Subscriber Discussion

RMR On A Quarterly, Semi Annual Or Annual Basis?

JH
Jay Hobdy
Jun 11, 2017
IPVMU Certified

For those that see the value in RMR, is there any less value if the client is being billed quarterly, semi annually, or annually? Is it even still called RMR?

 

Most commercial accounts have some specialized way to submit invoices, email a certain address, upload invoices via a portal, etc. That is a lot of labor to process a $20-$30 alarm monitoring bill. So reducing the billing frequency makes sense for client and integrator.

 

On a monthly bill, customers are just used to seeing it, and pay it every month ( I assume). But if billed less frequently, do they stop and question it? Has anyone seen more cancellations from clients being billed less frequently?

 

On a business buyout, is there less value if the accounts are billed less frequently?

 

 

JH
John Honovich
Jun 11, 2017
IPVM

For those that see the value in RMR, is there any less value if the client is being billed quarterly, semi annually, or annually? Is it even still called RMR?

If you billed annually or quarterly you could just adjust it to monthly, as the Alarm Capital Alliance RMR definition notes:

This number is not impacted by billing frequency. If a customer is billed annually, the total amount billed annually is divided by 12 to determine the RMR.

As for your other point / question:

On a business buyout, is there less value if the accounts are billed less frequently?

The bigger question would be the length / terms of the contract. If those are the same (i.e., both have X year terms), than that would minimize impact on valuation.

Btw, my experience with IPVM billing is consistent with yours. Most businesses would prefer to pay once per year as the administrative hassle of dealing with monthly payments and related paperwork add unnecessary cost.

One other benefit of annual billing is, by definition, there will be no attrition for at least 12 months. Of course, most monthly billing for alarm monitoring come with 3 or longer year contracts which reduces attrition itself. 

Avatar
John Bazyk
Jun 11, 2017
Command Corporation • IPVMU Certified

Automatic monthly billing from a checking account is more valuable to potential buyers and is better for cash flow management. Even billing fire inspections monthly is preferred rather then once per year. 

Some businesses don't like to do this but most are more than willing to send it to CC or checking. 

JH
John Honovich
Jun 11, 2017
IPVM

Automatic monthly billing ... is better for cash flow management

Why? Annual billing effectively pre-pays the 'extra' 11 months relative to monthly billing. Surely that is better for cash flow management, yes/no?

JH
Jay Hobdy
Jun 11, 2017
IPVMU Certified

I think monthly billing provides more balanced income. I could see where some months would be real high and some months real low. That might be hard to depend on. With monthly billing you can say I know i have XX amount of profit coming each month to subsidize a new tech, car payment etc.

 

I was talking to a colleague and he says he charges for hardware, 6 months of monitoring, and no labor. He does not do a contract. He is counting on the customer to just pay for the next 6 month period.

 

Seems odd he would not do a contract?

 

 

JH
John Honovich
Jun 11, 2017
IPVM

I think monthly billing provides more balanced income.

That could be depending on how seasonal your new customer acquisition is.

With monthly billing you can say I know i have XX amount of profit coming each month to subsidize a new tech, car payment etc.

But with annual billing, you get more money up front and can simply save that for months where you have less new customers or renewals coming in.

To be clear, I do see advantages for monthly billing but from a cash flow perspective clearly annual is better since you get more up front and therefore can either invest that or save that (interest free) for periods where cash flow may be lighter.

Avatar
John Bazyk
Jun 11, 2017
Command Corporation • IPVMU Certified

We charged annual billing for years when it was only $250/year, it made sense then. Now we're getting $50-200/month/account and once per year billing gets pretty expensive especially if fire inspections  and maintenance are rolled in. We have enterprise customers with hundreds of accounts paying monthly.

As for cash flow, you have a lot of costs associated with keeping that account alive, cellular charges, monitoring, app fees...etc. all those companies bill us monthly. It makes sense to charge when you're paying for the services. 

If this was the 90's and we were only getting $20/month and only paying $3 for monitoring billing once per year would be a no brainer. But with thousands of accounts it doesn't make sense to write checks that big. 

JH
John Honovich
Jun 11, 2017
IPVM

once per year billing gets pretty expensive ... write checks that big

So if annual payments are making customers want to cancel the service or if the customers have problem finding the money to pay once per year, that surely is a valid reason to charge monthly.

Here is a service provider that has a similar experience:

I was initially drawn to annual billing when selling service plans. Over time, however, it became apparent that this practice carries with it a number of drawbacks that make monthly billing a much better choice. The biggest challenges arose when the plan would come up for renewal. I found myself having to fight hard to retain the contracts every year. When faced with the lump sum payment, clients would question the value of my service, causing me to have to pitch the plan all over again. Not only did this make retaining the contracts a challenge, it made raising my prices to cover rising costs virtually impossible. Lastly, the lump sum payments on these plans were hard to collect, causing me to spend a disproportionate amount of time chasing accounts receivable or negotiating invoices.

That is a separate issue (churn) vs cash flow. Clearly pre-payments (i.e. annual vs monthly) are better for the recipient's cash flow but if such pre-payments are increasing churn notably than it is worse overall for the business.

Avatar
John Bazyk
Jun 11, 2017
Command Corporation • IPVMU Certified

One other advantage to billing monthly is that accounts are always changing. Businesses and consumers add and remove services all the time. When billing monthly it's very easy to adjust and keep moving forward. We've seen too many issues where someone adds a cell radio, we bill to the end of their cycle, add it to the next billing cycle and the customer is price shocked. When billing monthly this doesn't happen. Also if a customer has an issue it's really easy for us to give them two months free in the billing software and have it startup again when the free period is over. We do managed systems as well, so if we add/delete/change credentials we just put it on their next months invoice and it's automatically changed to their account. I got this idea from dish network, when they came to install my dish they offered to come back the next day and mount my TVs for $100 each and that included the mount. Figured it was a steal. They came back and did their thing, I signed the work order and it showed up on my CC the next month added to my normal monthly payment. 

I guess I just prefer the idea of billing and paying monthly because of the flexibility that it gives us. 

Avatar
Robert Baxter
Jun 11, 2017

There is another part to the sale of RMR accounts not mention above and that is unearned revenue. There is a calculation done on every account that is not a monthly billing, and calculate the unearned income depending on when the purchase transaction takes place with respect to the billing cycle for every account.

For example if an annual bill was sent out the prior month, then the purchaser would deduct 11 x RMR from the purchase price, 2 months prior deduct 10 x, ... or if the annual bill is due to go out the next month there will be no unearned revenue deduction. The calculation is done similarly on semi-annual and quarterly billings. 

UI
Undisclosed Integrator #1
Jun 12, 2017

At our central the most popular option by far is quarterly billing. Semi/annual are too large of bills for a cash flow standpoint. Generally monthly bills are a PITA for accounting to deal with monthly at larger companies so Quarterly wins out. I would guess 80% of our accounts are on quarterly.

(1)
New discussion

Ask questions and get answers to your physical security questions from IPVM team members and fellow subscribers.

Newest discussions