
Security Management Essentials	*August 2007*

Security Management Essentials

August 2007

Qualitative Pricing Considerations

Pricing or bidding a new contract is not just a numbers game! There are several qualitative considerations that easily could/should have an impact on a number of bill rate components including the amount of profit you build into the rate. These considerations include:

Local Labor Market Conditions
Logistical Factors
Client Circumstances
Risk/Exposure Factors

The current labor market conditions will certainly determine the starting point in the pricing process, the hourly wage. However, if the prospective contract has inherently low pay rates, then further study of your hiring trends, turnover statistics and call offs, at various pay rates would help determine whether a "cushion" should be built into the proposed bill rate to cover the possible need for a mid-term wage increase or higher unbilled overtime due to staff openings.

Logistical factors determine, in part, how easy the new account will be to manage. Is it a 168 hour account adjacent to your office or a 40 hour a week "cold start" in a remote area in which you have no other clients? The latter would probably call for a higher than normal profit component in the bill rate.

Your prospective client's current circumstances can be a significant consideration. All too often owners, managers and business development personnel respond to price quote requests over the phone. A much better approach is to take advantage of an onsite visit to assess:

The Client's Price Sensitivity
The Client's Perception of Threat Levels at the Site
Site Location and Accessibility
Site Conditions
Adequacy of the Security Coverage Requirements

All of the above should impact the amount of profit that is built into the proposed rates.

The risk/exposure factors associated with a new contract are practically impossible to quantify. That's the job for an actuary! Rather than impacting the amount of the bill rate, analyzing the risk/exposures will often determine whether the contract is worth having in the first place. The two most common are credit risk and risk associated with insurance issues such as conditions which might negatively impact your company's insurance rates, or indemnification language in the client's service agreement that is not covered by your policy. If you assess the risks to be only slightly above normal, you might consider increasing your profit per hour a bit to cover it. If, however, the risks seem high, then any profit produced by the contract would be insignificant relative to the financial loss incurred if that risk became reality.

Managing Growth - How to Grow

Managing the growth of your company is difficult at best, and requires a good deal of strategic planning. Several factors must be considered in any successful growth plan. In this series we will discuss the key factors and the consequences on your business.

These include:

How to Grow
Where to Grow
How to Fund your Growth
Building your Infrastructure

In this issue we will examine the question of:

How to Grow!

Growth can come from the sales of new contracts (often referred to as organic growth), through the acquisition of other companies, or obviously, through a combination of the two. An acquisition plan is much more complicated to execute because it requires debt and/or equity funding, and the ability to: properly evaluate the target company, negotiate a sales agreement which will protect you post-closing, integrate the new operation into your own and quickly establish relationships with your new clients to minimize the loss of the contracts you just acquired. Make sure you have all the resources in place before you begin to implement such a program. While acquisitions are a much faster way to grow your company, proceed with caution. Even the most skilled owners have found themselves with a high level of debt, a fragmented organization and lower profit margins due to high interest expense.

Even organic growth requires strategic planning. In terms of committing your sales and marketing dollars, should your company expand geographically or vertically (or, once again, a combination of both)?

Vertical growth is best defined as concentrating on a market segment, say security at healthcare facilities, commercial buildings, etc. and leveraging your expertise to successfully expand within that market. Upon reviewing your client list, you may realize you already have a number of clients in the same market. That's an opportunity to capitalize on your expertise at those facilities by adding value to differentiate your company from your competition and launching a marketing campaign focused on that market segment.

In the next issue: Where to Grow!

Client Evaluation Programs

A client evaluation program is an effective way to obtain valuable feedback from your clients on a variety of issues.

In addition to showing your client that you really do care about the quality of your service, you often will learn how your client really feels about your company or the personnel supervising his or her site!

If your company doesn't have such a program, you can download a very simple turnkey program Here

Quick Tip of the Month

Do not sign a service agreement that includes language which prohibits or requires permission to assign your rights under the contract. If you ever wish to (or have to) sell your business, such language will have a significant negative impact on the transaction.

If you have similar language in your own service agreement, you should remove it. If asked by a client to sign their agreement containing this language, you should make every attempt to have it removed. Tell the client it is your company's policy not to include assignment clauses.

In This Issue