Question:
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Ken,
I read all the “do’s” and “don’ts’” in reference to creating maximum value for RMR Contracts. All good points.
What if a company has 500 Contracts, which we know how to value, but also has a $4 million/yr. integration business. The integration business has no RMR Contracts. How do you value the integration portion of the business?
Thanks Ken.
Steve Rubin/Davis Marketing Group, Inc.
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Answer:
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Most industries have a formula to calculate the value of the business, usually expressed as a multiple of annual sales or gross receipts. As we know, that's not the formula for alarm subscriber accounts. There are business consultants and accountants who can evaluate businesses. An 'Integration" business is too broad a definition for me to take a stab at it, but I suspect the valuation will be similar to other business valuations where type of business, type of customers, competition, and other criteria come into play.
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Comment:
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Hi Ken,
This is in response to Bart's "big company" reply regarding the value of a company.
I would venture to say that the majority of small companies enlist greater loyalty from their customers. than any large company. It has been and still is the reason there are more smaller alarm installation companies and that between them they encompass more monitored accounts then all the large companies put together. Obviously the simple reason for that is, because the big ones can't do what the small ones can. That is, provide custom, personalized and specialized service. It's no secret that acquisition of accounts by a large company is more often a death knell than a enhancement for those customers. Sure, large companies have a lot of accounts, but their attrition rate is out of sight as compared to small companies. If small dealers didn't accumulate and "sell" the majority of alarm installations in this trade, where would the large companies get their accounts from? They certainly couldn't get them on their merits of providing better service than small companies. If small dealers didn't go to the extremes that they go to for their customers, they'd be out of business in no time at all. There would only be large companies. If it wasn't for the personalized service that small companies give their accounts you can be damn sure the only way that large companies could acquire and keep accounts themselves, would be to give systems away for free and lock the customers in on long term contracts. Hey, wait a minute, that's exactly what they do, isn't it? Hmmm, what a coincidence.
It is no big secret that at some point in a company's evolution that they will find that it is much easier to accumulate accounts by purchasing them. From that point forward, good service falls by the wayside as a requisite for being able to increase and keep their customer base. If your accounts are all locked into contracts, and you didn't acquire them on your own merits, and you'll pursue a customer in court if they default, then there's no need to provide good service. Seems to be the reasoning.
Now if they did intend to provide the acquired accounts with the same good service they are used to, then why do they need to have them bound by long term contracts ? If they provided the newly acquired accounts with the best service possible, there would be no reason for the customers to leave after the transfer. Can you think of any other reason that the large companies need to have the accounts locked in to long term contract? I can't. So, the requirement of long term contracts is an admission that they know that they cannot and will not give better service.
Certainly a small company must have his accounts under long term contracts, but only because the large company will pay more money for them in an acquisition. Since the larger companies have set this requirement, the small companies have to do it so they can get top dollar when they sell, even though it's subjecting their loyal customers to a "trap". What small company would be dumb enough not have his accounts under contract? However, in reality, if you really think about it, every small company who has their accounts under long term contracts and ultimately sells them, is setting his good loyal customers up to be on the receiving end of the typical poor servicing, impersonal, detached relationship of a large company. That all of this actually does take place is much evidenced by Bart's obvious unfamiliarity with the factual difference between a small company's attributes and capabilities as compared to a large company and his belief that they have the same attrition rate, should expect to die of attrition, and have the same reliability and customer satisfaction rating.
Gene
Reliable Alarm