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Value of monitoring Contracts?

Discussion in 'Security Alarms' started by James, Aug 29, 2005.

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  1. James

    James Guest

    I know a small home automation dealer who wants to turn his customers over
    to me for monitoring. I am wondering what a fair price is to pay him for
    these customers. He usualy has me go and program the controls for him and
    set up the monitoring. What is everyone else paying for these types of
    accounts?

    James
     
  2. Frank Olson

    Frank Olson Guest


    2.5x annual revenue is the "going rate".
     
  3. Crash Gordon

    Crash Gordon Guest

    wow that high?
    I'm glad I sold when I did.
    ==
    How many customers? What are the installs like?

    I got a guy like that now and he just gives me the fire-ups and the
    monitoring...and I usually have to do a major cleanup...and I'm still not
    sure it's worth it.
     
  4. James

    James Guest

    If I am thinking correctly your saying it will take me 2.5 years to break
    even? Wouldnt you need a 5 year contract to make it worth your time? He
    only does 3 or 4 installs a year so it wouldnt break the bank. But at the
    same time we wont gain much either...

    James
     
  5. Crash Gordon

    Crash Gordon Guest

    Convince him it would be beneficial to the clients if he just gave them to
    you.
    Besides no one is gonna buy 10 or 20 accounts.
     
  6. Frank Olson

    Frank Olson Guest


    Them's the chances you takes... Most sales agreements include a "hold-back"
    clause. Depending on the size of the account base, payment history, etc.,
    it could be as high as 20%. You put 30% up front and schedule the release
    of more funds at a later date (subsequent to when the accounts have switched
    over). It's a win-win situation for both sides...
     
  7. Bob La Londe

    Bob La Londe Guest

    10-20 accounts is a gamble. I bought 60 two years ago, and it was a good
    bet.


    --
    Bob La Londe

    Win a Tackle Pack
    Jig Fishing - Tips and Techniques Contest
    Courtesy of Siebler Custom Baits
    http://www.YumaBassMan.com
     
  8. Crash Gordon

    Crash Gordon Guest

    At 3 or 4 installs a year? What are we talking here...maybe 20 accounts?
    Offer the guy 100 - 200 bucks an account. No one's gonna buy a small amt of
    accounts it aint worth the time.
     
  9. Jim

    Jim Guest

    You can contact Bob Campbell in this group. He can tell you all about
    long term contracts and how it affects the worth of the accounts you
    are buying.
     
  10. Bob Worthy

    Bob Worthy Guest

    Is this guy a licensed security dealer in your area and does he have an
    agreement with the client, for monitoring, or is he just turning a
    perspective client over to you? In Florida for instance, if this person is
    not a licensed security dealer, he should not be involved with contracts
    period. If an agreement is in place and everything is on the up and up, it
    depends on the terms of the agreement and how much time is left on the
    agreement. Other agreement language also comes into play such as
    cancellation clauses, renewal clauses, limited liability clauses,
    assignability clauses etc. If there is no agreement in place as of yet, a
    finder fee or commission is the only thing appropriate.

    Bob W.
     
  11. Norm Mugford

    Norm Mugford Guest

    If you take on someone else's accounts, check with your
    insurance company to make sure you're properly insured.
    You may be surprised at the answers you get.

    Norm Mugford
     
  12. If you take on someone else's accounts, check with
    Our insurance coverage for monitored accounts requires that each
    client be under a contract which has been approved by the
    underwriter.

    In the event that I should decide to buy out another dealer,
    coverage would only apply as each client signs an approved
    contract. If the selling alarm company's contract meets the
    underwriter's requirements no new agreement would be required
    until renewal time.

    In my case this is moot since I have no intention of buying
    anyone out. I'm slowly getting out of monitoring anyway. It
    takes too much time away from more lucrative activities. This is
    an area where online alarm dealers tend to differ from brick and
    mortar counterparts. Traditional alarm dealers make most of
    their profits from RMR, whereas online dealers rely on system
    sales.

    --

    Regards,
    Robert L Bass

    Bass Burglar Alarms
    The Online DIY Store
    http://www.BassBurglarAlarms.com
     
  13. R.H.Campbell

    R.H.Campbell Guest

    Well, since that sounds like an invitation to post, I will....))

