Recurring Revenue? Keep Dreaming?
The custom business is different. Custom dealers sell products at full margin and try to make money on labor. Then, in some odd twist of logic, they believe it should be perfectly justified to sell a performance guarantee (or maintenance contract—whatever you want to call it), even though none of the attributes of the custom business mirror those of the security industry.
Where are consumers subjected to the hard-sell warranty? At the mass retailers, of course. And the warranty sell is an incredibly distasteful part of the sales presentation, one that the consumer has learned to endure. So ask yourself: Why would consumers perk up their ears when being sold performance guarantees on custom systems? They sense a sell job, and rightly so.
The logic most custom dealers use is this: "We all know the stuff breaks. So it's like having an insurance policy. Plus, our service techs will come out to the home every three months to check the system." That any custom dealer can actually believe its own pitch in this regard defies logic. And I'll prove it: If a manufacturer tried to sell this dealer a performance guarantee, the custom dealer would laugh. I can just hear the sales presentation as the big Japanese electronics manufacturer says to the dealer, "For only $15 per quarter, we'll guarantee the performance of this fine DVD changer. We'll set you up on a recurring billing schedule, so if anything goes wrong, we'll gladly take the product back—and then charge for the repair."
This fantastical exchange is, of course, just that. And yet the custom dealer actually believes it can take the same essential sales pitch and foist it on its clients?
All of this begs the question: Why do custom dealers look for that elusive recurring revenue? It's because they're acutely aware of the variability in their day-to-day business and crave more stability. But hey, custom is inherently unstable; that's the nature of the business. Like any design-based service, a custom dealer gains stability over time by continuously doing great work and building a referral base larger than its capacity to provide service. Custom dealers are able to charge full retail on product and make money on labor in part because the business is unstable, and the only way to keep the engine running is to front-load the profit. That's the antithesis of the security business, and proves once again how different these industries are.