What Is the Case for Recurring Revenue in CI?
In this issue…
1) More than one stream helps you
2) 330 words, total reading time about 2 minutes
Ever since CI companies discovered security monitoring revenues there has been a hype of sorts for recurring revenue. Security monitoring is unique in that it typically has a contract period and collects revenue with very little cost associated with the service. Margins are sometimes 80% or more. There is a well-accepted market for selling quality security accounts.
Service plan revenue set out to be the equivalent but are different. Most service plans are pre-paid for some bundle of services to be performed against the service plan. The margin is not as exacting as the security equivalent. Perhaps the call center component is but most recurring revenue plans add a great deal more and more cost. If every major transaction brought with it a $150/month service plan or $1800 annually. The question becomes how much do your really make on the annual billing? Of course, 40% would likely be acceptable, but the proof is in the service call record. Additionally, these contracts are not as transferrable as the security look-a-like, thus have not established the same re-market ability.
We like a third version of recurring revenue, which is the recurring revenue generated by partnering with trade partners (those builders, architects, designers, etc.) who bring you new clients year after year. The margin of the projects should be 60% plus before labor costs. For some of you, this is the profit engine of the company. It sets the table for 60% and sometimes as much as 80% of your annual turnover.
Companies without this flywheel are left to grind out every project one at a time. Without this early job funnel through these relationships, slowdowns in the economy seem quicker and more severe.
So, having a healthy mix of security income, service plan stability and trade partner flow helps stem the pressures of a pandemic or easing of the economy in almost all scenarios. Hoping all three are important to you.