Security Integrators Sound Off on 2023 Outlook
Annual SSI Dealer Roundtable panel reports record 2022 revenues with inflation allowing for monitoring price increase. 2023 outlook is strong.
Despite the headlines filled with negative news on the supply chain, crime and inflation, several top security integrators are heading into 2023 with a wave of optimism following a record year in 2022 in terms of revenue. And although the tight labor pool continues to be a sticking point to even more growth, dealers are anticipating a solid year with stacked pipelines already in place.
Those were the among the key themes emanating from Security Sales & Integration‘s Security Dealer Roundtable, an annual tradition held at the Resideo CONNECT event, which occurred in November in Fort Myers, Florida. This year, the three panelists were:
- Pat Callanan, owner and president of Hawkeye Communication, in Cedar Rapids, Iowa, which he and his wife purchased in 2008. Spanning burglar and fire alarm systems, fire alarm inspections, voice/data and fiber, lighting and shade controls, surveillance cameras, card access, AV and more, the company is approximately 90% commercial, 10% residential.
- John Sperrazza, president of Tonawanda, N.Y.-based Advanced Alarm, which he founded in 1989. Serving the Buffalo and Western New York region, the company installs security as well as AV systems, with a mix of 70% residential and 30% commercial clientele.
- Luke Wheeler, vice president of Holmes Security, founded in 1908 and today with two offices in Fayetteville and Wilmington, N.C. Covering most of Eastern North Carolina and into South Carolina, the firm is 60% residential and 40% commercial, and owns its own UL-Listed Five Diamonds central station.
The trio shared with SSI their thoughts on the state of the market and what lies ahead.
SSI: How was 2022 for your company, and what are you anticipating 2023 to look like?
Luke Wheeler: This year was good. During the pandemic, we weren’t sure, first going into the pandemic, about what was going to come out. But 2020, 2021 and now 2022 surprised us in how well business was. We did adjust the way we do a bunch of the things we do. We’re starting to slow down right now but not in a bad way. Giving our team a little break, a little breather, as they have been running hard for the past few years.
I don’t have a crystal ball telling me what’s going to happen in 2023. With the economy, in our industry it seems when it starts to slow down we tend to stay afloat and do well. Security is a priority for our customers, in business and residential. We’re lucky in that aspect.
SSI: Historically, crime rises when the economy goes bad and that something that could benefit the industry. You said you adjusted in 2022, how so?
Wheeler: We kept all our staff on and did very little work from home, unless you had COVID. We set you up with a work-from-home situation if you wanted to work a little past your time that you were out with COVID. We also adjusted how our team dealt with customers. On the sell side, we made it so they didn’t have to go onsite to meet with the customer. They could use FaceTime or Zoom and walk through the customer’s house with them. A lot of customers really appreciated that we didn’t have to go onsite, and we made sure everybody had proper PPE. The technicians did a lot of over-the-phone servicing, trying to help the customer walk through the problem instead of rolling a truck.
SSI: How 2022 was and what you’re looking at for 2023?
Pat Callanan: This year was really good, a record year for us in probably all areas of our business, so we feel extremely fortunate for that. We are very optimistic about 2023. We try not to worry about the papers and news because they say the opposite. Our pipeline and the things we’ve got on the books for the next 12 to 18 months is extremely encouraging. We’re blessed and keep wondering, “OK, is it dumb luck or is it just happening?”
The only thing that’s going to really keep us from crushing 2023 would be employment, getting technicians and having enough staff to fulfill the work we’ve got. So we spent a lot of time evaluating what we’re bidding and when it might hit, what type of technology it is, because we’re just concerned about being able to handle it.
John Sperrazza: This was our best year ever across the board, all categories, so we’re very happy about that. Looking at 2023, I’ve always felt we’re in a recession-proof business. If the economy turns bad, people start doing stupid things and then all of a sudden, the need for security systems or the awareness for it comes to the surface a little bit more and now we’re busy with that.
In good times, now all of a sudden, the economy turns and it’s good, in good times we’re hustling for our builders, we’re putting in home theaters, we’re doing security.
I don’t want to say we’re untouchable, but even during the Great Recession in 2008 we had a good year. There’s no doubt we stopped doing AV rooms for a while, but our security and access and fire just took off. We’re fortunate we’re in an industry that to me is recession-proof.
