Value of monitoring Contracts?

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

Reply to
James
Loading thread data ...

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.

Reply to
Crash Gordon

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.

Reply to
Crash Gordon

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

Reply to
James

2.5x annual revenue is the "going rate".
Reply to
Frank Olson

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...

Reply to
Frank Olson

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

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.

Reply to
Crash Gordon

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.

Reply to
Jim

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.

Reply to
Bob Worthy

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

Reply to
Norm Mugford

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.

Reply to
Robert L Bass

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-

Reply to
R.H.Campbell

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

formatting link

Reply to
R.H.Campbell

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

formatting link

Reply to
R.H.Campbell

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.

Reply to
Jim

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

Reply to
R.H.Campbell

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

Reply to
R.H.Campbell

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.

Reply to
Jim

Talked to the guy today and we settled on 100 bucks per account. I guess thats not a bad deal from this ng's perspective. :)

James

Reply to
James

Cabling-Design.com Forums website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.