Keeping the Cash Flowing

How to earn recurring revenue from home networks.
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Its a basic rule of business: once youve got a client, its easier to sell additional products and services to them than it is to seal the deal with a new customer. With home networking, in particular, the opportunities for generating recurring revenue are abundant, thanks to the constant advancement of technology.

Custom Electronics, based in Falmouth, Maine, has recently begun building its own media PCs, and is currently considering adding remote back-ups to its service roster. The firms Jim Goss points to the potential for drawing revenue from providing even the simplest services when it comes time to upgrade. In the custom install world, there are lots of people who are knee-deep into PCs and networking. Being able to find a couple of technicians that can service your clientsadd a couple of printers to the network when they want it or whatnotmakes it easy to be able to continue servicing your clients. Not only do they look to you for the usual A/V-related services, but they recognize you as the expert in the computer realm as well, he noted. Its always amazing how much people love to have other people take care of them.

While the firm counts these offerings as part of its service agreements, the maintenance contracts that Custom Electronics has been providing to clients encompass things like annual housekeeping. Maintenance contracts, for us, are pre-paid, discounted labor, Goss explained. Here in Maine, we have lots of clients that are seasonal clients. They come up to their house for part of the season, and we schedule with the caretaker to get into the house two or three weeks before they show up to make sure that everything is running and to give ourselves room to breathe if something needs fixing.

Will West, CEO of Control4 in Salt Lake City, Utah, noted that the nature of home networking and whole-house automation requires dealers to establish strong relations with their customers from the get-go. The neat thing about home automation is that when you install it, you establish a pretty strong relationship with the customer, because they want any of their new electronics to be integrated with that system, he observed. You are creating recurring revenue simply by putting an automation system in. When you layer an online service on top of that, the bond between the dealer and the consumer becomes that much stronger.

In the past, providing services post-install was a tricky game: in most cases, it cost more for the dealer than it did for the homeowner. Service contracts, in the past, were fairly difficult, West pointed out. When you have a small problem that takes three minutes to fix, it still takes the 45-minute truck roll to go out and fix it. If you account for that in a fixed service contract, it can be somewhat of a challenge.

With the advent of Internet Protocol (IP), servicing these systems has become less labor-intensiveand, as a result, less expensivefor custom installers to offer. There are all sorts of different benefits that can accrue directly to the homeowner, but the additional benefit is that if the home is online, the dealer can get online with the home and quickly and easily make changes and upgrades without having to do a truck roll.

If the homeowner wants a simple change, they dont have to ask the dealer to come out to the house, West noted. The dealer can get online and make the change, and have it be part of a service contract or bill the customer for it. And the bill is smaller than what it would have been had the dealer visited the house.

Robert M. Howell, director of the Winegard Company in Burlington, Iowa, says that dealers need to decide how they will structure their service agreements. Either you can build the cost of a maintenance contract into the initial cost of the installation so that you know that any return visits are covered, or you can sell a separate maintenance contract that will provide the same service, he said.

One of Winegards strategic partners, Advanced Media Services in Ann Arbor, Michigan, proactively monitors clients systems to learn about problems before the customer even is aware there is one. Remotely, they query every job site once every two or three minutes, which allows them to continually monitor the integrity of the IP connection: the upstream, the downstream, the power levels, etc., Howell explained. They can determine by property, building, and right down to the unit number where there are potential problems, and then get an indicator on what that problem might be so that they can direct the technician right to where the problem is.

In many cases, custom installers are able to offer a flat rate for their service contracts, once they have determined how they should be priced. When you can make those changes quickly and easily, its easier to bundle a blanket service contract for minor changes into a regular monthly fee rather than having to account for a much more expensive process, West said. An annual fee, for example, is sufficiently low that its very easy for the consumer to make the decision to sign up. Its also sufficiently easy to make the small changes that a dealer could put together a blanket service agreement. More commonly, they will sign the client up for the basic plan and then charge for labor on a time and materials basis. The charges are small enough that its something that the consumer and the dealer are both happy with.

West acknowledges that custom installers must have a significant client base established before rendering these agreements profitable. However, once all of the wrinkles are ironed out, they can provide a stable source of revenue. As dealers become more familiar with the process and have a significant number of homes being serviced this way, they can use the numbers to create standard service packages, he said. Its a little harder to do until they get some experience under their belts so that they know how to price it, but once they get some experience, they can set up fixed, electronic concierge services, and the consumer doesnt have to think twice.

Carolyn Heinze (carolyn@carolynheinze.com) is a freelance writer/editor.

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