Why You Need to Think Differently About Profitability
Recurring Monthly Revenue and ACaaS
RMR is a buzzword in access control right now, and if you’re like many integrators, you are looking for ways to increase it. That’s because recurring revenue has a higher margin and increases the value of your business more than traditional installation revenue. That’s money in the bank when you sell or pass along your company.
While RMR is great for building the enterprise value of your business, future value doesn’t pay the rent. For that you need to look at profitability. Fortunately, RMR stands out on this front too.
RMR Is Good for Business Value in the Long Run…
You’ve likely heard about how valuable RMR is before, but the surprising thing might be how much more valuable it is. The margin on recurring revenue is twice as high as installation revenue, and RMR adds 15 times as much value to your business as revenue from hardware and installation.
The graphic below shows how this plays out for $1 million in revenue. The choice between a $200,000 return and a $3 million one is pretty clear.
…And Covers Your Bills in the Short Run Too
Selling an RMR contract might mean sacrificing some upfront installation revenue, but the total value and profitability of an RMR sale surpass that of an installation-only sale in years 2 and beyond.
To see how this concept works, let’s look at an example of how profits stack up with a traditional one-time sales approach versus a recurring subscription model.
Traditional Access Control Profits
Let’s consider an example access control project with five doors priced at an average of $2,500 per door. According to industry research, average gross profits for access control projects are in the low to mid-20 percent range. If your profits are similar, then a typical job would profile as follows:
Subscription Model Profits
In an RMR sale, profits earned at project completion look a bit different, but they quickly surpass earnings from a traditional one-time job. Here is the math for the same five-door installation. Profits from installation are lower than in a traditional sale, but they are offset by the added monthly revenue from the subscription contract. In years 2 and beyond, an RMR sale really shines with a predictable revenue stream at a 50% gross margin, twice that of the installation.
Take the Next Step toward Increased Profitability
Only you can decide what works best for your markets and your customers, but it pays to give a subscription model serious thought. For more information on creating an RMR stream for your business, check out our white paper, How to Increase Your RMR with Cloud Access Control.