Opinion: Alarm Companies Are in the Customer Service Business, Not RMR Business
Russ “The Alarm Professor” VanDevanter analyzes ADT’s recent financial results and proposes how smaller companies can compete with legacy companies.
Three years ago, I predicted that ADT was going to implode. It wasn’t too big to fail, it was too big to succeed. The purchase of Protection One is the straw that broke the camel’s back.
ADT has now gone public (again) and it is not going well. With 8 million customers, over $10 billion in debt, loss of 86,000 accounts per month (13% annual attrition) and 500 million annual advertising costs, ADT is trying to stuff eight million customers into a four million bag.
If you do the math it comes out as follows:
- $700M annual cost to service debt
- 86,000 X $1200 X 12(months) = $1.2B annually to replace lost accounts
- $500M annual for advertising
This totals $2.4 billion annually or about $200 million per month to service the mothership that is unrelated to the actual cost of providing service to their customer.
That translates to $25.00 per month to the customer’s bill that other smaller alarm companies don’t have to collect for. Their current stock price of $8.77 (down from $14 at the IPO in less than four months) shows that the public at large is in agreement.
Good news for all our smaller companies. With the new collaborative IoT platforms, we don’t need to have the large-scale infrastructure that legacy companies like ADT must sustain to give our customers an equal or better level of service than ADT.
Alarm companies that will succeed in the coming years must realize they are in the customer service business and not the RMR business. You can still make good money, but the bigger your organization is, the harder it is going to be for you to compete.
Good luck and buckle up, it’s going to be quite a ride.
Russ VanDevanter has been active in the alarm industry in the Pacific NorthWest since 1968. He installed, serviced and designed alarm equipment as well owning and running a monitoring station for 19 years. He has owned several traditional alarm companies and currently is a partner in BlockwatchAlarm, an automated central monitoring station, that partners with a prominent national central station in a hybrid self/professional monitoring venture. Learn more at AlarmProfessor.com.
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This article clearly illustrates the danger of companies continuing to take on large amounts of debt, and how that debt must be factored into monthly rate. With a continued downward pressure on basic monthly monitoring rate by new market entrants, increasing prices to existing customers may no longer be an option.
I would be curious to know how the customer replacement cost number of $1,200 was calculated. Is this a number provided by ADT? Why is advertising/marketing cost considered a separate figure from this customer creation cost?
The cost per new customer was mentioned in a investors conference call. It was actually said to be $1500 per customer. I broke it up to into two sections as cost of account replacement and advertising.