You can read all of our articles on our website. Having trouble getting our emails?   Change your spam controls and white list 

Is month to month renewal best option or worthless  / webinar registration
April 28,  2022
Is month to month renewal best option or worthless
          Your contracts have an initial term and then renew on a month-to-month basis.  I have always believed that this is fine as, after the initial term, there is typically no creation cost to pick up and month-to-month contracts make sense.  A friend of mine believes that they have no value as the customer could leave at any time, but I believe that monthly customers who continue to renew show a high level of satisfaction with their company.   What is your opinion on month-to-month? 
          I am sure that opinions vary and experience in the industry comes from different perspectives.  I have a few perspectives.  I’ve performed almost two hundred valuations through What is My Alarm Company Worth?.  I’ve handled over 500 buy-sell alarm contract transactions, probably a lot more, and I’ve handled around a half million collection cases pursuing alarm contract RMR, probably a lot more. Month to month v longer timer renewal is something I've given a great deal of thought to.
          Alarm contract valuation is necessarily somewhat subjective, though I wouldn’t say arbitrary and capricious.  The reason is that potential buyers have different needs, expectations and goals; some accounts are worth more to them than the next potential buyer because of the “fit” these accounts have with the buyer’s existing business.  For example, RMR that includes repair service RMR or inspection RMR isn’t particularly attractive to a buyer looking for monitoring RMR and who doesn’t have technicians available for service or inspection.  Those same accounts may be particularly attractive to a local competitor who covets the accounts. 
          Offers to buy or value alarm accounts are usually expressed as a multiple of the recurring monthly revenue.  The range can be quite wide considering local, mix of accounts, types of services, monitoring RMR and other RMR, central station and whether on segregated movable lines, third party vendor involvement, pricing both to the customer and from vendors, quality of installation and service, and risk factors based to a considerable extent on the contract with the customers.  Accounts that score low on all factors will, predictably, bring the lowest multiple offers, if any at all.  Accounts scoring high on each factor will likely bring the higher offers.  Of course a buyer needs to predict attrition, cost of service and return of investment, which is why we know the general range of alarm contract value. 
          To even get on the scoreboard the alarm contract will need an automatic renewal provision. An alarm contract that has no automatic renewal, that terminates at the end of the stated term, is dangerous and too risky to enter into, and too risky to buy.   The length of the original term is most important to the installing company who makes the investment in the account; part of the creation cost.  A buyer of the account has only the amount paid for the account as a creation cost.  Both the original installer and the buyer of the account have to have an expectation that the customer will continue to pay long enough to recover the investment and hopefully make profit.  And of course the RMR model promises that the realistic expectation for longevity is “forever”, which we know isn’t true but we can all have dreams. 
          The above question puts the issue in interesting, but limited, perspective.  “A friend of mine believes that they have no value as the customer could leave at any time, but I believe that monthly customers who continue to renew show a high level of satisfaction with their company.” 
          Month to month or contract in longer term can terminate at any time, leaving the alarm company the option to forgive and forget, or pursue for collection.  Once in renewal, unless it’s long term renewal, pursuing collection may make little sense unless it’s a very high RMR.  But satisfaction with the alarm company is not enough to be assured of continued payments.  Alarm customers terminate for a whole host of reasons, dissatisfaction probably one of the least of the reasons, though for sure we see plenty of dissatisfaction in the collection cases.  Customers move, die, lose their lease, renovate, remodel, see ads for newer technology and cheaper prices, run tight with money and can’t pay bills, and the alarm system that has never gone off unless it was a false alarm seems like a good expense to eliminate. 
          When alarm companies are valued for any reason, sale included, there will usually be a mix of lenght of contract terms.  Unless the alarm company is a relative startup it’s going to have accounts out of original term and in renewal, no matter how long the original term was.  Of course the shorter the original term the more accounts will be in renewal.  But unless all of the accounts are in renewal, as opposed to just some, even most, it’s not likely to effect the valuation much, maybe a point or two.  Because of all the other factors that go into the valuation the month to month renewal or percentage of accounts in renewal won’t even be discussed, let alone a significant factor.
          There’s a reason for month to month.  First of all, the Standard Form Agreements are 5 year for residential and 10 years for commercial.  That’s long enough to get a new contract signed along the way.  Trying to enforce a “like term” is going to be challenging to enforce, especially if no new consideration is provided by the alarm company.  Thinking that the customer will feel obligated to continue with the contract is also not a particularly appealing argument.  You can fool some of the people all of the time, and all of the people some of the time, but not all of the people all of time.  I think Lincoln said that.  It’s hard to get a customer to pay when they don’t want to or can’t.  I said that. 
          Finally there is a legal reason for month to month.  Many states have automatic renewal laws that make anything other than month to month unenforceable unless certain notice is provided and the contract has certain provisions.  New states are added to the list of states with requirements and it’s risky to anticipate whether your state is going to enact such a law.  Chances are that if your state already has a law on automatic renewal or enacts such law in the future,  1) it exempts month to month and 2) you don’t and won’t comply with the statutory notice requirements. 
          So, month to month is safest renewal option and it has no significant, if any, impact on pricing or salability.

Webinar on assistance getting licensed
Webinar Title:  Filing for and renewing your alarm license
Topic Details:  Once you know where you need the license and what license you need, and you know you’re qualified, The Cmoor Group handles the minutia details filing for the license and has the software to monitor for renewal compliance.
When:  May 3, 2022 at 12 PM ET
Presenter:  Connie Moorhead, President of The CMOOR Group. or call 502-254-1590, ext. 101
Hosted by: Ken Kirschenbaum,Esq
Who should attend:  license holders, license compliance officers, owners, managers
Register Here:
To order up to date Standard Form Alarm /  Security / Fire and related Agreements click here:
CONCIERGE LAWYER SERVICE PROGRAM FOR THE ALARM INDUSTRY You can check out the program and sign up here: or contact our Program Coordinator Stacy Spector, Esq at 516 747 6700 x 304.
ALARM ARTICLES:  You can always read our Articles on our website at  updated daily             
THE ALARM EXCHANGE - the alarm industries leading classified and business exchange - updated daily
Wondering how much your alarm company is worth?  
Click here:
Getting on our Email List / Email Articles archived: 
    Many of you are forwarding these emails to friends or asking that others be added to the list.  Sign up for our daily newsletter here: Sign Up.  You can read articles and order alarm contracts on our web site

Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
200 Garden City Plaza
Garden City, NY 11530
516 747 6700 x 301