By: John Szczygiel
My recent conversations with integrators, central station operators, and service vendors of all types got me thinking about the road to building a successful recurring revenue program.
At this point most integrators have gotten the message that product and installation revenues alone are not sufficient to support a healthy organization in the long term. It’s also clear that the enterprise value of an integrator can be exponentially increased if they derive significant revenue from recurring sources. As a result, many integrators are searching for avenues that will open up increased RMR. Naturally, many vendors are lined up to offer them a variety of solutions that promise to drive RMR.
Many trade shows these days have great proportion of the booths offered solutions to “build your RMR”. The verb “build” is essential here because that’s what it takes. RMR must be built. However, it is important to recognize that any technology solution on its own won’t build much RMR unless your organization has taken some basic steps to ensure success.
Building RMR takes organizational commitment and execution of a long term plan. There are no “get rich quick” programs in recurring revenue growth. Why? Because a service business requires significant initial investments that gradually show results over a period of years. Consider the recent public offering of LinkedIn. Organizations that jump on the RMR bandwagon without proper planning and intense commitment will jump off as soon as the investments get too high or when another transactional opportunity appears.
When speaking with organizations in the process of building significant recurring revenue streams you hear a number of consistent statements such as “We don’t sell any product without service” or “We have a dedicated sales force for our service products” or “We focus on service X because it’s the one that has the most value for our clients”. Many also describe changes they made in financial systems, incentive plans, and the allocation of resources to support their RMR growth strategy.
The really successful companies don’t just tack an RMR option on to their other offerings. They’ve figured out that selling services requires a different approach. To really drive RMR you must have a paradigm shift and focus your organization on this goal from the executive suite on down. There is a reason for this: the pot of gold is at the END of the rainbow. It takes skill and perseverance to get to the end of rainbow.
If you’re an Integrator trying to determine how to move your business from a transactional model to a recurring model you should consider the following key success factors:
- A realistic self-assessment: Look in the mirror and determine what your company is really about. What types of customers do you service? What types of services do your customers want from you? What would it take for you to offer those services? What investments are required in infrastructure, organization, and financial assets? Do you have the right people in your organization that can sell services and solutions vs. technology? Are you willing to make the initial investments? Are you willing to stick with the strategy?
- A 5-year RMR business plan: Once you have evaluated your current situation you are ready to create a business plan. I suggest looking at this program over a five-year horizon. In year one you will be making investments and climbing the learning curve for selling and delivering services. In years two and three you will be perfecting your training, market focus, and service levels. In years 4-5 you are driving real revenue and preparing to evaluate what growth strategies to pursue in your next five year horizon. Having a five-year plan will help you to maintain focus on your goal.
- Strong Partners: Once you know what services you want to sell and have a general plan for implementation, it’s time to look for partners. Fortunately there plenty of firms who are creating products and services that will help you implement your RMR strategy. Like any vendor evaluation you want to look for those with successful track records. Also look for companies that derive most of their revenue from RMR. You cannot afford to partner with a company that is just experimenting with a new RMR model. Successfully driving RMR means building long-term relationships with your customers. You can’t base long-term customer relationships on short-term supplier relationships. The key suppliers for your RMR solution need to be just as invested in your RMR as are you.
- Discipline of focus: Wanting to be in the RMR business will not lead to overnight success. It will take continuous effort, focus, and discipline. There will be times when transactional opportunities distract you and your team. You have to keep your eye on the five-year plan. There is a reason that RMR companies are valued at high multiples. Selling services and gaining the ongoing respect from your customers is hard work.
But it’s definitely worth it.