5 Reasons Why Integrators Struggle with Recurring Revenue Generation

For security integrators, generating recurring revenue is more important now than ever. Profit margins are shrinking and competition within the industry is growing, requiring integrators to find new streams of revenue in order to stay relevant. Without the introduction of recurring revenue into their pipeline, every integrator starts the year with $0 in projected annual revenue.

Many industry-leading RMR models are built around cloud-managed services or software as a service (SaaS) solutions. While these models are viable, service plans and post-installation contracts can be easily introduced to new and existing customers. Recurring revenue contracts are a proven way to maximize profitability and maintain positive client relationships.

The industry is already seeing reported successes in the adoption of recurring contract service models. A recent study found that security integrators are reporting an average of over $50,000 in total RMR generation per year. The fact is, those who fail to generate recurring revenue are already behind their peers.

While it is easy to discuss how much money there is to be made in recurring revenue generation, there are reasons integrators find it hard to adopt these models. In this article, we will explore five reasons why security integrators struggle with recurring revenue generation.

1. They Do Not See the Added Value

Many integrators struggle with selling recurring revenue contracts because they themselves do not understand it. They would like to think that because their customers aren’t explicitly asking for follow up services and contracts, they should not offer them. But perhaps these integrators fail to realize just how much they are leaving on the table when they do not offer these services.

Some old-school integrators may argue that there is no market for recurring revenue solutions – that their customers simply do not want them. But more than two-thirds of security companies are involved in some type of RMR generation. If there was not a market for these kinds of services, why do over half of security integrators report using them to create guaranteed income? As a security integrator, if you are not offering services that lend themselves to RMR generation, your competitor is.

2. Their Business Model is Not Setup to Sell Recurring Revenue

Adjusting the organizational focus from gaining new projects to selling-long term service contracts can seem like a big leap to make. After all, doing so will require changes within sales, marketing, and finance teams. But the biggest change that will need to be made is in the integrator’s mindset, and it starts from the top down.

Integrators that want to take advantage of recurring revenue models will have to move from a project mindset to an account mindset. Let go of the “break-fix” mindset when it comes to service. The extra level of service provided within the long-term service becomes the attractive part of the sale, not the products or systems being sold. If this idea is not reinforced by the C-suite all the way down to the technicians, an RMR business model will never truly work.

3. They Do Not Have the Right Tools

Besides having the right mindset, integrators may also lack the proper tools for administering recurring revenue services. This includes a lack of standardization and digitization that both attracts customers and keeps integrators moving. Without standardization throughout the recurring revenue contract process, information silos can form among team members, negatively impacting processes and the level of service provided.

Without the right digital tools, tasks like service scheduling, gathering system information, and other responsibilities required of a recurring service contract fall to manual effort, i.e. an employee has to be paid to complete them. Not only does this cause a bottleneck in service, the employment of analog processes also leads to a loss of revenue. The Data Warehouse Institute estimates that bad, inaccurate, or missing data causes U.S. businesses to lose $600 billion annually. Lacking the right tools to automate RMR generation can negate the very benefits offered by recurring revenue. 

4. Sales Teams are Short Sighted

At first glance, a single security project can generate more income than a single service contract. Even if service contracts are already a part of your business model, this mindset causes sales teams to ignore them completely because the overall payout tends to be lower when compared with winning new projects.

Not only is this mindset dangerous, but it is also simply untrue. To truly account for the cost of a new project, you’d have to look at all the time and manpower it took to find, bid, and win the project in addition to the time, labor, and materials that it takes to complete it. Service-based contracts require less effort to maintain and even less effort to find. This is because the best customers for service contracts are your existing ones.

5. There is a Lack of Customer Service

In a standard integrator-customer relationship, one without a service contract or management program in place, there is a break-fix mentality. The integrator only provides service or is in contact with the customer when a piece of equipment is not working properly and requires service. By entering into a service contract agreement, your customer acknowledges they want more than the break-fix relationship. But getting them to agree to the service contract is the easy part. In order to prove that the contract has value, integrators have to be ready to offer more than just scheduled maintenance and standard support, otherwise organizations may not be able to justify the extra spend.

If you plan on relying on tired service models or standard levels of customer service, your RMR model is sure to fail. After all, 78% of customers have backed out of a purchase due to poor customer service. Consider your current call times, training programs, reporting functions, and check-in processes prior to expanding your service offerings to include long-term contracts. Your contract service offerings will need to exceed what is already there, and you must have the resources to support the added benefits, in order to provide true value to customers.

Recurring revenue generation happens when the rest of an integrator’s processes are already running smoothly. It is not a one-size-fits-all solution to immediate profits and success. Selling service contracts and other RMR generating services occurs organically when an integrator provides real value in their services.