    Long term contracts are one part of the process of determining a companies
    net worth for the purpose of selling or buying. RMR locked into a long term
    contract does build equity in an alarmco's business, and depending upon the
    buyer, can be one of the most important things relating to the companie's
    value for resale. However, with buyers and banks becoming more prudent in
    lending money to buyers based on the worth of the company, it is far from
    that cut and dry anymore !!

    Any buyer doing "due diligence" to assess the worth of the business will
    look at far more than that. I'll summarize some of the more salient points
    below:

    1- The companies track record as far as losing customers (called "attrition
    rate") is important. All companies lose clients through people moving, but
    bad companies lose far more than their share. Companies who specialize in
    the "free systems" also seem to lose far more than their share, perhaps
    because of the "el cheapo" nature of many clients who shop this way.

    2- Buyers look for companies with the minimum number of types of panels in
    service. A proliferation of different alarm panel types will increase
    service costs for the buying company.

    3- Buyers like all panels to be "uploadable" which saves service costs over
    time.

    4- The monthly rate you charge will have an affect on the ultimate purchase
    price, since higher rates bring in more revenue.

    5- The companies reputation in the marketplace is very important. Happy
    clients stay with a company with or without long term contracts and this
    loyalty can be transferable to the new buyer. However, much of that
    "loyalty" can disappear depending upon how the buyer handles the first year
    of ownership. If the buyer gets too greedy and trys to change things too
    much, customers will leave (contract or not), and this loss will usually
    reflect on a lower final payment price for the company. Most buyers try to
    lever in a "holdback" clause, to ensure that any losses through their
    stupidity comes out of your pocket.

    6-
     
  14. R.H.Campbell

    R.H.Campbell Guest

    Please ignore the partial post below....hit the button too soon...will
    repost later when the message is complete...

    R.H.Campbell
    Home Security Metal Products
    Ottawa, Ontario, Canada
    www.homemetal.com
     
  15. R.H.Campbell

    R.H.Campbell Guest

    Balance of post added to original mis sent one.....sorry about that

    RHC
    ---------------------------------------------------------------------------

    Well, since that sounds like an invitation to post, I will....))

    Long term contracts are one part of the process of determining a company's
    net worth for the purpose of selling or buying. RMR locked into a long term
    contract does build a certain amount of equity in an alarmco's business, and
    depending upon the
    buyer, can be one of the more important things relating to the company's
    value for resale. However, with buyers and banks becoming much more prudent
    in
    lending money to buyers based on the worth of the company, it is far from
    that cut and dry anymore !!

    Any buyer doing "due diligence" to assess the worth of the business will
    look at FAR more than that. I'll summarize some of the more salient points
    below:

    1- The companies track record as far as losing customers (called "attrition
    rate") is important. All companies lose clients through people moving, but
    bad companies lose far more than their share. Companys that specialize in
    the "free systems" also seem to lose far more than their share, perhaps
    because of the "el cheapo" nature of many clients who shop this way, and
    their overall average lower credit ratings

    2- Buyers look for companies with the minimum number of types of panels in
    service. A proliferation of different alarm panel types will increase
    service costs for the buying company.

    3- Buyers like all panels to be "uploadable" which saves service costs over
    time.

    4- The monthly rate you charge will have an affect on the ultimate purchase
    price, since higher rates bring in more revenue.

    5- The companies reputation in the marketplace is very important. Happy
    clients stay with a company with or without long term contracts and this
    loyalty CAN be transferable to the new buyer. However, much of that
    "loyalty" can disappear depending upon how the buyer handles the first year
    of ownership. If the buyer gets too greedy and tries to change things too
    much, customers will leave (contract or not), and this loss will usually
    reflect on a lower final payment price for the company. Most buyers try to
    lever in a "holdback" clause, to ensure that any first year losses through
    attrition or their
    stupidity comes out of your pocket.

    6- The state of organization of your alarm panel files is very important.
    Buyers are looking for proper documentation, which shows them not only are
    you diligent in keeping track of clients accounts, but also run an organized
    business. This makes their job of integrating your accounts into their base
    much easier.

    7- Ideally, the more billing you have through automatic withdrawal, the
    better for the buyer. This is easily transferred. Conventional 3 mo / 6mo /
    12 month billing is one of the more expensive and time consuming parts of
    running an alarmco.

