4 Factors to Consider When Creating a Recurring Revenue Model
Transitioning to a recurring revenue model may not be an overnight move for integrators, however there are a number of services that can be built and delivered in short order to help move integrators toward generating greater amounts of recurring revenue while offering greater value to customers.
For as long as I have been in the AV contracting industry, I have been around and part of the endless conversations about the importance of recurring revenue.
“We need more service revenue” and “we need more predictable recurring revenue” are the echoing refrains coming from the owners and leaders of our integration firms. I have also watched this talk fall flat time and again as companies try to act.
Integrators take only small steps, if any, toward truly reinventing their businesses to be service focused, recurring revenue generating machines.
Related: Herman Provides One-Two Punch for Companies Targeting Service Contracts
In fairness, the transition isn’t easy—it’s almost the polar opposite of what integrators are used to, so making the transition isn’t going to be simple. With the rapid erosion of profitability in hardware, and the continuous forces of IT, security, and mobile changing the way users are experiencing AV, the change has moved from being a nice idea, to an important idea.
At this point, dare I say, it’s a requirement for integrators who seek to survive and thrive into the future!
I still believe that service revenue and recurring revenue are entirely possible for integrators. And while moving to a complex, cloud-services business may not be an overnight move, there are a number of services that could be built and delivered in short order. These services would move integrators toward generating greater amounts of recurring revenue while offering greater value to customers. For example:
1. Are you building warranties and service into your existing contracts?
- Many integrators are incorporating service right into their installation projects. However, I have spoken to a large group that still sell service separate from an installation project, and they limit the service offered to include only warranty work. Adding more comprehensive service into your initial install not only helps with the profitability of maintenance, but also serves as a terrific opportunity to sell a more complete service offering.
- Some integrators worry about pricing out of projects, and combat that by making service part of the deal. While I think this tactic requires more selling, I do understand why many choose to add it as a line item. However, never understate its importance. It’s important for the integrator, but also for the client. Systems require a lot of maintenance. As an integrator, you can offer piece- of-mind while building up that recurring contract business.
2. Do you have resources to support service nationally?
- Even smaller organizations can have national footprints. It seems to be part of the growing mobility and internet age to have companies spread across multiple states and even countries. Partnering with the right subcontractor, can expand your capability to offer broader services (and of course integration) that will expand your reach.
3. Are you compensating your sales team appropriately for selling service?
- Failure to compensate sales professionals for selling service has long been a problem. We want our sales professionals to push our service products, yet I commonly see service sales make up the smallest portion of a sales person’s compensation. As company leaders, I believe it is important that we incentivize the behavior we seek most. If we want the sale of service contracts or other types of services to be a priority, then we need to provide the greatest benefit for those sales. I have no doubt that compensation drives behavior, but if we continue to incentivize old behavior, then we will continue to get old results.
4. Do you have appropriate staff to support your efforts?
- Sometimes sales and service products aren’t enough. We also need to make sure we understand the requirements from our staff to deliver good service. This may mean shifting roles, creating new roles, and bringing in new people to support the commitment of a service oriented business. Introspection is required to determine whether your current staff can migrate to a service approach. Once you’ve made that determination, it’s important remember that a service business means taking response and results seriously. Making response and results a priority from the top down may mean that employees are required to meet new expectations, and new blood can help to energize your efforts as well.
Perhaps your organization is well underway in terms of developing a recurring revenue model, and if you are, then you are leading the charge. I still see many slow or non-existent migrations, and it worries me. The good news is that there is still time (only a little) to get moving.
If you have progressed to a recurring revenue model, I would love to hear more about what is working and what isn’t. If you haven’t…I must ask, why haven’t you taken the steps needed to develop a recurring revenue model?
This blog was originally posted on www.herman-is.com.
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