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What’s included in Recurring Monthly Revenue
February 1, 2020
What’s included in Recurring Monthly Revenue
            Re:  the article on January 15, 2020 What’s the current multiple?  
            The multiples discussed in the article seem pretty accurate. Can you shed some light on what is included in the RMR calculation?   Is that 35 times RMR including say third party fees such as or other cellular fees?  I always thought MRM included central stations fees, less cellular costs or other third party vendor fees?
Roger Patterson 
Colorado Springs Alarm 
            Now you see how a multiple is really not all you need to know about the deal.  Obviously the multiple is used as a multiplier of some number.  That number is the RMR, recurring monthly revenue.  It’s great to hear that the multiple is 40 times, but 40 times what?
            The agreement to acquire the accounts will typically provide for a formula to arrive at the purchase price; the multiple times the RMR.  What constitutes RMR is usually defined in the agreement.  It’s defined in different ways, and you need to very careful understanding how RMR is going to be calculated for your deal.
            First you should see the term RMR, then the term “Net RMR”.  It’s the Net RMR that you need to focus on.  You know your gross RMR, it’s the invoice you send the subscriber.  It includes all charges including sales tax, if applicable in your area.  No buyer pays based on gross RMR.  So every deal will have a provision which describes the Net RMR [even if the term Net is not used].  Sometimes the agreement will simply say this is the RMR and the definition will not include parts of the invoiced RMR that the buyer isn’t going to apply the multiple to.  
            Secondly, there will likely be another provision which “excludes” RMR from the deal.  This is typically accounts that are too far in arrears [90, 120 or more day], or accounts that have other identified issues [2G, Work in Progress and not completed, accounts on mingled central station lines, accounts needing repair].  This part of the ultimate equation for the purchase price is an “exclusion” from the RMR.
            So you have “inclusion” of what’s included in the RMR and then you have what’s “excluded” from that calculation.
            Now the direct answer to the question, how is the RMR calculated?  It’s a matter of negotiation, and if you’re not skilled at those negotiations, or your attorney has no idea what you are even talking about, you’re going to end up leaving money on the table. Here’s an easy one; sales tax is not included in the calculation.  Years ago the central station charges were also not included, but it’s more common now to include those charges in the calculation.  If the monitoring invoice to the subscriber is $24 and you pay the central station $4, typically the $24 will be the RMR used for the calculation.  But what if the central station charge is not $4 for basic monitoring, but the charge is $14 because there’s a pass-through for a third party vendor, such as or radio charge or guard response charge?  These third party vendor charges should not be included in the RMR calculation; a buyer is going to want to pay based on those charges.  That’s not to say that no deal includes those charges; it’s a matter of negotiation.  And, keep in mind that because there are two components to the calculation, the RMR and the multiple, a buyer can manipulate the purchase price by allowing an inflated RMR [by including pass-through billing items] and then reduce the multiple.  The reverse is also possible:  offer high multiple but then reduce the RMR.
            Once the included RMR is decided there will likely be exclusions, such as accounts in arrears and other items mentioned above.
            You should know what your RMR is, the RMR that a buyer is likely to accept and pay for applying a realistic multiple.  You should also be sure to use skilled counsel to navigate the deal.  You need to line up counsel before you start making commitments that will affect your deal.  Be sure to engage K&K merger and acquisition lawyers to assist you.  Call Jennifer Kirschenbaum,Esq. to set that up.  516 747 6700 x 302 or  
            But before you even get to the point of engaging counsel to assist you in a transaction, you need to position your company for sale.  Join the K&K Concierge Program so that your legal advice ensures you are on the right path to proper operations.  Call our Concierge Program Coordinator Stacy Spector,Esq at 516 747 6700 x 304 or  
            Need more info, call or email me anytime.

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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
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