Unlock the Value of Predictive Recurring Revenue

July 3, 2017
Having a significant amount of predictable recurring revenue will significantly increase the dollar value of your locksmith business.

The name of the game in any successful business is “predictable cash flow.” In case you have never heard of it, I would describe it as ‘the consistent, repetitive flow of capital into your company that you can always count (bank) on.’ The road to achieving it is commonly referred to as Recurring Revenue.

Examples of this highly-successful business model include cable television; satellite TV; razor blades delivered to your door through the mail (Harry’s); alarm systems that serve and protect not only homes, but commercial firms and institutions as well; maintenance contracts; and much more. You can bet that organizations, such as those mentioned above, earn a considerable sum of money when you look at the long term earning potential.

"Sure, a dollar in sales is a dollar in sales. But the more predictable that dollar is, as in the more likely that you will receive that dollar from your customer every month, the more valuable it becomes," says Jim Schleckser, author of  Build a Better Business With Recurring Revenue, published in Inc.com in October 2014, https://www.inc.com/jim-schleckser/build-a-better-business-add-recurring-revenue.html.  "When you begin to multiply that dollar by adding new customers and creating an annuity of cash flow, you begin reaping the benefits of what is known as recurring revenue stream. And people pay for that!"

Recurring Revenue Mindset

Probably the best thing about recurring revenue (RR) is that you do not always have to work hard to earn it. Matter of fact, some sources of RR are earning the company a monthly gold mine while the owners or corporate officers sleep, eat, play, and relax. What can be better than that? The simple fact is, locksmiths leave a ton of money on the table when they walk away from a job that’s rife with additional opportunities.

While discussing the idea of recurring revenue with several locksmiths during the research phase of this story, I was taken aback by the disrespect that bordered on contempt for the very idea of asking a client, any client, to pay a monthly sum for one thing or another.

One locksmith, who prefers to remain anonymous, shared this thought regarding RR: “I have no need for recurring revenue. I’m really busy right now and the money we make is good. Most of my customers are commercial and the locks I install usually last for 20 years or more. So what do I have to offer them that would involve a monthly fee? If I were even to suggest it, I might lose a significant number of good accounts. Locksmithing isn’t like alarm systems.”

Take a Lesson From the Best

I’m going to share with you the secret to recurring revenue success. Let’s say that an alarm or locksmith company has 5,000 monitored accounts and they receive an average of $30 a month per account. Let’s set the cost for this monitoring at $6.00 per month per account. Let’s do the math:

5000 x $6 =$30,000 cost

5000 x $30 =$150,000 gross

$150,000 - $30,000 = $120,000 net profit

How hard do you think alarm dealers work for that kind of money? Once an alarm system is installed and the monitoring account is set up, the only thing left to do is walk to the bank and deposit the cash. The bottom line is that all these people that sign up for alarm monitoring do so because they want to. No matter what you may think, if your service or product fulfills a need or want, and if you don’t go overboard on your monthly fees, people will sign up, especially if they do not have to pay a lot up front. 

Here’s the big secret to the success that the alarm business has seen over the years. They reduce the upfront installation fee because they subsidize it with a 36- or 60-month contract. Not all alarm companies use the same formula, but it’s typical for the agreement to realize the break-even point after the first 12 to 18 months. From that point on, it’s all profit, not to mention that the average lifespan of a monitoring contract is 7 to 10 years.

When you go to sell your company, when it’s time to retire, having 5,000 accounts of access, electronic locks, mechanical locks—it makes no difference what it is—having that predictable cash flow will earn you a prosperous retirement beyond your wildest dreams. The going rate for those accounts on the alarm market is ten times what they earn in a year. Isn’t that kind of profit potential at retirement worth working hard to achieve now, while you’re still able to do it?

I’m sharing this with you so you can be innovative with your own services and installations. The fact is, the time for feeling embarrassed about offering a product and/or service that requires a monthly fee is over. As Schleckser said in the opening quote, “…people pay for that! " and that they do!

Unlocking Recurring Revenue for Locksmiths

There are lots of ways that locksmiths can earn recurring revenue. If you have a client that calls periodically to have locks rekeyed, here’s a recurring revenue opportunity if ever there was one. Offer them a monthly price that covers any and all service calls that pertain to rekeying locks. First, determine how many times they called you the previous year to rekey their locks. If possible, determine the average time per account so you have an actual cost in mind when you begin negotiations. This will enable you to make an intelligent decision where it comes to charging your clients. Every client will be different so you will have to do the math separately for each one.

Another possible recurring revenue opportunity for locksmiths is the latest electronic Locks with wireless communication. The actual communication between lock and smartphone, for example, can take place using the client’s own WiFi. Near Field technology can also be used when the lock and the smartphone are relatively close together. Through ZigBee and Z-Wave technologies, as well as 802.11 (WiFi), mobile devices also can be used to control the client’s locks from anywhere in the world. 

If you’re talking about an entire building filled with these locks, you could very well sell them the lot with installation as well as a monthly fee to manage the programming aspects. The other possibility is to offer installation and management of the system with a low upfront fee and a larger monthly fee with a longer contract period.

There’s one last possible opportunity to provide managed services with regard to electronic access control. Many customers would rather pay someone else to remotely manage their users then to take the time to learn how it’s done. The exciting part of this is the job of managing access accounts can be achieved using a mobile device, like a smartphone or tablet. The access control part can be pitched to larger commercial clients who have a lot of employee or tenant turnover. If nothing else, charge them a per-user fee to manage their access control system for them.

As an aside, many tax-savvy clients will tell you that it’s better for them to lease your products and services and pay for it monthly than to pay for the system up front. In other words, you retain ownership of the equipment’ you charge them for the installation, and run the lease of the equipment as a monthly fee. And if you do not have the upfront money to fund the project, not to worry, there are equipment leasing companies out there who will be glad to assist you.

Key replacement agreements are also a potential way of earning a monthly stipend. This program could be just as effective in the commercial area as in residential. Coming up with the how, what, where, and when with any one RR idea will take ingenuity as well as a sound sense of money.

Another possibility is the leasing of key machines with conditions written into the contract where the client must purchase all key blanks and other related hardware from you. Let’s say you have a client who has a large campus full of buildings. Let’s also say that these clients, because they deal with tenants, are forced to rekey constantly, due to the coming and going of tenants. Apartment complexes and college dormitories are ideal for this.

Here’s the best part ‑ the client must pay a service fee when a locksmith tech visits to provide additional training on how to operate a key machine or effectively re-pin locks and cut keys. The incentive for them is obvious while for you it means more predictable recurring revenue. That might not mean much to you now, but when you decide to sell your locksmith business when it’s time to retire, it will become a big issue. Having a significant amount of predictable recurring revenue will significantly increase the dollar value of your business.

If you intend to make a go of access or electronic alarm systems, if you have questions, feel free to contact the author of this article. Send an email to [email protected], or call 330-956-9003.