2018 Installation Business Report Reveals Industry Profits, Account Base Overviews & More
SSI’s 2018 survey of electronic security and fire contractors includes new installation figures, profit reports and other statistics on installing dealers and integrators.
Let’s get something out of the way immediately — 7%. That is the average growth rate reported by security dealers and integrators participating in the 2018 Installation Business Report (IBR), a hallmark of this special Security Sales & Integration annual Gold Book edition.
Thought I would cut to the chase as that is typically the figure the majority of those within and those who follow the security industry are most eager to ascertain. While that benchmark is not bad at all, it is in fact down from the 11% the IBR recorded from 2016-2017, and also lower than the 9.7% projected rate published here a year ago. Let’s hope the anticipated 12% revenue growth cited for 2019 is more on target.
What does seem clear is the encroachment by a raft of new competitors such as the MAGA (MSOs, Amazon, Google, Apple) companies, retailers and DIY (do-it-yourself) is having an impact on the traditional, established security industry.
While it is not time to panic by any means, that assertion is manifested in profit margins being reported down or flat across the four tracked sectors of access control, fire, intrusion and video.
These findings come despite the fact that the average overall totals of installations and monitored accounts have come in higher. Access fared the best in 2018 with rises in both the numbers of doors/entryways per project and the price charged per opening — yet its profit margin remained static.
Video saw the size of projects recede as measured by camera volume (perhaps due to deployment of more efficient megapixel and multisensor units) and profit margins dip despite the average price charged for each device rising.
Security Contractors’ Top 10 Concerns
Rating (scale = 1-5, 5 highest concern)
- Technician shortage (3.66)
- Direct competition from manufacturers (3.14)
- Lack of training (3.14)
- General operating/business costs (2.98)
- Competition from other security companies (2.94)
- Government regulation (2.86)
- Manufacturer consolidation (2.8)
- Acceptance of new technology (2.72)
- Competition from DIY market (2.68)
- Competition from telco, CATV & SATV (2.67)
Other concerns receiving mention: verified/no police response (2.59); economic conditions (2.57); competition from network/IT companies (2.5); association representation (2.35); competition from sound/video contractors (2.35); competition from electricians (2.28).
Intrusion came in lower for prices charged for both residential and commercial installations and even though fire registered a monetary increase per commercial project, both technology segments surrendered percentage points off their bottom lines.
An interesting data point is that the percentage of respondents indicating they monitor their own accounts as opposed to contracting with a third-party central station almost doubled to 25% in the latest study. If that is because dealers want to keep more of the recurring monthly revenue monitoring generates then why is it not showing in the profit margins?
Perhaps because it is prohibitively expensive to operate one’s own central station and keep up with fast-advancing technology. Yet as Cloud usage climbs those costs figure to come down. However, it is worth noting that the percentages of firms offering Cloud-based access and/or video remained about even from a year ago.
Another element that could be working against the margins but is good news for those looking for security industry work is that the averages of both provider full- and part-time employees have risen markedly. That trend is a bit curious in light of the industry’s universal talent recruiting lament (see Security Contractors’ Top 10 Concerns).
Among the abundance of other fascinating IBR findings is that just 13% of security contractors are offering DIY products or systems. It appears, at least for now, most professional installation companies are opting to continue to try to beat rather than join them.
The IBR results showing account attrition lower for both residential and commercial would seem to support that stance.
As far as opportunities, it is worth noting that home automation more than doubled its security contractor share of revenue sources — although it’s still only 9% overall. Not specified in that pie chart are those who selected “other.”
In the interest of illuminating potential expansion areas, here are some of the write-in responses: PERS/mPERS; fencing; paging/structured cabling/fiber; identity and privacy; data networks and infrastructure; automatic gates; nurse call systems; A/V; networks and telephony; cybersecurity; automatic license plate recognition (ALPR); software as a service (SaaS); video-detected intrusion; and, lock and door hardware.
Here are some highlights from the IBR:
- Commercial business (47%) saw residential activity (42%) close the gap by 8 percentage points as compared to 2017, while large industrial (11%) surrendered 4 points of the pie
- Gross revenues are estimated to have increased 7% from 2017 to 2018, and another 12% gain is projected for the coming year
- Profit margins took a tumble across the board with fire (-6%), video (-4%) and intrusion (-3%) all taking hits; access control fared a bit better in remaining flat
- More than eight in 10 alarm companies (81%) have been in business 11 years or longer
- 362: Average number of residential and commercial intrusion alarm systems installed annually by dealers (including mass marketers and national companies)
- The highest percentage of operators (64%) have just one office, while 8% have 12 or more locations
- Around 3% more installing companies expect to earn $10 million or more compared to 2017, and 5% fewer anticipate taking in less than $100,000
- Offices, campuses, government and industrial facilities account for more than half (56%) of the entire access control market
- The average price customers paid for a residential intrusion alarm system decreased by $35 (3%) in 2017
- The “sweet spot” for the typical security contractor remained in the $1M-$4.99M annual gross revenues bracket, with nearly a quarter (24%) falling within those parameters
- Disarming/entering and arming/exiting account for 38% of all false alarms
- Regarding 2017 false fire alarm activations, malicious calls and system malfunctions declined 18% and 10% respectively
- Nationwide during 2017, violent crime rose 0 .1 %, but property crime declined by 2.6%
- Dealers are averaging $12,004 per access control project (7.7 doors X $1,559 per door), way up from $7,643 (6.6 and $1,158) per project in 2016
- Average number of annual video surveillance installations per dealer/integrator dropped by 25 projects as compared to 2017’s 201
- Alarm companies averaged 18 cameras per video surveillance project in 2018, a 22% decrease that normalizes 2017’s 57% spike
- Fire system installations subsided for just the second time in seven years in 2018 with a 27% tumble; at 17%, residences is the leading market
- The average commercial fire-only installation costs $17,827, up $1,196 (7%) from 2017
You can read the full results of the 2018 Installation Business Report by downloading the 2019 Gold Book here.
I hope you find the rest of the Gold Book useful to your security pursuits. As always, I wish you, yours and your company the very best throughout the New Year.
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