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2018 Residential Security Market Report: Home Monitoring Fees, DIY on Upswing

The 2018 Residential Security Dealer Survey shows security pros face sharing smart home market spoils with wholesale monitoring providers, DIY and other competitors.

2018 Residential Security Market Report: Home Monitoring Fees, DIY on Upswing

As has been the case for the past five years, Security Sales & Integration and Parks Associates have once again collaborated on the annual Residential Security Dealer Survey (a.k.a. Residential Market Report).

Now in its sixth year, the 2018 survey was fielded in August and September, and lends key insights into the leading trends, opportunities and challenges. A few more than 200 security dealers participated in the survey. Not all dealers respond to all questions, so question base numbers and margins of error percentages vary.

In addition to providing facts as to average security system units sold per month and average monitoring fees, the research sheds light on important pieces of overall knowledge regarding important changes and shifts in the industry landscape.

Two-Thirds of Sales Are Now Interactive or Smart Home

In some ways, results from the SSI/Parks Associates 2018 Residential Security Dealer Survey provide results similar to those found in the 2017 Survey. Below are examples:

■49% of the survey’s dealer respondents are owners of their firms. Owners have represented 45%-50% of respondents the past three years. More than 85% of respondents have significant input into decision making.

■Slightly more than half of responding dealers peg their revenues at below $1 million. While there has been some bouncing around the past five years, after considering margin of error, the percentage of dealers with revenues below $1 million is safely stated to be about 50%.

■The top three business concerns are deceptive practices by competitors, a dearth of qualified personnel for hiring, and the increasing strength and availability of retail components offering security benefits. Two of these have been in the top three concerns for several years. Deceptive practices by competitors was fourth last year while consumer hesitancy was third; it dropped to fourth this year.

■The average number of monthly security system installations in 2018 is 18; in 2017, it was 17.

■The type of housing for the installation of security systems hovers at 80%/20% (single family vs. MDU). Housing type has remained within 2 points of that 80/20 split the past four years. MDUs represent a good opportunity for DIY security with smart home devices offering portability.

■~90% of responding dealers reported in last year’s survey that they offer at least basic interactive services. This year, responding dealers reported that one-third of their sales are traditional security sales, one-third include basic interactive service and one-third include smart home devices to accompany the security system. (See Figure 1)

■The top three factors influencing a dealer’s choice of control panel hardware are ease of use, features and price, just as last year. But there is a difference; ease of use was cited as a top factor by 25% of dealers this year vs. 13% last year. Price dropped its percentage as a top factor from 18% to 12% in 2018.

■Ease of use, ease of install, tech support and interoperability were selected by 75% or more of dealers as very important, just as in 2017.

■Prices for basic security systems, advanced security systems and security systems with smart home adjacencies increased during the past year in an orderly predictable way. (See Figure 2)

3rd-Party Monitoring Paces Hot Trends

Along with finding similar answers for specific factors in 2018 and 2017, some findings show continuing trends identified in 2017 or earlier. Below are some examples:

■The percentage of respondents stating their firm provides professional monitoring continues its decline. The percentage has fallen from 83% in 2013 to 60% in 2018. More companies now use third-party monitoring providers than in the past.

■Monthly monitoring fees continue to rise quite steadily. The increases for total average monitoring fees reflect added fees for smart home devices as well as general fee increases. (See Figure 3)

■Average prices by service type vary from $33 per month for basic professional monitoring only to a high of $49 per month for security system monitoring AND basic interactive services with smart home devices. Basic interactivity allows the consumer to check status, receive alerts and control some features via smartphone, tablet or computer. Adding smart home devices increases dealer revenues from equipment and monitoring fees. Of course, costs also increase. (See Figure 4)

Is It Do or Die Where It Comes to DIY?

The percentage of dealers reporting the sale of only professionally installed and monitored systems dropped 13 points in one year. Even after considering margin of error, this is notable; all dealers need to watch the trend.

The slack is picked up by DIY security systems with or without monitoring. For some dealers, adopting a DIY system is an easy decision; for others, adding a DIY system to their offerings does not seem worth the trouble. (See Figure 5 )

Whatever a firm’s decision, dealers need to weigh the pros and cons of adopting DIY security carefully before jumping to a decision. Among dealers selling DIY security systems, their percentage of systems sold that are self-install has increased from 27% to 40%.

Four of five dealers now selling DIY systems report they offer these systems because customers want them; 46% report that they break even on hardware, then earn profit on monitoring fees. (See Figure 6)

Smart home devices are now often staples in a security dealers’ offering options. For each device under survey in 2018 the trajectory is up, even if only by a small percentage.

This is the first year for surveying smart video doorbells. These devices are popular, particularly considering their addition to the basket of available smart home devices is so recent.

IP cameras, adopted in nearly 40% of security system installations, continue to be the device most often added onto a security system. Given the power of video as an alert having real information, this makes good sense.

IP cameras also offer dealers opportunity for additional revenue from video storage fees. These two product types are worthy additions for installing security dealers.

Fighting Attrition & Slow Growth

While 46% of dealers report at least 10% revenue increases as compared to the past year, this increase is down from a peak of 81% in 2014, the first year of real recovery from the Great Recession.

A higher percentage of dealers report flat revenue expectations for 2018 than in past years, while a slightly higher, but still low, 5% report revenue decline expectations.

With solid revenue growth among dealers, why a total CAGR of just a little over 2%? This is in large part because the bulk (~80%) of security industry revenues are derived from monitoring fees.

With a dealer reported attrition rate of 16% for 2017 and like-kind attrition up to 19% the past few years, new security sales only recover what has been lost over a year’s time. Attrition is the enemy of growth. Dealers with high attrition tread water.

The ~50% of dealers with lower than 10% attrition are the high profit providers. They keep attrition low by good service, but also by good communications with existing customers.

The marketplace is changing. DIY security systems are improving in both reliability and features. Developing a relationship with your customers must be paramount.

Make sure to check out the slideshow above for the full results from the 2018 Residential Market Report!

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