Four Keys to Building an RMR Machine

Changing your business model is not the same as changing your shirt

• By John Szczygiel
• Sep 27, 2011

Everywhere, we are seeing articles, blogs, advertising and conferences about growing recurring monthly revenue, or RMR. It seems that the security industry is obsessed with this concept. It’s a good obsession, provided that we keep in mind that building RMR is more about philosophy and execution than technology, and that we focus on a few key facts:

1. Simply selecting an “RMR product” to sell is not enough to generate success.
2. End users buy value-added services, not “RMR.”
3. Building service revenue streams requires organizational commitment.
4. Commitment is measured in years, not months.

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 integrators can increase exponentially 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 have lined up to offer them a variety of solutions that promise to “build your RMR.” The verb “build” is essential here because that’s what it takes; RMR must be built. However, it’s important to recognize that any technological 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 disaster of LinkedIn’s IPO. Organizations that jump on the RMR bandwagon without proper planning and an 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 an accompanying 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 organizations also describe changes they made in financial systems, incentive plans and the allocation of resources to support their RMR growth strategy.

I have observed that many successful RMR companies start with a separate sales team built from the ground up. Many times, the existing salespeople are driving large revenue projects that generate big commissions. Over time they have also garnered large salaries to match their experience and results. It’s going to be tough and probably costprohibitive to ask these salespeople to shift their focus to the smaller projects that typically generate RMR.

One successful tactic is to hire some less-experienced salespeople who will require training to sell your services portfolio. If you pick the right partners, the service portfolio will be less complicated to sell than your traditional products, so your rookies should have a shorter timeframe to perfect their performance. The really successful companies don’t just tack an RMR option onto their existing offerings. They’ve figured out that selling services requires a different approach.

To really drive RMR, a business must undergo a paradigm shift and focus 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, and it takes skill and perseverance to get to the end.

The four points below map out the basic elements an integrator should consider when working to build recurring revenue. You must articulate organizational philosophies and goals that will support the growth of RMR. Then you must lead your team to do it by assembling the right mix of internal capabilities and partnerships to create your complete value proposition. Ensure that your delivery platform is supported by employee incentives that are properly aligned for the achievement of long-term RMR growth. Finally, ensure you have the competencies to properly educate your target end users and achieve the level of engagement that is required for success.

If you’re an integrator trying to determine how to move your business from a transactional model to a recurring model, consider the following key success factors:

1. 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 must you make in infrastructure, organization and financial assets? Do you have the right people in your organization, people who can sell services and solutions instead of technology? Are you willing to make the initial investments? Are you willing to stick with the strategy?
2. A five-year RMR business plan: Once you have thoroughly evaluated your current situation, you are ready to create a business plan. I suggest looking at this program on 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 four and five you are driving real revenue and preparing to evaluate the growth strategies to pursue in your next five-year horizon. Having a fiveyear plan will help you to maintain focus on your goal.
3. Strong partners: Once you know which services you want to sell and have a general plan for implementation, it’s time to look for partners. Fortunately, plenty of firms are creating products and services that will help you implement your RMR strategy. As with 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.
4. Discipline of focus: Wanting to be in the RMR business will not lead to overnight success. It will take continual 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 attaining on-going respect from your customers is hard work.

There are no shortcuts to building value-based relationships with your customers. Building RMR is an outcome of the process of building this sustainable value proposition.

This article originally appeared in the October 2011 issue of Security Today.