Year over year, more security integrators are adding recurring monthly revenue (RMR) products and services to their mix of offerings — a trend that observers predict will continue to grow as tech-savvy customers demand more and better products without a big upfront capital investment.
While security dealers have been RMR-savvy from the beginning — due to their monitoring revenue component — integrators more recently discovered the benefits of courting more RMR: higher business valuations; predictable revenue streams; stickier customers; and more. But it isn’t as easy as just deciding to do it. It requires a mindset shift.
“RMR is so important when trying to grow your business, both in the long and short term, because it helps maintain consistent cash flow,” says Ryan Kaltenbaugh, senior vice president, sales, North America, at LenelS2, a Carrier company based in Pittsford, N.Y. “Having a stable, predictable cash flow provides assurances and flexibility for businesses they may otherwise not have. Our advice to integrators is to make recurring monthly services, and therefore RMR, a part of your business strategy now, if you have not already.”
The key to RMR success for integrators is to build it into your culture, says Chris Gilbert, president and founder of Security Pros LLC, an integrator based in Jeffersonville, Ind. “The entire organization needs to understand and champion the impact RMR has on the business, their daily work, and long-term goals to improve their position as the company grows.”
The RMR model produces a win-win-win for integrators, manufacturers, and end users, says consultant Bill Bozeman, president, Bozeman Strategic Solutions, New Orleans (and retired president and CEO for PSA Security Network). “It’s a smart business move to make, no matter what product or service,” he says. “An RMR base provides predictability, and your company is worth a lot more, so it’s easier to borrow money or sell your company for a higher value. Plus, the next generation demands these types of services.”
In the past, some integrators may have been slow to adopt an RMR model because of a “generational thing” that’s changing as a non-native tech generation ages out of the system. “Guys from my generation who were selling or passing the company down didn’t embrace changes; the new generation is,” Bozeman says. “Integrators who refuse to participate will not only hurt themselves from a cash flow standpoint, but also from just staying in business.”
Besides providing a steady revenue flow, RMR can also enhance an integrator’s business valuation, says Geoff Kohl, senior director of marketing for Security Industry Association (SIA), Silver Spring, Md. In researching its 2022 Security Megatrends report, SIA found a “striking difference” in valuations between integrators with RMR business models and those focused on the one-time installation model. “The example comparison was that a traditional integrator’s valuation may be just 0.5 to 1.5 times their annual revenue; but if they moved to recurring revenue, they were seeing valuations of between 3 and 5 times their annual recurring revenue,” he says.
This is primarily because an RMR-based business generates a predictable revenue stream for integrators, says Ken Francis, president, Eagle Eye Networks Inc., Austin, Texas. “The RMR generation possibilities are limitless,” he says. “When an existing customer adds cameras, a new location, additional retention time, or new features, the reseller derives additional revenue, every month. Innovation is constantly ongoing at our company, so resellers regularly have new features, products, and services to choose from and to offer their customers.”
RMR is great for customers, too, providing them with the latest security technology without the big upfront capital expenditure of a purchase. It also allows them to stabilize their monthly expenses with a flat monthly fee. Because customers are reducing their operating expenses, they don’t need staff to manage technology, as in a capital model where they’re buying their own equipment, explains Brent Duncan, president and chief operating officer, Interface Security Systems, Earth City, Mo. “It’s a predictable cost model that ties to tech platforms, maintenance, and licensing,” he adds.
A business model that lowers a customer’s upfront investment cost in exchange for longer-term commitment to services can be attractive to many end users, says Paul Garms, director of regional marketing, video systems, Bosch, Fairport, N.Y. “They’re outsourcing a lot of the risk as well with equipment features, and it’s only going to grow,” he says. “I see a lot of upside in the market with integrators increasing their RMR.”
Tech Advances Spurring the Change
Technology advances such as broadband and cloud have helped spur customer interest in products and services linked to an RMR model (see sidebar 1). “More technology will end up in the cloud, and more customers are going to be accepting of it,” says Tom Mechler, regional marketing manager, intrusion systems for Bosch. “We’re getting to the point where people are used to these services in paying for other things, so why not the security and control of their buildings? Where I see this going is that more equipment, more software, more things in their facility will be hosted in the cloud. That will provide them with a lower upfront cost and provide integrators with longer-term renewing revenue streams they don’t see today.”
