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

Net or gross RMR - what should you expect buyer to pay for your accounts
December 7, 2021
Net or gross RMR - what should you expect buyer to pay for your accounts
            How do you calculate your recurring monthly revenue and what can you expect a potential buyer to pay you for your accounts?
            RMR is the amount of recurring charges that you charge per month, no matter whether you bill it monthly, quarter-annually or annually.  So $20 a month is the same as $240 per year; it's still RMR $20.
            But if you're invoicing your subscriber $20 that's not likely the RMR we are looking for when getting ready to calculate a price for the account on sale.  You have certain fixed expenses in connection with that account, some of which may be reflected on the invoice, but other's not.  For example, and an easy one to understand, sales tax [not all of you charge a sales tax for monitoring, but monitoring isn't the only RMR item, there's also lease, inspection and service plan].  So if sales tax is 5%, that's $1, reducing the net RMR to $19. 
            The most common monitoring expense is the central station charges.  This is an item that is the subject of negotiation.  Central station charges can include a basic monitoring charge [that the central station retains] and other pass along charges such as guard response, radio and cellular charges, which the central station has to pay to what I call a third party vendor.  A third party vendor would include and alarmnet, among others.  You may be paying a third party vendor directly, not through the central station, such as, I believe, Napco.
            1.  If you invoice your subscriber $20 and pay $1 to sales tax, $4 to the central station for basic monitoring, what's the net RMR?
            2.  How about if you pay the central station $8 but you know the charge includes a radio charge that the central station has to pay to the radio relay third party vendor?  You ask what that charge is and find out its $5.  Same $1 sales tax.  What's your net RMR?
            3.  Finally, you pay $9, sales tax $1 and central station $3; what's your net RMR?
            The most common calculation, though not necessarily the deal you strike with your buyer [or seller] would be: 1. $19; 2. $14; 3. $10
            Your deal may be based on your gross RMR, or it may define net RMR as what you charge less sales tax only.  How can this be?  Well, rest assured that a deal that defines net RMR with only sales tax deducted is going to have a lower multiple used in the price calculation. 
            Years ago it was common to deduct the central station basic charge too. It's not common in the deals I see and I don't deduct that charge when performing a valuation of the accounts [].  If you think about it that means that today's multiple is really 2 to 4 points higher than years ago.  A constant multiple of 35 years ago and today means the seller is getting 2 to 4 points more multiple. 
            You should engage counsel before you begin your negotiations.  Once you have a hand shake on your deal it's going to be hard to back-track and try to renegotiate, especially without giving up another material point.  At K&K we are actively doing buy-sell deals every day and I assure you that the easier deals are those in which we are involved from the beginning.  The brokers listed on The Alarm Exchange are also knowledgeable about pricing, though they aren't lawyers, and they sure aren't your lawyer.
            One final plug:  If you use K&K updated contracts, and use them properly, we start the valuation at 35 times net RMR, and go up from there depending on other factors.  If you don't use the Kirschenbaum Contracts ™ don't expect 35 times unless you have other favorable factors that add approximately 5 points [which means you could have been looking at 40 times plus with the right contracts]

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