KEN KIRSCHENBAUM, ESQ
ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE
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Are you pricing yourself out of business – are you working for no money / ISC meetings
March 2, 2023
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Are you pricing yourself out of business – are you working for no money
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Ken,
It would be best if you put out an article criticizing the industry for not asking for a monthly fee that is in line with the risks they take on as an alarm company, I just reviewed a contract sent to me for Fire Alarm Monitoring via cell radio in NJ, and the company charges $55.00 per month including the radio fees. This is absurd, considering they need to pay the third-party Central and the DMP/Securcomm radio fees. Don't they realize they are working for no money and assuming tremendous risk?
I'm also looking at a contract from an Orange County, NY company that is changing $32.00 per month for monitoring with IP backup. These companies are nuts; don't they value their time, labor, and general overhead? They are making no MONEY and will get far less when they sell the little they have.
We should do a webinar on not being a PUTZ in business.
Name withheld
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Response
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This topic is not as simple as you suggest. You also raise [at least] two issues, risk as a factor and overall profitability for providing monitoring and perhaps other RMR services. Generally I agree that pricing is on the low side [though that is not true for some alarm companies who have learned “the art of the deal” better than others – or as I like to put it, have honed their sales techniques]. Lower pricing ends up filtering down to many companies not being able to pay employees, particularly techs, enough to keep them or attract new people to those trades.
First let’s discuss risk. Alarm companies face wide range exposure for liability. Too many subscribers think of their alarm company as their insurance company in the sense that it’s the alarm that’s supposed to guard against burglary, fire, etc. The Standard Form Agreements are designed to disabuse subscribers of that notion and give them the stark reality of the purpose and limits of the security or fire alarm systems. So, alarm companies who use Kirschenbaum Contracts™ are reducing their risk significantly; with E&O coverage the risk is minimized even more. Fortunately the cost of E&O coverage is relatively inexpensive compared to other liability insurance coverage and the Standard Form Agreements play a major role protecting the insurance companies from exposure.
The other issue is profitability. There are two accepted popular ways of modeling the alarm business. One, put in alarm systems and make your profit margin on the installation, or two, put in alarm systems at or below your cost and hope to make a profit on the after-install RMR services, typically monitoring, repair service, inspection and administration. As mentioned above, some alarm companies manage to attain profitability on both the install and after-install services, and that is of course how it should be.
Monitoring has long been a service that has a higher and predictable profit margin. The monitoring costs are known and all the alarm dealer is doing is sending out invoices [and some don’t even do that]. The spread on what’s invoiced and what the monitoring service actually costs, added to the invoicing cost, is the predictable gross profit. [net profit would require figuring out your operating expenses, such as rent, trucks, employees, accountants and lawyers]. RMR for other after-install services are less precise with precision.
What profit margin should you be looking or hoping for? That is something I can’t answer quantitatively but I can suggest that it be enough to keep you in business with a personal compensation package that you are satisfied with. I think the elephant in the room is that no matter what you’d look for or hope for, isn’t what you can charge customers limited, constrained or at least influenced by what your competition is charging. Sure, customers do have several criteria for choosing an alarm company, but for many the price is a deciding factor. It’s one thing to charge double what your competitors charge and it’s another to explain to the customer why, in your case, it’s justified and the customer should choose you. Some customers may not be able to see beyond your competitor’s 2005 Ford Van and your brand spanking new Mercedes truck, thinking that may be the only reason for your charging double.
I think the webinar that’s needed is how to go from the 2005 Ford Van to the new Mercedes truck. Alarm companies should always be watching the bottom line and figuring out how to be more profitable. Who wants to present that webinar?
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ISC West group and private meetings
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It’s time to prepare for ISC West at end of March. I am going to schedule group discussion meetings and private meetings. To reserve a spot at a group or private meeting please contact Stacy Spector,Esq. 1 516 747 6700 x 304 or SSPector@Kirschenbaumesq.com, K&K’s Concierge Program coordinator [you don’t have to be a Concierge Client to reserve a spot]. Topics, private meetings and schedule are TBD.
I will be available for private meetings and consultation. I will also coordinate and attend, if you like, private meetings with some of those who will be participating in group discussion meetings.
Anyone who wants to lead a group discussion or have ideas for a discussion should contact me to be included in the schedule.
The following are some of the group meetings I am planning [and will coordinate private meetings with these industry experts]
Still time for lenders, brokers, consultants, central stations and other vendors to sign up schedule private or group meetings. We will coordinate. Call Stacy today 1 516 747 6700 x 304
* What buyers look for and how they evaluate your business. Meet one of the most active buyers of central stations, alarm companies and alarm accounts paying the highest multiples.
* How lenders view your company and decide on financing your business or your acquisition. Meet one of the most active lenders in the alarm industry
* How the value of your alarm RMR is calculated and how non-RMR is calculated. Meet one of the most knowledgeable tax and business consultants in the alarm industry
* What you should expect from your central station and what you can expect at the top central station in the business.
* Employee Retention Credit: meet with tax expert to discuss if you’re eligible
* Alarm contracts: which ones you need and which ones you should have. Group or private meeting with Ken Kirschenbaum
* Buy-Sell deals: Thinking about or ready to sell? Meet with Ken Kirschenbaum to discuss best ways to increase value and get ready to sell or buy.
* AIN buying group. Meet with Stan Matysiak in group or privately, time well spent
* Brokers: discuss options and what to expect
* Thinking of selling: Discuss multiples and what your company is worth
* E&O coverage: What's available; what do you need; where to get it
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STANDARD FORM AGREEMENTS: To order up to date Standard Form Alarm / Security / Fire and related Agreements click here: www.alarmcontracts.com
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CONCIERGE LAWYER SERVICE PROGRAM FOR THE ALARM INDUSTRY - You can check out the program and sign up here: https://www.kirschenbaumesq.com/page/concierge or contact our Program Coordinator Stacy Spector, Esq at 516 747 6700 x 304.
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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
200 Garden City Plaza
Garden City, NY 11530
516 747 6700 x 301
ken@kirschenbaumesq.com
www.KirschenbaumEsq.com
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