Undoubtedly, the mere thought of instituting monthly monitoring rate increases will make a good many readers of this column cringe. Most installing security contractors shudder at the thought of raising their customers’ monitoring rates, but they really should be more receptive to the idea.
This topic is much more relevant for alarm companies that have been around for more than five years, and even more so for companies that have 10+ years of experience in the business. What I have found is that most alarm companies set a monthly monitoring rate when they start up their businesses. Then they almost never veer from that rate. Even though their insurance costs have risen and their gas expense has in some cases is tripled, their monitoring rates generally don’t change.
I have witnessed the look of fear in people’s faces as we discussed raising their customers’ monitoring rates. I have heard all the retorts, mainly, “Are you crazy, I’ll lose all my customers!” I counter their fear and skepticism with real facts. My typical response is, “No, I am not crazy and when I was an alarm dealer, I implemented two very successful rate increases. I lost exactly ZERO customers.” The general reaction is shock followed by an immediate desire to hear more.
Think about this: Are your electric rates the same as they were 10 years ago? Is your cable bill the same? Are your insurance costs the same? What about gasoline? OK, so these are rhetorical questions, granted. My point is that it’s reasonable to expect the cost of certain services to increase as the costs to deliver those services increase. Most customers will allow for a modest increase if the alarm dealer does a good job of citing their rising costs of doing business. The real key, however, is keeping the increase reasonable as a percentage.
Modest Fee Hikes Make Good Business Sense
Rate increase percentages will vary relative to how low the dealers’ rates are compared to the market. In some cases, an alarm dealer’s rates are so low they can raise rates 20% and still be below the market. In most cases, however, a periodic 10% increase will be tolerable with the customer.
For alarm dealers that are highly concentrated in alarm monitoring for their income, a 10% increase in revenues can be huge. By way of example, a company with $50,000 per month in recurring monthly revenue (RMR) would increase its returns by $5,000 per month, or $60,000 per year. Who wouldn’t want a $60,000 per year raise!
This is real-world business planning and there is nothing unethical or unfair about the practice. As I mentioned, I instituted two rate increases in my tenure in electronic security and I didn’t lose a single customer. I did, however, field some calls from customers who wanted a more detailed explanation. I can also remember an elderly customer who told me they would cancel because they were on a fixed income and couldn’t bear any additional expenses. I told that customer, “No problem, I will leave your account where it is.” They thanked me for understanding and remained a good customer for many more years.
I cannot say that this will be the norm for every company that institutes a rate increase. I will say that based on my experience with assisting several companies in instituting rate increases, there has been very little to no cancellations from their customers. Most cancellations I have witnessed were by fringe customers who were just looking for an excuse to leave. I think some alarm companies were actually happy to get rid of some of those customers!
Of course, the increase must be accompanied by a well authored and comprehensive letter explaining the rate increase. A well-written letter will mitigate many phone calls and cancellations. In addition, any rate increases must be in accordance with the dealer’s contract with the customer. The bottom line is that rate increases are not to be feared, and they can have a substantial positive impact on an alarm company’s bottom line.
Mark Matlock is Senior Vice President at United Central Control Inc. (UCC), a wholesale monitoring station based in San Antonio.