This will turn out to be a better year than 2011 or 2010 for the security industry based on the results of a new survey of electronic security dealers conducted by Parks Associates and SSI.
More than 70% of the respondents believe their 2012 sales will be an improvement upon those of 2011 (See Figure 1). Thirty percent expect sales to be at least 10% improved. Twenty-three percent believe sales will end at just about the same volume as 2011; and perhaps most impressive, only 6% expect sales volume for 2012 to be lower than in 2011. Of note is that in Parks Associates’ previous security dealer survey in 2011, 26% believed 2011 would be worse than 2010.
Moreover, many surveyed dealers report higher average revenue per sale than in 2011. Nearly four in 10 dealers report that their basic sale exceeds $1,000 in 2012 compared to only 17% in 2011 (Figure 2). That significant jump in more expensive basic system sales is matched by a decline in low cost system sales. While almost a quarter of dealers report an average system sales price of less than $400 in 2011, only 17% report that low of a number in 2012. Both of these metrics are good news since higher sales prices typically bring better margins due to more accessories and additive sensors. Sometimes, they also bring a higher monthly fee.
Let’s take a closer look at what the latest research tells us, and also examine the rapidly developing competitive landscape along with the opportunities and challenges it promises.
RMR Builds Business Stability
Security dealers managing this recession well or even thriving within it have employed one or more of the following tactics and strategies:
- Shifted marketing and sales focuses to existing homes rather than new starts
- Studied the patterns of security in neighborhoods, seeking opportunity for householders without security in neighborhoods where security is prevalent or where recent crimes have brought media attention
- Expanded the types of security features offered to obtain higher average sales and RMR
- Expanded beyond security to offer lighting control, energy management or home theater systems
When dealers are asked which specific functions and features that they install beyond basic security are most valuable to their company, 51% report video monitoring and alerts as most valuable while another 21% rank these as the second-most valuable additions to their offerings. The value lies in the ability to charge an extra monthly fee and the ease of explaining and selling the features’ value to a consumer already interested in obtaining home security. Network security cameras are also quite easy for a security installer to set up and activate. The same cannot be said for sophisticated lighting control or home theater systems.
Since volume and recurring monthly revenue (RMR) are core business metrics for most security dealers, their preference for additions to their portfolios that allow fast installation and some, if even small, additions to basic RMR follows naturally.
Thirty percent of dealers report environmental features such as carbon monoxide (CO) or flood alerts are their highest value non-basic security system offerings; personal emergency response systems (PERS) ranks a distant third with 13% of dealers reporting it as their most valuable non-basic security feature. These top three features dwarf the high-value percentages received for lighting control or home theater as having high value. The three valuable features have the potential for higher RMR, some natural relationship to the idea of peace of mind, and relatively quick installation as common characteristics.
That is the good news for business conditions. But while there appears to be some light, conditions for the security industry remain challenging in 2012. Parks Associates’ 1Q 2012 survey of 10,000 U.S. broadband households, representing 71% of all U.S. households and ~90% of households with security systems, quantifies the damage wrought by recession to the overall consumer security marketplace. Based on mid-late 2011 and 1Q 2012 surveys, Parks Associates believes that the market lost a net of nearly 10% of all professional monitoring contracts during this recession. Diverse conditions caused this net loss with foreclosures, low new start volume, ending first time three-year contracts, pressure on consumer incomes, and low rates of moving combining to be the roots of the problem.