SSI: The big headline for 2022 was the supply chain situation. Did that limit your business getting the product you needed or prevent completing the number of projects you otherwise would’ve been able to complete. Where does it stand now? Do you feel all caught up?
Sperrazza: We had no jobs we couldn’t complete. We were very fortunate. We stocked up very heavy in 2021 and the beginning of 2022. We saw it coming and actually did that to beat price increases. It was economical. We threw a lot of money at it and for us it worked, because after that all of a sudden we saw supply chain issues. Did we foresee every supply we needed? No.
The area in my company that was hurt was fire, which was probably felt by most everyone where at first we couldn’t get smoke detectors. We tried different vendors several times. We found some small vendors that still had inventory and nobody was picking it up. It’s funny, because now the smokes are rolling again but panels or exterior horn strobe are scarce. It’s going from one area in fire product line to another one. That whole product line hasn’t been brought up to full capacity. On the burg side, we seem to be fine. Camera side, no issues ever. We had no issue with cameras.
Callanan: The one thing it allowed, or forced, us to do is we pivoted a lot. You get this job 90% done and instead of finishing it you go over here and start this one and then you’d start another. We did a lot of field pivoting that made us more effective. We did a better job of cross-training as a result. Our scheduling crew now does things they probably couldn’t have two or three years ago. They were forced to get nimble and creative to help us with scheduling issues.
The other thing supply chain-wise that really helped us was stocking up like John’s company did to beat price increases. That turned out to be a double blessing for us. It drove us to get with our vendors and talk to them more. We’re now much more in tune with them and they’re much more in tune with us than we were a couple of years ago. We now do a better job of forecasting with them.
Wheeler: The only other thing supply chain-wise we ran into was card readers for access control, especially here lately has been an issue. We’ve stayed committed to our current suppliers, but in a few situations we located others, maybe smaller suppliers that had a few items we needed. We may have had to prolong a job here or there a day or so, but for the most part we were able to keep chugging along — because we did the exact same thing, we bought early and stocked up to ensure we had everything.
SSI: Given inflationary pressures during 2022, how did you navigate through that with your customers?
Sperrazza: This year we had our first monitoring increase ever, but it was nominal at $1 a month and there was no pushback. It really helped us out this year. We also had to take a look at our labor rates and what we were selling items for. We had a choice, raise those but risk our competitive edge. We decided to only raise our labor rates because that typically affects our commercial accounts, and they really know what we’re going through as they’re dealing with the same challenges with their own clients. They understand it is not about sticking it to them, but you have to adjust somewhere. Our base package security systems with residential stayed the same.
We did put a fuel surcharge on there though as we had to, which was communicated upfront before a truck rolled. Everybody understood prices were going up all over, so it was an easy time to pass it on. We’ll roll that gas back, but we won’t be able to roll back our labor because we’re paying more today than we paid yesterday for entry-level techs. Our raises are also more than we used to give for raises for cost of living.
Wheeler: It probably wasn’t the smartest thing, but we tried to hold on and let the customer benefit as best we could before raising rates. We ended up raising materials according to the market, and labor costs did increase. We typically give just an annual raise, but we’ve been giving basically a biannual raise now and at a much higher rate. So we’ve increased our labor prices some, and I’m sure we’re going to have to increase it again.
We have held off on our monitoring rate increase. Our goal right now is putting on new accounts to offset and combat raising the rate.
Callanan: We’ve raised rates mainly, if not a 100%, because of employee wages. To stay competitive with our employees we raised our hourly rates, and we do a pretty detailed examination of how we do each month. We’ll do a monthly P&L and go through that pretty detailed, but with everything that’s been happening we’ve been doing that more on a weekly or even a job-by-job basis. It’s about making sure we’re on target, so we don’t get through something and say, “Geez, we got killed on that.”
We’re combining raising rates with analysis of those jobs and also doing a better job of communicating with our technicians to uncover issues and keep everything on track. It hasn’t been pleasant, but it’s made us stronger.
Sperrazza: It’s making you look a lot more. We got a crazy electric bill, so I called up the electric company because I’m using 1,000 kilowatts less than I did last year but my bill was $600 more. If you look at the mindset, you’re going to say, “OK, the keypad that costs me $89 went up to $99 and I sell it for $125, I better raise.” But there’s so much more to that equation than just the product itself. We’ll sit down in a company meeting and we’ll tell our employees, “When you look at a job and you see a bottom line on it, it’s not what you think.” Once a year we let them know what our bills are and what our expenses are in running a job or just running the company. School tax went up, city tax went up, county tax went up. Everything’s going up.
