure. This brochure can explain service tiers and be used in bids. Should any calls come in about servicing an older system, it's a quick tool to explain what you offer. As a bonus, make it even easier for customers to access your services - build a page that lets them sign up online.
As you build your services, email marketing is a highly effective way to promote them. Newsletters to segmented lists can pitch your new maintenance and support services to existing customers. For example, you may be able to sign up a customer with an upgrade offer to update home automation system software and offer monthly health monitoring and support.
As we noted, RMR in security monitoring businesses is highly valued. The higher the value, the more it can make sense to spend more on customer acquisition. Tools like SEM (search engine marketing) can be used for highly targeted campaigns, and social media marketing on platforms like Facebook and LinkedIn can also reach targeted audiences. Organic SEO – a core feature of OneFirefly's marketing services – is a cost-effective and powerful way to build long-term reach for your service offerings. Content marketing can articulate a story that differentiates your experience, services, and support from competitors.
If you’re a current OneFirefly customer and want to build more recurring revenue for services, talk to your account manager about expanding your reach. And if you are not, we’d love to work with you! Please give us a call at 954-921-2393, fill out our contact form or chat with us below to schedule a meeting.