How connected are we to the connected home?
The residential burglar alarm sector still represents a great opportunity for security dealers but it has to be approached the right way.
September 12, 2017 By Victor Harding
We don’t have great stats in Canada on market penetration, but as best we know, it is still not much higher than 20 per cent. Compared to products or services like smart phones or high-speed Internet, there appears to be a lot of room for growth.
Secondly there continues to be a general acceptance by insurance companies and the authorities that alarm systems work and do their job. Also, because of the advent of services like Rogers Smart Home Monitoring, there is so much more good advertising out there about what a security system can do. I also like the fact that if you are looking for just a basic system, the equipment costs are dropping and the technology is getting better every day.
There is a new wave hitting the residential alarm market that is making it much more attractive. Consumers are realizing that an alarm system can do so much more for them than simply send a signal to the monitoring station if a contact is broken. The security system is in fact the core unit to what is fondly referred to as the “connected home” allowing the customer to do things like: Unlock the doors of their house from their smart phone; view the inside or outside of their home from anywhere in the world; and control the lights or temperature in their home from any computer or smart phone.
The “connected home” has arrived and it is a trend that cannot be ignored. The “connected home” starts with the alarm system. Imperial Capital in their Premises Control and Automation Review estimate that currently about “27% of homes in the U.S. with an Internet subscription have some form of security/home control solution … and that the penetration rate for total fee-based security systems would increase from 21.2% in 2016 to 29.6% in 2020 and then to 42.0% by 2024.”
Basically, they are saying that the move to premise control and automation with the connected home is going to double the penetration rate for alarm systems — a tall order. In my view, while Canada is lagging behind the U.S., it is happening here as well, only more slowly.
However, this movement comes at a much higher cost for the installing dealer and the customer. It is not going to be accepted by everyone because it is too expensive. First, the cost to install these systems with automatic locks and cameras, etc. is huge compared to what it was — thousands of dollars. To help offset these costs and to pay for the line costs associated with cell and alarm.com, monitoring rates are increasing dramatically.
I believe that we will see more players like Ackerman Security popping up in Canada and the U.S., making a living out of “taking over” these high priced systems.
For whatever reason, even with the buzz around the “connected home” and “premise control,” I don’t see nearly as much emphasis on the part of the average security dealer in Canada on residential alarms as there used to be. Most dealers I run into do residential alarms as an exception.
Why? Well first with or without the connected home technology, the residential market is just too competitive — even more than the commercial alarm market. It is difficult if not impossible to make money on the installation of a residential alarm anywhere. Dealers I talk to will do residential systems that are connected to their commercial accounts but will ignore phone calls from prospective customers who they think are just price shopping.
Now, even more so with the connected home technology out there, most installers of residential systems have to offer a fortune just to get a new three-year monitoring contract. A lot could mean $400 of equipment plus installation costs plus maybe a sales commission. The Barnes-Buchanan 2017 Annual Review indicated that the average Cost to Create a new account in the U.S. is close to 30X RMR — with that RMR rate being is a lot higher than it used to be. If you want to be serious player in the residential market today, you either have to be well-financed, be an authorized dealer, or be a telco or cable company. Of course, there are exceptions.
Amazingly enough, to add insult to injury, most of the stats that I have seen recently show residential accounts having higher attrition rates overall than commercial accounts on balance. Who would have thought?
So there is opportunity for some in the residential market place.
Knowing what I know about the residential market for alarm systems, here is what I would insist on in terms of all new residential installations. You have heard me say many of these things before:
•Expect that about only 20 per cent of your customers will want a connected home system right now.
•Having said that, I would still try to install all my new systems with the latest interactive panels regardless of whether the customer wants the interactive services now or not. The connected home is coming.
•I would insist that every new account without exception sign a properly constituted monitoring agreement with a good waiver of liability clause in it. Contracts are more compulsory now when selling your company than they used to be. Go to www.canasa.org to get copies.
•Regardless of what services are offered, I would not sign any customer up in any part of the country for less than $20/month.
•On the other hand don’t make your systems too expensive. I like between $25-$40 /month for non-connected home accounts.
•Try to sell lifetime warranty for $5-10/month extra. This avoids fights over service call invoices.
•Video verification is coming, so try to sell your new customers on cameras.
•All new systems should go in on pre-authorized payment only. Worth more. No invoicing.
•If possible, try to get a credit score on as many of the new systems as possible. This will give you a good idea as to how long a customer will last. Any score under 625 is more risky.
•Don’t “give the ship away” to get the new account. Make sure that you get paid back in no more than 18 months. Better financed dealers can go to 24 months.
•Install all new accounts with cell or interactive technology. Land lines are going the way of the dodo bird.
•Make sure to set up all accounts for downloading. You don’t want to have to roll a truck needlessly.
•Install all your new accounts on a line that you, not the station, own.
Victor Harding is the principal of Harding Security Services (firstname.lastname@example.org).
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