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Why Monitoring Your Creation Cost is Important to Your Business

At Alert 360, we deliver excellence with over 45 years in the security and smart home industry. It’s time to partner with a program that is flexible, innovative and reliable. With best-in-class training and technology, Alert 360 is primed to take your business to the next level.

Why Monitoring Your Creation Cost is Important to Your Business

Creation Cost

Tracking the costs associated with generating new customer accounts and keeping them at a manageable level, at or under accepted industry standards, is critical to building a profitable alarm company. Yet many alarm dealers don’t know or understand why their creation cost multiple is such an important measurement. They focus on the revenue side of the equation, the recurring monthly revenue generated from securing new accounts, without thinking about what it costs them to bring  those new accounts on every year and therefore what they are truly making in profit, if any, from those accounts. For example, the standard term of a residential alarm contract term is three years (or 36 months). The closer the creation multiple is to 36 times RMR, the smaller the profit the alarm dealer makes on the initial term of the contract.

In addition, in an account acquisition the difference, or spread, between the purchase multiple the buyer is willing to pay and the creation multiple will directly impact the amount of profit the seller will make in a sale. This is especially true in situations where the seller originates the accounts and then sells them within a short period of time. Companies that don’t track their creations costs are missing an essential piece of information in making account sale decisions. And some dealers may actually have the problem that their account creation multiple is higher than the purchase multiple, which makes selling their accounts a money-losing proposition.

In a complete exit or complete purchase scenario, the creation multiple is an important measure for buyers as well.  Purchasers that are acquiring an entire company, including the sales organization, will look at the creation multiple as an indication of the company’s profit margins on accounts, both existing ones and new ones.

Learn how to calculate your creation costs here.