Building an RMR business can be rewarding for integrators if they are consistent about pursuing these service offerings to their customers, says Anthony Novotne, marketing manager at CheckVideo, Falls Church, Va. “Over time, adding cloud-based security services can help integrators grow their business year over year from existing customers and continue to build with money coming in from new customers.”
The electronic security industry is at an inflection point because of increased adoption of cloud-based as-a-service offerings for video, access control, and proactive video monitoring, says Justin Wilmas, president of Netwatch North America, Lake Forest, Calif.
“My advice to integrators, especially those who are looking to diversify their solution offerings, is to start with a top-down approach in adopting some of these higher-value RMR type solutions,” he says. “Look for solutions that allow you to scale effectively and offer high margins with low attrition, meaning you are providing a higher value solution at a lower impact to your business and are able to scale effectively.”
The key to RMR success is to build it into your culture, says Chris Gilbert of Security Pros LLC. “The entire organization needs to understand and champion the impact RMR has on the business, their daily work, and long-term goals to improve their position as the company grows.” // IMAGE COURTESY OF SECURITY PROS LLC
Putting the Client First
Integrators that succeed with an RMR strategy understand their customers’ operations and provide them with the products and services they need — and everything flows from there. “We standardize on solutions that solve real issues that the client requires to be solved,” says Gilbert of Security Pros. “Your client base, when analyzed, will show the way forward and what services to offer. Again, you must stand behind the reasons for your solutions and fully understand the impact they are having on your client.”
The key to RMR success is to establish clear value for the customer, communicate that value to them, and deliver an exceptional customer experience so that value translates for the life of the customer relationship, says Duncan of Interface. “It’s what we strive for,” he adds. “It’s absolutely doable; and like it or not, this is the direction the market is going and a preferred way for most buyers to purchase in a predictable RMR structure.”
Founded in the 1990s, Interface was originally a rollup of alarm providers, Duncan says. “So the business has always been focused on becoming a broad provider of technologies to distributed enterprise and large multisite national organizations. We have evolved the business since then, but (RMR) has always been in our core.”
Interface provides three broad categories of products and services tied to RMR: managed network and communication services (connectivity, voice services, and securing all of that); physical security (from alarm to video and all enhanced services around it); and business intelligence and analytics (delivered through all the devices on a customer’s premises, used to leverage insight on operations, staffing, customer service, and more).
Interface’s business is a mix of traditional installations and RMR. The mix can vary by the year, depending on the size of the installation projects taken on. Typical RMR ranges from 70 percent to 85 percent of annual revenue; in 2021, it was 79 percent, representing a 37 percent growth in sales bookings over 2020.
“RMR should be a part of any business with a monitoring element,” Duncan says. “We are a different animal because we’re a managed service partner delivering integrated, flat rating RMR bundles. … Almost everything we sell has an RMR element to it.”
Interface starts by offering customers physical security solutions, then giving them the option to add on features such as data analytics or network management for a fixed monthly fee, which includes access to Interface’s technical expertise. “Plus, we’re constantly upgrading the platform, so that’s baked into the RMR structure,” Duncan adds. “Our other mantra is delivering fantastic customer support and a fantastic experience for our customers so they know when they’re paying this monthly fee, it’s all-encompassing and they won’t get hit with hidden fees. That’s allowed us to grow our RMR business.”
Educating the customer on how a monthly security service can help their business is essential for RMR growth, says Lawrence Coassin Jr., CEO at American Total Protection LLC, Hamden, Conn. “It is our job as the integrator to know our customers’ pain points and point those out during the sales process,” he says. “Unless our customer has an in-house IT department and facilities dedicated to managing the systems, it is in their best interest to pay us to help manage their security systems.”
Recognizing the ideal client for managed services is one of the essential steps of building an RMR business. “It’s essential to know the target market for these solutions,” says Eric Widlitz, vice president product management at ACRE Americas, Las Vegas. “Cloud-based access control services are ideal for smaller retail properties and property management companies. The ideal customers for this type of solution are small and mid-sized businesses, and we are starting to see greater adoption with enterprise-type customers.”
