Recurring monthly revenue (RMR) is as much a state of mind as it is a financial strategy. For systems integrators to reap the financial benefits of RMR, they may need to rethink the way they operate their business.
Historically, systems integrators have seen themselves as specialists. They have focused on a select group of technologies, cultivated the expertise and certifications needed to deliver them, and sought discrete projects where these technologies and expertise were required. If they have entered into service or maintenance arrangements, these were likely to be ad hoc rather than contractual, and payments tended to be intermittent.
Switching to an RMR model requires systems integrators to think of themselves as providers of solutions, not just systems. This means broadening their capabilities. In addition to equipment, they might incorporate connectivity, redundancy, power and monitoring, if appropriate, into a comprehensive offering. This also entails growing accustomed with the idea of trading some portion of upfront revenue for a steady and potentially larger stream of revenue over time.
Focusing on RMR does not mean, however, that systems integrators must give up their identity as specialists. Systems integrators who have made the transition to an RMR business model have typically targeted a well-defined customer segment. Take the example of an integrator who focuses exclusively on managed services for national account retailers. The company could develop a customized suite of services that exactly matches the needs of companies in this market niche. As this case indicates, the switch to RMR, in addition to generating a steady revenue stream, has the added benefit of creating a barrier to entry for competitors.
For their part, commercial customers are quick to see the advantages of working with systems integrators who have made the leap to managed services. Thanks to the RMR model, some of the capital expenditures that customers might have had to expend on system installation can be allocated for operating expenses. Customers also like the idea of a single point of accountability. Whether a component fails or an employee needs training, there is just a single vendor to contact.
In recent years, rapid advances in technology have further reinforced customer preferences for managed services. In the past, systems integration was often a turnkey process – once the system was installed, the customer managed and maintained it. As the pace of change increases, many customers are finding that they lack the experience or the inclination to invest continuously in new security technologies. No other provider is better positioned to assume this responsibility than the system integrator.
In addition to more constant cash flow and greater customer acceptance, there are also significant valuation and credit advantages for managed service providers. This is especially true for smaller companies that lack RMR and often find it difficult to secure a meaningful line of credit. The same company with contractual RMR can more easily secure a loan, and because valuations of security companies can be informed by RMR multiples, systems integrators or their investors seeking a buy-out can do so on much better terms.
Although it can be a challenge for a system integrator to think holistically about the services it might provide, it is ultimately worth the effort. A successful change in mindset can unlock value for its customers as well as the company itself.
John Robuck is Managing Director of the Security Finance lending practice within Capital One Bank's Commercial and Specialty Finance business. To request more info, visit www.securityinfowatch.com/12070948.
