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Question: renewal contracts
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Ken
I'm starting to see a pattern as I'm sending out monitoring renewal contracts. We
typically leave the term blank and let the subscriber pick one to five years and
then we usually increase their rate $1 or $2 a month depending on what they're
currently paying to try and bring them up to at least $25.00. Very often they end up
canceling.
Some were only paying $18 or $19 per month and we raised them to $20 or
$21 - is that so unreasonable? I can't imagine they're going elsewhere and getting
the same low rate. Also a lot of customers didn't realize they had a contract to
begin with and are opting from making the commitment. We're starting to think it
might be better to NOT send out renewal contracts and take our chances instead of
losing so many accounts. Any thoughts?
ANON
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Response
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There are a number of dynamics in play here. Let's see if we can identify a few.
The overwhelming preferred business model in the alarm industry is the RMR contracts - recurring monthly revenue. It provides cash flow and is the single most influential factor when calculating the value of the business.
Alarm monitoring contracts, and other alarm contracts with RMR to a lesser extent, need to have a term and need to have an automatic renewal provision. Why? Because without an automatic renewal the contract, and all services provided under the contract, would come to an abrupt halt upon expiration of the contract. Can you imagine fire, or PERS, or other alarm services coming to an end without any notice to the subscriber? Yes the contract could provide that the alarm company will give notice that the contract is coming to an end, but no statute requires such notice - only a notice that the contract will automatically continue.
Only a handful of states have statutes that affect automatic renewal. You can find them here: https://www.kirschenbaumesq.com/page/alarm-law-issues If you are not in a state that legislates automatic renewal you are free to have a renewal term as long as it's not unconscionable. If you are in a state that has legislation then you need to comply with the statute, usually for notice to the subscriber.
Ever state permits automatic renewal, though some have notice requirements. The Standard Form Contracts are customized state by state so we provide for any notice that's required in the contract. Written notice to the subscriber when the original term is about to expire and auto renewal is your responsibility, and few alarm companies actually comply with the notice requirement, calling into question the enforceability of the renewal clause.
At the end of the original or a renewal term you have several options. You can terminate. You can rely on the automatic renewal provision. You can send out a new contract which you describe as your procedure. The new contract you send out has an increase in the RMR. No wonder you are meeting resistance from subscribers. You forget that they too have options, and you have given them the option of signing a new long term contract with an increase or looking elsewhere for a cheaper service.
The Standard Form All in One agreements have been carefully designed with tremendous industry feedback. The forms have evolved over time and continue to evolve to keep pace with technology and changing times. You need to evolve as well, and that means changing business practices that don't work. Your renewal procedure doesn't work. There's a better way, and it's laid out in the All in One agreement.
Your RMR services are for a stated term, 5 years for residential and 10 years for commercial. You are permitted to increase your RMR each year up to 9% and the subscriber has agreed to the increase. Don't wait for an optional renewal term.
To avoid enforcement of the notice requirements for renewal the All in One agreements renew month to month. Generally no notice is required for month to month renewal. You can rely on the auto renew provision but you'd be correct in thinking that your alarm contracts would be worth more if in original term and not renewal term, which is just a little better than expired term. If you want to get the subscriber to sign a new original term agreement you are going to have to offer some incentive, and an increase isn't going to cut it. A decrease might. A system upgrade might. Even a free battery powered CO or smoke detector might. This is really an issue for the marketing experts, not lawyers. Check the marketing guys out on The Alarm Exchange under Marketing for the Alarm - Security Industry: https://www.kirschenbaumesq.com/page/alarm-exchange?keywords=&category=marketing-for-the-alarm-security-industry&submit=+SEARCH+LISTINGS+
I think it's a better idea to have subscribers sign new contracts rather than rely on renewal, but that isn't going to work for big companies with lots of subscribers; it's just not practical. But for most companies it's a good idea to have face to face with your customers from time to time, and every 5 years isn't too much to expect. In that time you should be able to offer newer and better technology that not only justifies your new contract but increased pricing. You might also consider an increase in the fourth year and then a role back price for the new contract. Talk to the marketing guys about that idea. In the meantime, make sure you are using the most up to date All in One.*****************
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GPS Tracking
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Ken
Regarding GPS tracking in commercial vehicles:
Not to promote one firm over another, but we have used Fleetmatics for some years now for our 40+ vehicles. The benefits have been not only employee location and time verification for internal purposes but being in the fire alarm and fire sprinkler industry, we are occasionally inquired upon as to our actual time on sites by customers. This is the result of the fact that the customer (particularly HOA’s whereas there are no facilities department personnel) may only see the technician when actually performing work and did not visualize the draining of the system (fire sprinkler risers) and the recharging/air bleeding after fire sprinkler riser work. Thus, Fleetmatics reports are very user friendly and easy enough to forward to customers in the event they request verification of travel time and time on site (usually applies to after-hours emergency service calls). This service is also useful when technicians dispatch directly to job sites and/or leave from the site without return to the office, thus providing reference support to submitted time sheets.
Go to their website for detailed information –
Richard Schwank, Vice President, Operations - General Manager
Statcomm Inc.
Mountain View, CA
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TO SUBMIT QUESTIONS OR COMMENTS REPLY TO THIS EMAIL OR EMAIL Ken@Kirschenbaumesq.com. Most comments and questions get circulated.
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Speaking Engagements
If you would like to schedule a free live video/webinar presentation for your association meeting or event contact Eileen Wagda at 516 747 6700 x 312.
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Alarm Association of Greater St. Louis. September 16, 2014. at Tech Electronics HQs office at 6437 Manchester Ave, St. Louis, MO 63139. Meeting is from 11:45 – 1:30 Video conference presentation starting at 12:15 CST. For more information or to register contact Tony Drago adrago@tyco.com www.alarmstl.org
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NYSESA - September 17, 2014 at Honor's Haven Resort, Ellenville, NY. This is the NYS Electronic Security Assoc annual meeting. Presentation on updated contracts and current legal issues will be at 10:30 AM. For more information or reservations contact Dale R. Eller, Executive Director (814) 838-0301 dalereller@itzsolutions.com
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Texas Burglar and Fire Alarm Association. October 1 - 4, 2014, annual convention at San Luis Resort Spa & Conference Center, Galveston, TX. Register here: http://tbfaa.org/tbfaa-2014-convention-trade-show-attendee-registration/
For more info contact Debi at 281-859-4569. Brad Shipp, Executive Director
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Alabama Alarm Association. AAA's Fall Meeting and Trade Show - October 21, 2014 from 3 to 5 PM at DoubleTree Hotel 808 South 20th Street Birmingham, AL 35205 for more info contact AAA Executive Director: director@alabamaalarm.org (205) 933-9000
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