While small- to mid-sized businesses that lack a security director or IT manager are logical candidates — such as in the senior living space, property management, and multifamily housing — enterprise-level customers can also benefit from RMR services, says John Nemerofsky, chief operating officer at SAGE Integration, Kent, Ohio. For example, enterprise businesses are deploying more visitor systems as they get back to work in a post-pandemic world, which are a natural fit for RMR. Integrators targeting these businesses should establish best practices in advising them, including selecting the most appropriate products, evaluating their current technology, and more, he adds.
There are many benefits to creating RMR activities for integrators, including new revenue streams, cash flow benefits, and “stickiness” when it comes to customer retention, says John Becker, global vice president of sales, AMAG Technology Inc., Hawthorne, Calif. “However, the service that creates RMR for an integrator has to provide a measurable benefit to their customers,” he says. “Otherwise, it just looks like a cash grab.”
This means providing customers with some kind of measurables to gauge the add-on products’ effectiveness and prove return on equity.
“Ultimately, customers want outcomes,” says Ted Wilkinson, national sales director, Axis Communications, Chelmsford, Mass. “It’s important to determine key metrics and share them in easy-to-digest dashboards. Customer retention, repeat business, and recurring revenue are all about adding value — so integrators should seek to become a trusted advisor and an indispensable business partner.”
A Totally Different Mindset
Switching to RMR requires a major mindset change, Gilbert says. “There are perceived barriers that limit an organization from going forward with an RMR model. They are just that: perceived barriers that limit one’s ability. Many times, a company believes so strongly in a project/bid type business that they simply cannot grasp the culture changes necessary to execute the RMR-based business. In this instance I feel they need a champion or a division to drive the message forward, versus trying to change an already working business model.”
Probably the biggest shift integrators must make in increasing RMR is to transition away from a business model that’s solely based on big, one-time installations. Staff buy-in is essential, especially from the sales and service side of the business.
Comparing the process to a hardware provider like IBM morphing into a software company, an integrator’s entire enterprise must get behind the RMR model, says George Brody, president of Telguard, Atlanta. “It’s not a short term or one-off initiative, but a long-term commitment to develop, engage, and maintain an RMR business model.” A key challenge is managing customer “churn,” he adds. “Once you have the customer, make sure you keep them engaged. Communicate, support, and service them. Having added value that you’re providing to them is very important. The cost of acquiring a new customer is so high; once you have them, you want to maintain it.”
SIA’s Kohl adds: “There is a psychological change in how you sell security as a service, and that can be difficult for some businesses that have worked purely in a project or job model.”
Jonathan Frase, president of Frase Protection Inc., an integrator based in Memphis, Tenn., made the decision five years ago to add an RMR service with every sale, “no exceptions,” he says. “At the time, our team was concerned that the RMR requirement would slow our growth. But our growth has continued at or above our previous pace. We see very little resistance when selling RMR.” Frase Protection offers maintenance plans, monitoring, LTE signal and data transmission, and mobile applications on an RMR basis. In 2021, more than 70 percent of Frase’s annual revenue was attributable to RMR, up almost 5 percent from 2020.
Along with a change in business philosophy, integrators focusing on RMR must also change their sales structure, legal approach, contract and terms of service, post-installation service, and more. Key to the process is a finance team that’s equipped to handle the bookkeeping related to changes in revenue stream and billing.
“Allocating resources to support an RMR business model is key, depending on the type of business model, products, and technology the dealer will be offering,” Brody says. “You must have the working capital, support structure, and a clear definition for outlining the added services you’ll be offering.”
Integrators can overcome these challenges by using service and payment processing that is electronic and auto-renewable, Becker says. “RMR does not require increased sales or technician resources, but some of the back-office support will be taxed such as finance, customer support, and administration of a program.”
They also need to be staffed with the appropriate employees to address any technical issues that might arise from delivering security as a service.
