Inside the Numbers: How Security Dealers Can Thrive in the Growing Smart Home Market

SSI and Parks Associates’ security dealer survey paints a picture on the current and future landscape of the smart home industry.

Increasingly, home-style security is coming with more fixings. That’s part of the reason residential security dealers enjoyed a fine 2014 and expect a hearty 2015. Sales are up and monitoring fees are holding or increasing if smart home adjacencies are added to the recurring monthly revenue (RMR) mix.

For the past three years, SSI and Parks Associates have teamed up to conduct a residential security dealer survey. Each year, some questions are the same while others are topical and of an annual timeframe. This approach provides trending data as well as specific annual answers to questions about the state of the industry.

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Parks Associates’ forecasts and history for 2014 and 2015 using dealer data, consumer data, security provider financial information and interviews with manufacturers peg 2014 system sales (all types including replacements and DIY) at 5.7 million and just above 6 million for 2015. This signifies a recovery and is upbeat news for most dealers. Later years of Parks’ forecast predict a somewhat changing environment. Let’s take a look at what the latest data tells us.

Assessing Customer Mix
Security dealers report a slightly lower percentage of sales to multifamily homes (or MDUs, multiple dwelling units) in 2015 compared to 2014 to 2013. Some differences may result from a changing mix of respondents year-over-year so the dip may not be as dramatic as reported. However, there is no question that 2014 begins a return to a higher volume of new single-family housing starts as well as a general increase in home buying.

As ever, the majority of security system adoption occurs at the time of a move. The new start may include security while the resale home may already have a security system. The time of a move is also when households reflect on what they want in their newly owned home. This is when security vividly comes to mind. In total, 65%-70% of all security adoption occurs at moving, and more than 85% of that adoption is for single-family detached homes or townhomes.

More than half of reporting dealers install at least 50% of their residential sales into single-family homes. A third install 70% into single-family homes. In reverse, only 85% of reporting dealers install in MDUs at all; of those, half report that less than 50% of their installs are in MDUs. As security providers such as ADT and Comcast develop and offer portable or all-in-one offerings, one of their goals is to provide value to renters who do not wish to invest in a system that they cannot take with them as they move from one place to another.

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The good years’ news is reflected in security dealers’ reported expectation for their revenues. Dealers have reported solid expectations for improved revenues since 2013. But, of course, 2012 was a terrible year for industry, including the security industry. The ensuing year was better, but look at that expected increase for 2014! While expectations for 2015 are not as uniformly positive, they remain excellent when considering that these expectations reflect compound growth patterns.

Outsourced Providers Win Praise
Since this survey began in 2013, about 75% of respondents have reported that they offer professional monitoring, with 60%-70% outsourcing that feature. How those that outsource handle their monitoring contracts splits quite evenly between selling the contract for a lump sum, contracting with a service to perform that function but keeping the contract and, finally, having a mix of selling contracts and outsourcing contracts. Eighty-five percent of dealers that outsource or sell contracts report that they are “very satisfied” (6-7 on a 7-point scale) with their provider, a score that must (and should) delight those providers.

The same percentage (85%) report that they remain responsible for customer support through the life of the contract. The remainder splits heavily to having customer support responsibility for a set amount of time.

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