Security Alarm Monitoring - What It's Really Worth
A gigantic industry has grown up around the off-site central station monitoring of burglary and fire alarm systems. In fact, many security dealers dedicate 100% of their available resources to installing as many monitored accounts as they can. Many of these systems are put-in with little or no upfront costs even though the total costs for parts and labor for the average home alarm system are well over $ 400.00.
Why would a dealer dedicate so much of his time giving away and then installing monitored security systems? The answer is Monthly Re-Occurring Revenue (MRR), which is simply the fee that is associated with monitoring your security system.
You see, the contract that they make you sign is worth money. Just like the cellular phone industry, your contractual obligation with the provider allows them to subsidize the upfront costs of the installation. You really did not think that new cell phone cost $ 29.00 did you?
You see, there is really no such thing as a free security system. With monthly fees reaching upwards of $ 35.00 or more with a 3-year contractual obligation, you are committing to pay the dealer $ 1,260.00 for that free security system.
Fifteen or twenty years ago, most towns of any size had a few locally owned Central Stations. These Central Stations were usually the heart of a thriving alarm company that had a dedicated sales and service force that created and maintained their customer base.
The value of alarm companies is at least partly based on the total amount of Monthly Re-Occurring Revenue that they are able to generate. Imagine a medium sized company that charges $ 25.00 for alarm monitoring every month. Now imagine that company has 5,000 customers. That company is now generating $ 125,000.00 per month which is equal to 1.5 Million Dollars in Annual Re-Occurring Revenue.
The purchase price of most companies is roughly based on 3-½ times their annual revenue, which would make our example company worth over 5-Million Dollars. As you can guess, with alarm monitoring worth so much, many of the family run alarm companies cashed out long ago.
Through a series of acquisitions and mergers, most of the Security and Fire Alarm Systems in the United States are now monitored by a handful of Super-Sized Central Stations. Many of these Mega-Stations have hundreds of highly trained alarm dispatchers that handle thousands of alarms from all over the country.
Now, let's go back to that local installer toiling day in and day out to give away and Install Security Systems. He can afford to give you that alarm system because he is selling the contract to one of these Super-Sized Central Stations. Depending on your credit score and the term of the contract, he will collect anywhere from 25 to 40 times the monthly fee for turning over the contract. If it cost him $ 300.00 for the equipment and another $ 100.00 for the labor and you singed a 3-year contract at $ 30.00 a month, he will probably make about $ 650.00 for giving you that free security system.
So what is that security monitoring really worth? If you consider that an army of well equipped and trained dispatchers are standing by to dispatch the appropriate authorities to your home or business and it costs less than the price of a soda every day, it really can be worth every penny.
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