There are several ways to make money on home security accounts, from being a dealer to operating a traditional company, and each have their pros and cons. As you decide which way or combination of ways is best for you consider the following.
Direct Alarm Dealer Programs
Joining an alarm dealer program, like SAFE or Alarm Capital Alliance, is a wise move for any company in the security industry. Many customers are reluctant to pay for equipment up front because they have seen advertisements offering $0 down installations. As a result, any company without a $0 down offering may find themselves walking away empty handed from an otherwise interested customer.
Alarm dealer programs offer instant cash flow for dealers. A customer paying $50 monthly will usually generate around $1500 in revenues for a dealer. Even if you provide the customer with free equipment, a one man show can easily net $1000-$1200 per customer, and not have to worry about long term customer service, tech support, monitoring, or anything else.
Joining a security dealer program also gives you access to discounted equipment pricing. Most dealers save anywhere from 15%-30% on equipment. This may not seem like much, but if you install a single account each week, you save over $3,000 in your first year.
You can also get access to marketing materials, leads, sales training, and other resources not otherwise available.
The major drawback to a dealer program is that you give up all future revenues in exchange for an up front profit. If you have a solid team with different skill sets, consider keeping as many accounts as possible in house. You may also have to compete with other dealers offering the same products, so differentiating yourself can be tough. Also, it takes a lot to run a successful dealership. You must maintain licensing, insurance, and the staff necessary to make your company function. This is no easy task and many successful sales reps and teams cannot make the transition to being a successful dealer.
Alarm Sub Dealer Programs
Alarm sub dealer program, like the ones offered by SAFE or American Defense Systems can offer the best of both worlds. Sub dealers are paid almost the same as if they were a direct dealer, but have a lot of extra support including back office and admin support. Alarm sub dealers typically don’t have to worry about insurance or state licensing, and in many situations do not even have to buy alarm equipment or worry about the installations.
Sub dealers typically give up some money on each sale, but in exchange they receive back office support, an installation network, equipment floating, and are generally responsible for only selling the alarm account.
Funding Programs
Funding Programs are ideal for anyone needing cash flow to create accounts but not wanting to give up the account forever. A funding program basically loans money against an alarm account. For example, several funding programs will pay around 30 multiples for a 5 year contract. While this is less than an alarm dealer program would pay, you retain ownership of the account. When the contract is over you get the account back and begin to collect the monthly revenues. If you want to keep your accounts and build an in house business, this can be a valuable way to go.
There are 2 major downsides to funding programs. The first is that you must pay for the interactive and monitoring fees for each account, up front. If you have $1500 coming to you from a 5 year contract and the monthly monitoring and interactive services cost $10, you will automatically have $600 deducted from funding to prepay the 5 years of service.
The second has to do with chargebacks. Since you are basically taking a loan against the account, you must guarantee it for the full term. If the account attrits with 6 months left on the term you are charged back for 6 months of service. If a 60 month agreement goes bad after 12 months, you will owe 48 months worth. That’s a huge hit.
Different funding programs have varying policies, but if you are planning to build a long term company then you should talk to a couple of funding programs and see if it makes sense for you.
In House
Building an in house company is a lot like being the tortoise in the race. It’s a long and slow process but it can be very rewarding. Keeping accounts allows you to receive monthly residual income and build an asset that can later be sold for 30-35x. You must maintain several departments but if you have a strong team it can be very profitable.
If you plan to build up accounts make sure you own the lines they are monitored on and install equipment that can be remotely reprogrammed. Failing to do so will make it harder to sell the accounts in the future and will lower their value.
The down side to building up this type of company is mainly cash flow related. If you can talk a customer into paying for equipment your initial profit will average $100-$200. After factoring in overhead and monitoring expenses, you will net $15-$18 monthly. At that rate, it takes 5 years to breakeven compared to selling the account to an alarm dealer program. It will also take a lot more work. You must handle billing, monitoring, customer service, tech support, service calls, and hope a competitor doesn’t lure your customer away. Considering the average customer sticks around for 7 years, the extra work may not be worth the extra revenues.