RMR – Recurring Monthly Revenue, is a new area of growth for many technology integrators. It is revenue that is contractually based over a period of multiple months. The focus of this seminar is from the operations and accounting perspective.

1. How to Effectively Manage and Bill For RMR
(Recurring Monthly Revenues)

2. “Knowledge isn’t power…the right knowledge at the right time is
power.”

3. Brad Dempsey - Background
• Founder of Solutions360 Inc. in 1988
• Primary architect of Q360 ERP platform
• 33 years of international project and financial management
experience
• Spend at least 50% of time consulting on business process
automation and financial controls
• Started career working for computer companies TRW Data
Systems, Prime Computer, Apollo Computer and Sequent
Computer

4. Our Market
Technology
Integrators
Telephony
Integrators
IT Integrators Life/Safety
Integrators
A/V Integrators

5. Introduction
RMR – Recurring Monthly Revenue, is a new area of growth for
many technology integrators.
It is revenue that is contractually based over a period of multiple
months.
The focus of this seminar is from the operations and accounting
perspective.

6. The Sales Hand-Off

7. Overview
1. Managing Contracts / Agreements
2. Managing Cash Flow
3. Managing Revenue and Expense
4. Final Goal - Profitability

8. 1. Managing Contracts
Common types of RMR contracts
– Warranty service
– Managed services (Monitoring/Remote management)
IT managed services (Nable, Kaseya, Level Platforms etc.)
Alarm monitoring (burglar, fire etc.)
– Labor or Parts only
– Discounted services
– Consulting / Education
– Hybrid

9. RMR Challenges
Improper coverage can be very costly
– Servicing equipment that should not be can be costly
– Providing out of hours service can be costly
Revenue and expense model is vastly different from T&M
– Misunderstanding the relationship between cash, revenue
and expenses can be catastrophic to a business

10. RMR Challenges
Invoicing and coverage periods can be complex
– Invoice date, due date, start of coverage, end of coverage
Contracts can include initial setup costs that affect profitability
– There can be significant labor or material costs up front
– How do those affect cash, revenue and expense over the life
of the agreement?

11. RMR Challenges
In some cases SLA reporting to a principle vendor may be
required
Coverage may be sub-contracted for services such as backups,
anti-virus etc.
Reporting to your customer, so they understand the value of the
services

12. Contract Example
The “Gold Plan” service contract sells for $1,200 per year
– You are covering the materials and labor to service 3
boardrooms
– You get paid quarterly
– Coverage includes material and labor
– Exclusions for vandalism, natural disasters, training etc.
– Guaranteed response time
– Contract covers 3 sites, with 1 in a different time zone
– Labor costs for out of coverage items discounted at 15%

13. Contract Example

14. Key Data Points
Contract should have quick access to:
– Financial overview
– SLA
– Products covered
– Block time / amounts
– Labor time billing
– Invoicing history
– Attached documents (P.O.’s etc.)
– Service history
– Profitability

15. Contract Example
1. Effective start date of the contract
2. Billing frequency – (Monthly, Quarterly, Annual etc.)
3. End date of coverage
4. Renewal Type
5. Bill in advance days
6. Contract type
7. Current status

16. SLA – Service Level
Agreement
What does Premier coverage mean?
– Response vs. resolve time
– Time zone management

17. Contract Cancellations
Capture rates of new vs. lost contracts
Reason codes will help product evolution
Spend as much or more effort keeping contracts as acquiring
new ones

18. Service Visibility
Notify dispatch or customer service with alerts

19. Service Visibility
Notify dispatch or customer service in real time about coverage

20. 2. Managing Cash Flow
RMR has a very different model for cash flow than traditional
project and service work
There is no link to actual expenses incurred, like in project job
costing
Many types of agreements put the cash in your bank before
services are delivered
This can give a false sense of security
Understanding and forecasting cash flow becomes even more
important in a company with significant RMR

21. Invoicing vs. Coverage Dates
The invoice date is the posting date of the invoice and the
starting point for calculating the due date
Coverage dates represent the start and end date for service
Coverage dates are not only important for the customer, but also
for accounting

22. Invoicing
Automated invoicing is a mandatory requirement
Automated delivery is a bonus

23. Invoicing Projection
Invoice billing projection

24. Invoicing Projection
Invoice billing projection
May = $16,233
June = $12,944
July = $17,921
August = $98,396

25. Cash Flow
Cash in the bank will lag by your average pay days
Knowing your upcoming invoicing and average pay days is the
first step in cash flow projection

26. 3. Managing Revenue and
Expense
Managing the deferred revenue for contracts is one of the most
difficult tasks for many companies
Prebilling vs. Current period billing vs. Post billing can be difficult
concepts for staff to manage
These concepts must be mastered to accurately ascertain the
profitability of an agreement

27. Managing Revenue and
Expense
RMR is normally time based
Key concept – It is the relationship between the invoice date and
the coverage dates that creates a deferral
If the invoice date is in a period before the coverage date, the
revenue should be deferred
If the coverage dates span multiple periods, the revenue should
be deferred

28. Time Based Example
The “Gold Plan” service contract sells for $1,200 per year
– You get paid up front
– Coverage period is 2014-01-01 to 2014-12-31
– $1,200 gets credited to your RMR liability account
– At the end of January, RMR revenue is credited $1,200/12
($100) and RMR liability is debited $100
– This leaves a liability of $1,100
Different accounts for RMR liability and project liability

29. Invoicing RMR

30. Invoicing RMR

31. Revenue Projection
Revenue projection should also take un-billed into account

32. Revenue Projection
Monthly totals

33. What About Expenses?
Service tickets should be linked to agreements
Material, Labor, Subcontract and Misc expenses are posted at
time of use
If labor is performed outside your service system, hours must be
tracked and linked
Initial costs must be captured against the agreement, and may
need to be amortized

34. What About Expenses?
T&M revenue and expense should be able to be viewed with or
without the agreement revenue and expense

35. Final Goal - Profitability
What is the profitability of the agreement?

36. Final Goal - Profitability
If revenues and costs are correctly allocated, you will be able to
pick any two points in time, and measure profitability
Contract / Agreement profitability should be compared with the
customer’s overall profitability
Contracts can also be compared across types, geographic
areas, vertical markets etc.

37. What Your ERP System
Should Do
Automate invoicing and coverage periods
Automate invoice delivery
Allow easy reconciliation of contract billing periods
Invoicing projection report for at least 12 months
Automate release of revenue for coverage periods
Allow easy reconciliation for your deferred revenue balance
sheet account
Give visibility into the contract’s profitability

38. What Your ERP System
Should Do
Give visibility customer’s profitability across contracts and
business units
Provide a recurring revenue forecast
Provide feedback to service and dispatch for contract coverage

39. In Closing
“RMR can be the silver bullet, but you still need to make
sure you are ready, then aim and then fire, in that order.”