Get with the program

Victor Harding
Friday May 13, 2016
Written by
Most of us working in security know something about “authorized dealer programs.”

Some in the industry think dealer programs have had a negative influence on the industry and that they are associated with stupidly low installation prices and in some cases unprofessional selling practices. As for the low prices, I look at this way. Dealer programs have helped to create a “mass market” for security systems in Canada and the U.S. instead of just a service for the well to do.

There are fewer dealer programs operating in Canada now than there were 10 years because of consolidation. The three main programs in Canada today that I know are ADT, Counterforce and SecurTek. I know that a couple of others are coming. There is room for more dealer programs in Canada. Ten years ago there at least three more national programs — VOXCOM, Protectron and Microtec — and everybody did quite well.

In reality, there are only about 300 truly active authorized dealers in Canada today. This is out of a total of probably 2,000-2,500 alarm dealers. But they put on a disportionate share of new alarm accounts.

It is hard to find them because many of these dealers do not play an active role in industry events and generally are not members of CANASA. This is unfortunate. I think those running the dealer programs don’t do enough to encourage their dealers to go CANASA trade shows and events and generally take part in the industry.

Let’s define what we are talking about. By authorized dealer program, I mean a program whereby an alarm dealer contracts with a “mother ship” to sell a portion or all of their new monitored alarm accounts to that mother ship. The dealer is paid a multiple on the rate on the account that varies from 24 to 36 months.

Part of the reason why they work is that dealer programs are an ingenious marriage of two players — the independent dealer and the mother ship, both of which need each other to carry on business. The mother ship is looking for ways to replace their attrition and grow their account base other using a direct sales force or doing bulk acquisitions. The dealer is first and foremost looking for financing to be able to operate in the very competitive residential/small commercial market today.

These dealer programs work. Tens of thousands of alarm accounts have been created using them over the last 20 years in Canada alone. What’s more, given the geography of Canada with its huge land mass, they allow the large national companies a way to gain market share in the small towns and cities that they might not otherwise be able to penetrate.

There are very good reasons for these programs to exist. First and foremost, it is tough for an independent alarm dealer to compete in the residential/small commercial space today without financial help. It simply costs too much to sell and install an average residential/small commercial system today particularly in the big city markets. Other authorized dealers, the larger companies like Rogers and the door-knockers are offering lots of equipment for free. The average Cost to Create a new residential system has climbed from about 20X RMR back in the late 90’s to more than 30X RMR now and on top of that the average RMR on new accounts is much higher than it used to be.

From the standpoint of the larger companies wanting to build their RMR and increase market share, setting up an authorized dealer network is in many ways easier to do than building a direct sales force across the country, particularly in smaller towns. Your Cost to Create a new account may be slightly higher with a dealer program but most of your costs are variable and a dealer program gives you volume. The results speak for themselves. Most of the large alarm companies in Canada and the U.S. are using a dealer program today to build volume.

But there are benefits to the authorized dealer beyond financing. The mother ship not only provides ULC monitoring, which every dealer needs, but also billing and collecting services along with being the front line in customer and technical support, relieving the dealer of these time-consuming duties.

There is more. A good dealer program also helps the dealer get equipment at much better prices and should also vet new products as they come on the market. Most dealer programs will also provide technical and even some sales training for its dealers along with an array of free branded materials such as contracts, decals and marketing pieces. And finally they provide their brand and this can be a powerful aid to a small alarm dealer.

So the question is, if you are an alarm dealer today, do you want to be on an authorized dealer program or not?

If you want to play in the competitive market for residential/small commercial alarms, I would certainly consider an authorized dealer program for at least some of your accounts unless you want to sink tens of thousands of dollars into building your account base.

Victor Harding is the principal of Harding Security Services (www.hardingsecurity.ca).

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