The Benefits of Creating A Recurring Monthly Revenue
How would you like to have a few hundred, a few thousand, or even a few hundred thousand customers who sent you a check every month, even if you didn't do anything for them that particular month? Would it improve your cash flow? Would it increase the value of your business? Would you sleep better at night, knowing that the check is really in the mail on its way to your bank account? That's called "recurring monthly revenue," or RMR. How would having a lot of RMR impact your
business, your future, your life?
The problem systems integrators face is seeing past the next job long enough to consider other business opportunities. Most entrepreneurs eventually start other companies or dabble in commercial development once their business reaches a certain level. While there's nothing wrong with diversifying your portfolio, sometimes it's easier and less risky to add a business within your business.
Building a healthy RMR business isn't completely without risk and it's not simple. It takes capital just like any other business venture. There are ongoing costs involved with fulfillment. You're going to lose some customers, and you will have to be able to replace them before you can grow. But if your customers agree it's a worthwhile product, you will build momentum and eventually create a consistent monthly revenue stream that doesn't require you to sell and build a new job in order to get paid.
Recurring monthly revenue by definition involves a long-term relationship during which a customer pays you every month for a specific product or service. RMR should be designed to generate very high profit margins when taking into consideration sa mass market or volume business. When done right, the RMR business should generate in excess of a 50 percent contribution to overhead. But the product must have high value, solve a significant problem, or seriously reduce risk to the customer.
Take for example an integrated boardroom AV system. A typical integrator would see this as a one-time installation. They might do the design, order the equipment, install it, and provide a one-year warranty, all for a single fixed fee. Yes, you could argue that they may be called back later to expand the system or the customer might hire them again for another facility, but a repeat customer is not the definition of RMR.
How do you find an RMR opportunity in a boardroom AV system? Your immediate response may be, sell a maintenance contract. Really? How often do you purchase a maintenance if you had a hundred customers paying you $100 a month for this service? Chances are one or two customers will abuse the technical support, but others may seldom use it. Just like with an insurance policy, you spread your risk across a wide customer base. Maybe you should refuse to sell a system without this monthly service. Our company never buys a network server without purchasing a support agreement. We rarely need the support, but when we do, it's priceless.
Everyone wins with RMR. Your customer is buying peace of mind, your business is building a reliable revenue stream that pays even when you don't sell a new job, and cash flow becomes more predictable. No wonder they call it the gift that keeps giving.
Mike Bradley (firstname.lastname@example.org) is president of Safeguard Security and Communications, a security and communication systems integrator in Phoenix, AZ. Bradley is a past president and director on the board of the NSCA with 25 years' experience in sales and management in the low-voltage contracting industry.