“Typically, integrators do not have someone on staff that is available daily to manage software-as-a-service (SaaS) systems,” says Kaltenbaugh of LenelS2. “Staff is required to perform configurations, credentialing, and software maintenance on a timely basis. Integrators should be prepared for these needs when moving to an RMR model.”
Probably the biggest change integrators need to make to succeed at RMR is in the category of sales. “The biggest challenge facing dealers is the focus of their sales teams,” says Mike Taylor, vice president, global sales, Identiv, Fremont, Calif. “Too many integrators tend to pay their sales reps on margin; that means the sales rep is financially encouraged to sell stand-alone, large systems. If you do not compensate properly for long-term agreements, they will not be sold”
It’s also important to recognize what is and isn’t true RMR. “Many integrators think they generate RMR via SSAs (subscriber service agreements) and maintenance contracts,” says Mike Taylor, vice president, global sales, at Identiv. While they can be recurring fees, they are also year-to-year agreements that any other competitor can offer, he says. “There is no true value for these types of agreements. It is important for [integrators] to understand what doing a long-term, recurring agreement looks like.”
CheckVideo’s Novotne agrees. “Spreading out payment for installation over multiple months is not true RMR,” he says. “Fortunately, there are multiple solutions available that enable you to deliver software updates, security patches, and cloud recording, taking this burden off the client and the integrator. Make sure the vendor is willing to back it up with a service guarantee and that there is no lock-in. In other words, the equipment would be usable without using the service.”
Many vendors are more than happy to help dealers and integrators get started on growing their RMR business. Kohl says integrators should ask their vendor partners how they can help transition to a recurring revenue model. “I think some integrators will be shocked to find out that many vendors they may not think of as RMR-centric vendors are actually now offering cloud access and RMR types of solutions and are in a good position to help advise their integrator partners on how to make that transition,” he says. “Most of these firms have had the same realizations about the benefits of as-a-service, recurring revenue business models and know that for them to transition their own businesses, they need to help you, the integrator, make that transition, too.”
For example, Austin, Texas-based Resideo has a premier security dealer program that offers training for integrators on how to ask the right questions, introduce new products and services to the end user that help create more engaged customers, win more business, and drive higher RMR, says Quentin Gunther, Resideo premier security dealer program leader.
“When considering manufacturers to partner with for this kind of solution, it’s essential to choose those that understand the industry and provide comprehensive guidance in modifying this model to be successful,” Widlitz says. “It’s also important to note that the selected system should be simple to install with quick and efficient management, offering the modern features critical to a wide range of consumers.”
Integrators can set up AMAG Technology’s Symmetry access control system as an RMR solution through its SSA program and through its hosted solutions such as Symmetry CONNECT, GUEST, and mobile, Becker says. “Some of our integrators have partnered their sale of Symmetry solutions with service contracts and warranties that are sold as monthly costs. These monthly costs make it more palatable for customers, even if they pay it annually.”
Carefully researching the right vendor to help with RMR can also help integrators select the right technology. One of the biggest challenges to growing RMR is finding RMR technology that actually does what it is supposed to do, says Louis Boulgarides, CPP, president and CEO at Ollivier Corporation, Los Angeles. “There are multiple products and companies out there, and the trick is to find the right partners to support your customers,” he says. “Nothing will derail an RMR program faster than installing a product that doesn’t work. It creates a bad relationship with the customer, and makes salespeople leery of selling RMR going forward.” Ollivier grew its RMR by $400,000 in 2021, representing 15 percent of the company’s annual revenue, and a 30 percent increase from 2020. Boulgarides attributes this growth to partnering with reputable vendors with a strong cyber-secure environment, which allows the integrator to focus on the customer, while the manufacturer takes care of the back end.
“Selling RMR takes commitment from the highest levels of the organization and consistency,” Boulgarides says. “You have to be willing to make the investment to see the returns in the future.”
Once that commitment is made, however, RMR is one of those rare “win-win-win” type deals, Bozeman says. “Why should you do it? Three big reasons: it’s more convenient, efficient, and cost effective for the customer. … It’s really good for the integrators — for their cash flow, company valuation. And it’s also good for manufacturers. ... The only person who doesn’t win is the criminal.”