SSI: Let’s shift to technologies. What are you excited about heading into 2023 that seems to have a lot of legs for your business?
Wheeler: We push smart home, which is a general term. We’re pushing for either the customer that has a hub and they’re building their own system and we bring the security system into it for them, or we provide that hub and educate and teach them on some of the things they can do with it. Whether they use us to put those items in or they build it themselves, if we’re the hub in the end they’re going to stick around.
Another thing we’ve been pushing for our team are services, whether it’s Cloud video, automation, access control, having an app for the monitoring. Besides new accounts, we’ve increased services to our existing accounts to gain more RMR.
Callanan: We’re 90% commercial, 10% residential. We’re probably more of a technology than traditional security company because of a lot of the integration, and centralized management is a term we use and pitch a lot. We consult for companies, asking, “How do you make your money? What is your liability? What’s important to you? What keeps you awake at night?” Those answers help us plug in the appropriate technologies.
We’ve had success with multisite clients in banking and quick-serve food. We understand how they’re pulling their video and how they’re making sure the systems are getting alarmed each night. We leverage technology as a solution.
SSI: What does your company do to stand out in the evermore competitive marketplace?
Wheeler: Internally, we treat our employees as family. We make sure they’re well taken care of and that’s a differentiator with other companies; they’re not just an employee. If they have an issue or something going on, we’re genuinely concerned. We find out what they do on the weekends and I follow some of them on social media. Being engaged with your staff is one aspect. The other is being actively engaged in the community. We are active with nonprofits. When people see you’re giving back it can go a long way.
You’re going to have those customers or prospects looking for the bottom dollar. How much is it? But your best customers are those who understand you’re part of the community. That’s one of our biggest things. A lot of time, my sales team will, when they’re first engaging with the customer, find out what their interests are. Then they couple that, “Oh, you’re interested in this. We did this community project recently,” or what have you. We let the community involvement speak for itself but also use it when we can.
Callanan: For us it’s about local service and support. We highlight how most of our guys are born and raised right here. Integration is also a big differentiator, and we’re well known as an integrator. We can take things to a higher level and make them work better. Whether it’s AV or security or cameras. Being a one-stop shop plays big. The only thing we don’t is the monitoring piece of it. We subcontract that out to a UL-Listed provider. Otherwise, it’s about being a one-stop-shop, cradle to grave or one throat to choke. We pull the wire, we terminate, we program it, and then we do your end-user training. Then if you need something to add onto it, we’re on that too. We really beat that drum.
Sperrazza: One of the things for differentiation with our company is our sales managers will almost go to a cradle-to-grave with their clients. They’ll go out, they’ll do the estimate, they’ll turn the proposal back within 24 hours. Later after technicians complete the work, that sales manager goes back to show it to that client. We don’t have customers; we call everybody clients because it’s a relationship.
With our clients, our sales managers go and show them how to use the system because the last thing I want is a technician with bad breath, B.O. and dirty fingernails showing somebody how to use their alarm system, and, “Oh my God, it’s 4:30, I’m going to turn it into a pumpkin! I got to get going.” Our sales manager also signs all the paperwork with them, and if there’s a problem they’re always calling that sales manager. It eats up some selling time, but they get referrals off of it because they’re handling that person so well.
Previously, I was in the banking industry, and the same thing. We wanted that stickiness. With stickiness, you didn’t sell them just a checking account. It was a checking account, it was a safety deposit box. It was insurance, it was the mortgage, it was everything you can get because it’s harder to leave that bank once you have that much of a relationship with them. We do the same thing, not just for that reason, but because if we can make their experience with our systems better, then we know they’re going to like us and they’re going to stay with us for longer.
The other thing we’ve done over the years is stayed with quality products and we haven’t switched. We started with Honeywell and we went through all the acquisitions, here we are today and we’re still there. That gives our office personnel strength because whoever picks up that phone can tell them how to turn their chime on and off, disarm this, because it’s the same system. It’s simple and it’s a quality product. We stay with what we have, we run with it, and it’s been a good model for us.
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