
Security Management Essentials	*September 2007*

Security Management Essentials

September 2007

Contract Pricing and Cost Allocation
As you know, some clients, usually government entities, require one bill rate for all hours billed regardless of differences in positions, wage rates, etc. However, when that is not the case, properly allocating your costs can be critical. Whether it is armed and unarmed posts on the same contract, or differences in uniforms, training costs or equipment, the failure to build all the unique costs into the bill rate for each post or wage category, can leave you exposed to the effects of fluctuations in coverage that may result in the loss of several percentage points of anticipated profit. In a highly competitive bid situation, that can mean a lot!

Take the example of a one year contract consisting of the same hours per week at two different locations, only one of which requires a site vehicle. The bill rate at this site should be higher in order to recover the cost of the vehicle on its own. If instead, you divide the estimated annual vehicle cost by the total hours at both locations to arrive at the vehicle cost per hour, and then add that cost into your blended bill rate, you will only recover the entire cost of the vehicle if the weekly coverage at both sites remains exactly the same for the entire term of the contract. If after the first six months the coverage at the site without the vehicle is cut in half, you will find yourself in the position of having to request a rate increase for the existing hours. Obviously, if the coverage was increased, you would experience a windfall, but somehow that hardly ever happens!

In the example above, the consequences are obvious and a reasonable client would likely understand the issue and possibly grant an increase. However, most of the time the issue is far more subtle and may even elude the security company manager.

Knowing all the costs and expenses associated with a pending contract and allocating them properly when formulating your proposed bill rates, will help you manage your profits.

It would be a missed opportunity to not point out that AutoRate Pricing Pro, our contract pricing/bidding and analysis software, allows you deal quite easily with these and many other pricing issues!

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 are complex issues and the intent of this series is not to over simplify them, but rather to highlight their significance.

The key factors include:

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

We discussed How to Grow in our August 2007 issue. In this issue we will examine the question of:

Where to Grow!

Becoming a strong regional or national company is the goal of most security company owners/managers; however, that expansion and where to concentrate your marketing efforts also requires strategic planning and careful consideration.

The most logical markets on which a company should first focus its growth efforts are those in which it is currently operating. Consider the fact that multiple locations mean multiple sets of overhead costs. The overhead associated with a new branch office must be covered by the gross profit from new contracts sold there before any income falls to the bottom line. The same number of weekly hours sold in an existing market will produce income immediately. At some point, however, whether due to market saturation, local economic or other factors, it becomes time to look elsewhere for growth.

It is not uncommon to have a client in a current market request coverage at their site in an area that is new to your company. Obviously, this is an ideal situation, since you enter that new market with a base of business on which you can expand. Unfortunately, we all don’t get that lucky!

The key to successfully expanding into a new market is a well thought out and detailed sales and marketing plan. Make sure the new market is a good fit for your company. Study it first, in terms of the local economy, competition, prevailing pay rates, price sensitivity and general quality of service. Don’t leave gaps in your service coverage footprint! Choose a city or area that is adjacent to an existing market, yet large enough to provide growth opportunity.

It is essential that when you finally “pull the trigger”, you hit the ground running. Develop a prospect list and gather all the information you can on those potential clients such as current provider, contract size, and even renewal dates and pay rates, if possible. Consider a telemarketing effort to help gather the information and set targeted appointments. Hiring a local person who is familiar with the market and has a proven track record in the industry has its obvious advantages, however, be very cautious of any obligations resulting from non-compete agreements with former employers to avoid potential litigation.

Once the new operation is up and running, allow it to stabilize, grow and produce net profits before moving on to the next new market!

In the next issue: How to Fund your Growth!

Security Forum Recommendation

As forums go, SecurityInfoWatch is one of the best. It is much more active than many, with new threads and posts in virtually every category on a daily basis. The active participants range from company owners to security officers and it is interesting to read the various perspectives as they tackle some hot industry issues such as unions, training, etc.. The forum also includes a vendor area where new products are announced, as well as a job center where openings can be posted.

We believe it's worth checking out. You can find it Here

Quick Tip of the Month

Training your clients to pay you on time is often a struggle. One effective way to get them started correctly is to personally deliver the first invoice and review it with the client contact. Whether you’re the owner, the COO, or the branch manager, such a meeting with the client will quickly highlight common causes for a delayed first payment such as:

A misdirected invoice
The need for a detailed versus a summary invoice
The client’s requirement for additional backup such as timesheets

Once any issues are resolved, ask the client exactly when you should expect the first payment!

Take advantage of the meeting to learn the client organization’s internal steps for approving and processing an invoice, through to when and where the check will be cut. Knowing this flow will allow you to “walk” an invoice through their system in the future, if ever necessary.

Making this the final item on your new contract checklist will help eliminate the confusion, client frustration and delayed payments that often occur.

In This Issue