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HOW TO PRICE REPAIR SERVICE PLANS
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Ken,
I am intrigued by the idea of the maintenance plans. I know that its a great tool to increase RMR as well as providing long term service for customers. However, I'm not really sure of the best way to implement one. I see companies with "Lifetime Service Plans" and "Maintenance Programs" on alarm systems ranging from $6.00 a month to $10 per month plus a $35 trip charge.
Is there some formula that you, or other professionals on the newsletter, recommend using to determine what that price should be? I recognize that an alarm system should not have the same rate plan as a surveillance system, and I've had customers wanting plans on both. I'm just not really sure where/how to start. Just looking for some guidance!
Thanks,
Benjamin Simmons
Shreveport Security Systems
Shreveport, LA
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Response
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First let's define the service. I prefer you use the term "service" or "repair service" to "maintenance". None of the Standard Form Agreements use the term "maintenance". In my mind you are not maintaining the system but repairing the system upon request. Commercial Fire alarms may require "maintenance".
The Standard All in One Agreements provide an option for Repair Service. Per call or a prepaid service plan whereby a monthly charge is imposed and all labor and material are provided to repair equipment that fails because of ordinary wear and tear. You know how to price per call service because it's based on a mark up on the cost of labor and material. But how do you price a service plan?
The $6 to $10 RMR for a "service plan" is probably for DIY systems that are not repaired but replaced. The customer is required to return the faulty component and a new or reconditioned one is provided. A service plan that runs $72 to $120 a year is not going to cover one service call. When pricing the repair service RMR you can't ignore the monitoring RMR. You know what your gross profit margin is on the monitoring because your expenses are fixed and constant. You can consider the profit on the monitoring when pricing the repair service, especially if that's how you market your services and price out your jobs. Generally however, the RMR for the repair service needs to cover the anticipated expense to repair the system within the service plan and still realize a profit. If you have an existing customer then you may have a repair history, but pricing out the repair service on a new system is more of a guessing game.
Certainly other dealers in the industry are going to have a better answer than I do and they are welcome to comment. You need to figure what service is likely to be required over the life of the contract.
The Standard Residential All in One has a 5 year year; commercial has a 10 year term. There is going to be service required. I'd plan on 2 service calls in the first year, maybe one each year until the last year or two of the term when more calls are required. If you get $120 for a service call on average then you know that $240 a year should cover you; that's $20 a month for service. That's for a residential system. Commercial would be more depending on the complexity of the system components. Be mindful that only ordinary wear and tear is covered; lightning, electrical surges, obsolete and end of life components are not covered. The manufacturer may cover equipment if within the warranty period.
Why RMR instead of per call model? Per call, no matter how much it comes to annually, is not likely to add any equity value to your company; it's not generally salable. Service RMR does add value to your business and Service RMR revenue is salable, though the valuation may be somewhat less than monitoring RMR.
The RMR repair service model works if you use it for most or all of your subscribers because the repair calls should average out over the subscriber base. You may have more call for one subscriber than anticipated and no calls for several others. If you price the repair service RMR correctly, sign up most of your subscribers with RMR repair service, use the Standard Form Agreements, you will be on the right path.
How do the rest of you price your RMR service plans?
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