The Residential Alarm Segment

It occurred to me that it might be helpful if someone gathered a lot of information on the individual sectors in the security industry and presented it to readers. The idea here is to give readers an overview of what one person thinks is going in the sector- what to watch out for and do if working in the sector.

The residential burglar alarm sector still represents a great opportunity to security dealers but I would argue has to be approached the right way. We don’t have great stats in Canada on market penetration but as best we know even if the new “connected home” wave hitting us the penetration rates are still not much above 20%. So compared to products or services like smart phones or hi-speed Internet there appears to be still be a lot of room for growth in the residential market.

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 companies 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. The new wireless panels are so much better than they used to be.

But there is a big new wave hitting the residential alarm market that is making it so 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 cell phone
• View the inside or outside of their home from anywhere in the world
• Control the lights in their home from any computer or smart phone
• Ditto for the heat.

The “connected home“has arrived and it is a trend that cannot be ignored. All of 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 US 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. My view is while Canada is lagging the US in this movement, it is happening in Canada as well only more slowly.

However this movement to the connected home comes at a much higher cost for the installing dealer and the customer. It is not going to be accepted by everyone simply 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, at the same monitoring rates are increasing dramatically. I have not seen ADT’s average rate of monitoring since it went private but my bet it is between $45-$50/mth/acc for residential accounts. That is more than double what old fashioned alarm systems go for.

This is where I balk. Despite seeing attrition figures suggesting for example that ADT Pulse systems with interactive panels have lower attrition rates, I don’t believe we have seen enough data or history on this. I believe that we will see more players like Ackerman Security popping up in Canada and the US 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 3 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 US 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 like a company such as Fluent Home, be an authorized dealer like AlarmGuard 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 1/5th only of your customers will want a connected home system right now.
• Having said this 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/mth. Dumb. Monitored accounts under $20/mth are worth a lot less.
• On the other hand don’t make your systems too expensive. I like between $25-$40 /mth for non-connected home accounts.
• Try to sell lifetime warranty for $5-10/mth extra. This avoids fights over service call invoices.
• Video verification is coming so try to sell your new customers with 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 do-do 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

Harding Security Systems Inc

victor@hardingsecurity.ca