more comment on getting new contracts signed /
roll over contracts [automatic renewal]
June 13, 2012
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comment / question
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Question about mailing new contracts. Did you include a return envelope with postage paid, or did you leave it up to the customer to provide that. Great idea Glenn, especially the blank year line.
John Elmore
Security By Elmore Inc
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Here is article above refers to
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Comment in response to June 1, 2012 article [printed below]
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In response to Colette Came [April 3, 2012 article] of Came Security, consider this. No one wants to take the time to get new contracts signed, especially every one or two years. But if you use basic psychology you may find your customers will solve that problem. A couple years ago I sent via US mail renewal contracts to my customers (those that were ending or ended their initial monitoring term) with the number of years left blank and my signature missing. They received two copies.
I included a form letter indicating their rate for the next term, often the same rate as the past term, and offered them a one year, three year, or five year term. I highlighted the blank line where they were to fill in the number of years. They were to sign the contract and the letter and return them to me. The letter indicated their current or revised rate and that I would not raise their rate during the term that they chose and filled in. I noted that upon receiving the paperwork back, I would sign the contract and return a completed copy to them.
Almost every contract returned was for five years. People like to save money and they saw this as an opportunity not to have their rates increased.
Glenn Smith, Owner
Alarm Service Company of N.J.
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Response
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I have consistently recommended that alarm companies get their subscribers to sign new contracts periodically rather than depend upon automatic renewal provisions. The question of "how do I get all these contracts signed" often comes up, and Glenn's experience is well worth noting. I believe the success rate of a mailing is pretty fair; well worth the effort. Come up with an idea, as Glenn did, and you increase your results. Why bother?
A new contract gives you the opportunity to renew your relationship with your subscriber, the opportunity to survey the system and services, upgrade and up sell, increase your RMR and increase the value of your asset, the contract. A new contract has more value than an older one, especially one in renewal.
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roll over contracts [automatic renewal]
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Ken,
I always enjoy reading the news you put out. It has enlightened me on numerous occasions. I know you have had extensive conversation about contracts in the past. But I don’t remember anything written about a roll over contract and the equity or lack of once the initial contract date has expired and just rolls over. The contract that I am using is a 1 to 5 year contract. After the initial expiration date has been reached the contract rolls over until we receive a of 30 day cancellation notice. Once the expiration date has been reached does the contract still hold equity to the company for a loan or selling price of the company? Or does the 30 day out upon expiration of initial contract date void that? I will be looking forward to hearing from you. Keep up the great work.
Best Regards,
Bill Rhodes, Service Manager
Critical System Solutions
St. Petersburg, Fl
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Answer
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Your alarm contracts are your single most important asset. The recurring revenue feature of the alarm contracts is the most influential part of the valuation equation. We express the formula in terms of a multiple times the recurring monthly revenue. The RMR is of course generally a known quantity. If the multiple was a constant then of course valuation would be easy. But establishing the multiple is, at least to some extent, subjective. Perhaps the finance people who have entered this industry have come up with mathematical calculations, but in the end I believe that those in the industry who have a great deal of experience valuing alarm assets use intuition and experience.
There are those who will take the position that all alarm contracts with RMR have essentially the same value. I don't think that's true. I think that alarm contract valuation takes into consideration 1) the contract form, 2) whether in original term or renewal; 3) whether for monitoring, service or other; 4) whether residential or commercial; 4) whether fire or intrusion; and 5) aggregate RMR. These and other factors help determine the multiple range.
Contracts in proper form are more valuable then contracts that have deficiencies. Contracts with longer term are more valuable than contracts with lesser terms and contracts in earlier stage of the original term, though not necessarily recently signed contracts, have more value. Contracts in original term are more valuable than contracts in renewal terms.
To get your company valued, visit WhatsMyAlarmCompanyWorth.com