Page 52 - Security Today, March 2018

RECURRING REVENUE
By Scott MacDougal
THE NEW METRICS OF TRACKING
decade ago, Recurring Monthly Revenue (RMR) tracking looked like this:
Sadly, this wonderfully simple approach rarely works these days, due to the rapid adoption of interactive services (Alarm.com, Total Connect, etc.) and the increasing stratification of subscriber service levels. Yes, most dealers still do have a base of plain vanilla digital, or cell-based, accounts at standard base rates. With the wide range of new services now available, bundled or a la carte, the metrics of tracking and reporting RMR are evolving quickly. Dealers need to embrace both consistent account management processes and soft- ware powerful enough to give them the key information they need.
“When dealers talk to me about their RMR, the first thing I ask is for them to break it down for me. That’s often when things bog down. Good RMR reporting is one of the biggest challenges we face,” said Jim Wooster Jr., president of Alarm Financial Services, Corte Madera, CA.
Because RMR is the basis for dealer valuations both in purchase and financing transactions, an upgrade of our approach to RMR may be in order. It has become far more complicated, so we need to re- think our process for defining RMR, tracking RMR growth, tracking attrition, accounting for rate increases/decreases, etc. As Cornerstone has worked with dealers, and especially with the funding companies that finance them, we’ve evolved our software and reporting to try to keep up with this brave new world. This white paper shares some of our conclusions.
DEFINING RMR
The first step is defining RMR—below is a list of typical recurring codes:
tion, to avoid overstating that percentage. Some funding companies would exclude maintenance agreements from their funding formula. The bottom line for defining RMR is that, as with many things in life, it depends. So from a software perspective, it’s important to
provide a code-by-code opt-in such as this:
Core Recurring Filter? Track selected RMR e.g., eligible for funding
Flagging ‘Monitoring’ as ‘Core Recurring’ while excluding ‘Pay- ment Plan’ allows precise tracking and reporting, and the flags can be quickly adjusted based on who’s getting the reports.
In most cases, buyers/lenders will also disqualify seriously past- due accounts. For that reason, it is easiest if at least one software re- port provides an RMR tally with a ‘Collateral Calculation—RMR for accounts with aging less than 90 days’ filter built in.
Collateral Calculation — RMR for accounts with aging less than 90 days = $23, 355.74
COUNTS OR DOLLARS?
Once RMR is clearly identified, the next issue is whether to track dollars, counts or both. The old model was “average RMR” times the number of accounts, to arrive at a valuation or a funding base. In our view, the best RMR metric is Total RMR Dollars, after adjusting for non-core/non-qualified recurring charges.
Below is the first line of our software’s RMR Tracking Report:
A buyer/lender cares most about the green number above, but we also provide both the number of accounts (site locations) and the number of charges. Those numbers definitely tell a story. If the num- ber of recurring charges are about the same as the number of ac- counts, that suggests that either the dealer likely has a more tradi- tional base of accounts—few add-on services—or that the dealer bundles charges into a single amount. In the above example, the aver- age account has roughly 1.8 charges and pays an average rate of over $75. Those metrics would normally be quite attractive to buyers/ lenders, because of the high rate and the relatively high ratio of charg- es to accounts.
So dollars are most important, but counts are also very useful to help establish averages, as noted in the paragraph above. Good ac- count management software should provide both quick summaries and trends over time, as well as underlying counts and the ability to export raw data details to spreadsheets in order to allow for slicing and dicing data as desired.
TRACKING RMR GROWTH
Growth in RMR is more complicated these days, and can be the result of:
Dealer accounts:
1,000
Avg. rate/account:
x $25
Dealer RMR:
$25,000
Recurring Changes Summary
Amount
Charge Count
Account Count
Beginning RMR
(includes Section 5 Continuing RMR)
76,418.38
1,819
1,012
Code
Description on Invoice
MAI
Maintenance Agreement
MED CSS
Medical Monitoring Services
MON
Monitoring Service
MUSC CEL
Cellular Monitoring
OCR
Open & Close
OCRSUPV
Supervised Open Close
PMT PLAN
Payment Plan
POTSLINE
Monthly Monitoring Phone Line
TC2
Total Connect Stand Alone
TC2 S
TC2 Adv with Automation
While all of these are recurring charges, buyers and funding com- panies will not likely include them all in valuations. By definition, payment plan charges will roll off at the end of the agreed-upon pay- ment term, so would usually be excluded. Dealers using payment plans would want to exclude these amounts when calculating attri-
• • •
New accounts (brand new, or re-signed) New services added for existing accounts Rate increases to existing accounts
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0318 | DEALER STRATEGIES