The audio/visual industry is in a constant state of evolution. Knowing this, you’ve probably heard the term recurring revenue being bandied about recently, and maybe you have questions. 2020 will be another year for this, and at Cloud 9 ERP Solutions would like to explore why this is so important, as well as discuss the benefits of embracing this model.
Preparing for 2020
2020 looks to be another consistent year for the A/V industry, with 90% of respondents to a recent Commercial Integrator study seeing a positive overall business climate right now.
Though industry leaders and economists expect 2020 to be another robust year with little recession risk, this excitement is not without underlying uncertainty. Talent shortages, a low percentage of service revenue, and evolving client expectations require today’s AV/IT firm to adapt.
For today’s AV firm, it’s important to think long-term. This means finding out what customers expect today and in the future, making changes to deliver for them. Too often, AV integrators are still stuck in a ‘break-fix’ mindset while their customers have embraced the as-a-service lifestyle.
Why is service revenue so important to the future of your business and how do you build a recurring revenue model to fuel it?
Recurring Revenue: A Necessary Focus for the AV/IT Market
You probably hear it all the time—your firm needs to focus on delivery beyond the scope of the project. It’s been a key talking point in the industry in recent years, but few companies have made the move—a majority of those surveyed (70%) earn 10% or less of their company’s annual revenue via services.
A move to implement a recurring revenue model is a massive opportunity. Rather than the traditional relationship that ends when the project punch list is finished, the companies who embrace a recurring revenue model have fundamentally changed the way they work.
Why Should Recurring Revenue Be a Top Priority for AV Firms?
The move to managed services is not an easy one—it’s a different mindset. Today, we look to explore some of the reasons to consider a recurring revenue model for your AV and IT business and explore how the right technology from Cloud 9 ERP Solutions can help facilitate the transition. First, take a look at what a Cloud 9 ERP Solutions customer in the AV industry had to say about growing their revenue with Acumatica:
"M3 Technology has grown dramatically since implementing Acumatica. With the move from the old on-premise solution to Acumatica’s Cloud ERP, M3 experienced a growth in revenues by 60% in just the first two years, all while maintaining the same headcount in the finance department. We came out of the gate billing larger orders, but we covered the tasks with the same people. We weren’t extra stressed or working overtime to keep up, yet we were doing way more in sales and transactions through Acumatica." - Kelly Burns, ERP Developer & former Chief Operating Officer, M3 Technology Group
It’s in the Name
Too much of the business landscape for integrators is built on an all-or-nothing mentality. Though this is great when the projects are rolling in, it’s a house of cards.
The great thing about recurring revenue? Simple. It’s recurring. Consistent. Stable. Rather than wondering if your sales team will close a new project, customers keep paying you as long as you deliver.
Defense Wins Championships
Whether it’s next year or a few years from now, a market slowdown is inevitable. Like the tale of the ant and the grasshopper, the ant spent all summer preparing for the winter while the grasshopper danced.
Recurring revenue is your way to build a stockpile. You’re providing vital services to customers. While someone might not grab a tradeshow booth or run a large conference during a recession, if you’re delivering a necessary service each year or each month, you’ve carved yourself a place on your client’s income statement.
Building Your Name
Just because you’re changing your service profile, it doesn’t mean you’re completely throwing away your way of doing business. Projects will still deliver revenue for your firm.
In fact, by providing an ongoing service, you become a trusted partner. Now, in addition to carving out a comfortable foothold on the income statement, you’re also in the door when a company needs a project done. Who’s the first person that a client calls when they need AV/IT services on an ongoing basis? You. The client knows you do quality work, now when they need someone to help them do something bigger, you already have a foot in the door.
Business Decisions Reflect Life
What killed the video rental industry? What happened to CDs or even MP3s? Customers realized that it’s easier to pay a monthly fee than it is to pay for perpetual access.
Similarly, many businesses have moved from perpetual licensing to SaaS in the cloud in recent years, realizing that there is more benefit to paying month-to-month and reducing the massive upfront investments that were common in legacy systems.
As this has come into play, these businesses have looked for ways to use as-a-service purchasing for other things—including those services you provide.
Cost of Acquisition vs. Cost of Service
As mentioned above, your move to delivering ongoing services delivers two benefits: consistent revenue and top of mind awareness for bigger projects. Paired with these, it also reduces the cost of acquisition. It costs you less to keep a customer than it costs to find one—as long as you keep delivering, they’ll keep paying.
The move to ongoing service contracts will save you money by moving your labor costs from sales to service, all while reducing your all-or-nothing operations.
More Time to Train
Another benefit? Everything becomes more consistent. No longer is it an all hands on deck mentality when a project comes in, your move to services will allow for more consistency in scheduling. In turn, your staff will have more time for training and professional growth, helping you to address one of the most pressing issues in the AV industry: The talent shortage and skills gap.
Getting from Projects to Service: A New Way of Thinking
In order to get from working project-by-project to delivering services, you are going to have to change the way you think. In a coming blog, Cloud 9 ERP Solutions will discuss some of the challenges in getting from inconsistent streams to recurring revenue, but one area we would like to discuss today is this: A change in operating model will likely require new skills and systems to get there.
Modern software from Cloud 9 ERP Solutions, like Acumatica, is designed to handle the financial management side when you have multiple revenue streams. By balancing project management functionality with a recurring revenue model, this solution can facilitate growth while delivering insights on how to improve.
Learn more in our on-demand webinar: How to Leverage Business Software for AV Companies.
Cloud 9 ERP Solutions specializes in customizing this solution for AV/IT firms including M3 Technologies Group and more, and we would love to help you as well. Learn how we helped this AV systems integration firm increase their sales revenue and improve operational efficiencies with Acumatica by reading the case study or watching the video below.
Additional AV Resources