    There is more but that is what quickly comes to mind. Since the issue of
    long term contracts can be a bit of a bugaboo, let me tell you of my own
    experience. I set out with my business plan to position myself directly
    between the large corporations and the "direct to end user" monitoring
    rates. I also chose NOT to allow my customers to be trapped by long term
    contracts; however, in return for more reasonably priced monitoring, the
    systems I sell are ALWAYS charged at fair and full market value. And I don't
    discount at the front end. So I make my money on day one, plus a fair
    profit. Plus I ONLY do automatic billing, so my workload is minimal. If a
    client wants anything other than Pre Authorized Payment Plan, then he
    doesn't want me as his alarmco - period !!

    Since this runs somewhat against the conventional wisdom of the industry, if
    long term contracts were of such overriding concern to a buyer, then my
    account base in theory should have little value. However, I have a standing
    offer to sell my accounts at the equivalent value of a 36 month contract.

    So its not always cut and dry ! Much depends upon things within the buyers
    financial environment outside your control. But you can substantially
    increase the worth of your business by running it in a thoroughly
    professional fashion. How you do that, and what you charge must meet your
    business requirements again based on what you want from the business and
    where you are going with it. And that goes directly back to your business
    plan. As we used to say in the Bell...."Plan your work, and work your plan".

    I would suggest you do your own investigation of these accounts to determine
    if it's worth your while. Tiny numbers of accounts seem to be harder to sell
    simply because they are often not worth the business effort to do so. Large
    companies seem to be looking for blocks of 500 accounts, with 1000 for sale
    being the minimum needed to attract the "sharks" in the industry. But even
    those numbers seem to vary at different times.

    Good luck in your business!

    R.H.Campbell
    Home Security Metal Products
    Ottawa, Ontario, Canada
    www.homemetal.com
     
  16. Jim

    Jim Guest

    What you've forgotten to mention is that the length of the term of the
    contracts will weigh more towards the dollar offer, against all the
    other items put together. In todays market, if you rated 100 percent on
    all of the items you listed, and you didn't have one year or longer
    contracts, you'd get about 30 percent less for your accounts. When a
    company comes in to do a due diligence the first thing they look at is
    the contract and the term and how many of them you have. You ask a
    price. They make an offer. If it's close,then the examination of all of
    your accounts, company history, attrition, good will etc. When that's
    completed, if it's all in line they'll likely increase their bid.
    Without contracts, some wont even take the time to do the due
    diligence. All of the other items on your list is just icing on the
    cake.

    You may have someone in the wings, who knows you who is willing to buy
    accounts on the basis of personal knowledge of you and your integrity
    and work ethic. On that basis, you may do better. In the open market,
    sorry ...... but you loose.

    Want to do a test run? Take your contracts and go to the bank and ask
    them for a loan using them for colateral. You'll get an excellent idea
    of whether your "business plan" is useless or not.
     
  17. R.H.Campbell

    R.H.Campbell Guest

    Absolutely not so. You are dead wrong. The world is changing and you can't
    even see it. I suggest you talk to your banker if that's truly what you are
    counting on when it comes to selling your accounts.

    For the record, I have two other potential buyers who have approached me.
    Neither care that much about the contractual term. Perhaps it's different in
    your area, but I can't see how...

    But have it your way.

    RHC
     
  18. R.H.Campbell

    R.H.Campbell Guest

    Actually, a correction is called for here. If you are simply talking to a
    banker, you are most probably correct. Most bankers are about as risk averse
    as anyone can get. IMO, they are simply salaried employees of the bank,
    hired strictly to protect the banks assets. I haven't met one yet that is in
    any way a businessman.

    In all seriousness, you might want to talk to potential buyers to get their
    view before you continue to count on this point when you go to sell at the
    end. It no longer is that cut and dry in today's market !!

    RHC
     
  19. Jim

    Jim Guest

    Well you sure do live in LA LA land.

    I've been prodding the market for about two years now. Gathering
    information in the event it comes time for me to bail out.

    Anyone >>> EVERYONE want's contracts. The longer the better. It's the
    first criteria. Then comes all the other stuff.


    They'll tell you anything you want to hear untill it comes down to the
    final ...... How MUCH? then you get the TRUE story. Until then, they
    just want to feel you out and will tell you anything.
     
  20. Frank Olson

    Frank Olson Guest

    Bob's not in Vancouver. Vancouver's official nicks are "Lotus Land" and "La
    La Land".

    :))
     
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