What’s all the Buzz about Managed Services? Why You Should Consider a Recurring Revenue Model

October 10, 2019

Today when you attend any security trade show or open an industry publication, you are bound to hear
or read about managed services. You’ve probably also noticed it’s an especially hot topic at PSA right
now; this is because we believe a recurring monthly revenue (RMR) business model can be a game
changer for security integrators. Here are four compelling reasons why you should get started:

Predictable Cash Flow

The name says it all! Who doesn’t want to have a dependable source of income rather than living job-to-
job? While both types of revenue stream are important for your business, the more recurring revenue
you have, the easier it is to plan ahead and future proof your business. We recommend 10 percent of
your value come from RMR in the first year, moving to 20 percent in the second year and 50 percent by
year five. This gives you time to slowly shift to managed services without drastically shaking up your
business model and disrupting your existing successes.

Customer Demand

As cloud-based systems become more prevalent, your customer wants to know you are on the cutting
edge and can provide them the anytime, anywhere access they need. If you can’t provide this service
offering for them, they’ll find someone else who can. These days we aren’t only being measured against
other security integrators, but also the last great experience they had: Amazon, Netflix, Apple… the list
goes on and on, and it’s a hard field to compete in!

Exit Valuation

Let’s face it: one day you may sell your business and move in another direction. With a pure contracting
model, you are paid on a multiple of your EBITDA and the multiple is not very high. If you want
maximum exit valuation, you will need recurring monthly revenue. The consistent revenue also makes
your business more attractive to potential buyers.

Keep Your Bank Happy

Finally, an RMR is important to include in your business model; your banker will be much happier if you
have a more predictable cash flow. This makes it easier to get a loan or a line of credit when you are
trying to expand your business or take on new ventures.

At PSA, we know making this switch isn’t easy and won’t be overnight. Luckily, you aren’t alone in
making this a reality. PSA has the processes, programs, products and financing recommendations to help
you establish a managed services model. To learn more about our program, visit: