We all strive for bigger and better profit margins, but that doesn’t mean it’s easy to increase them. If you want to turn your security company into a profit machine, sometimes it’s as simple as going back to the basics.
This article will breakdown the basics of profit margins in the contract security industry. We’ll look at the industry standards for profit margins, what can decrease and increase your margins, and what costs you should never cut corners on.
Profit Margins in Contract Security from 10,000 Feet
Before we look at the details, it’s important to set some expectations about what kind of margins are possible in contract security. Robert Perry’s 2019 white paper is a good start.
The paper shows that profit margins in contract security have been in decline over the past 10 years, especially for small guard firms. If you’ve been in the industry this long, this is probably no surprise to you.
For companies under $10 million in revenue, margins have dropped from 20% to 16%. For those same companies that have multiple branch offices, margins decreased from 12% to 10%.
Since profit margins are basically revenue versus cost, it’s important to be clear about what affects these two things in contract security.
Security revenue can have a lot of variation. What industries you serve and what security services you offer can change your bill rate by a decent amount. Geography also has a big impact on what you can charge for security services - on a state by state and even city by city level.
Costs in the security industry are pretty standard: insurance, office space, salary, officer equipment & uniforms, software, marketing, and vehicles.. Many of these costs, especially things like insurance and salary, change based on things like geography and services provided.
What Makes Margins Shrink?
One of the most effective ways to keep healthy margins in your security business is to prevent them from getting smaller as you bring in more revenue. Being aware of those factors makes it easier to keep margins where they are. There are 3 ways that margins can decrease quickly.
1. Underbidding on Security Service Bill Rates
A common error we see with companies is to underbid on security contracts. Most of the people that underbid think that an increase in the number of their contracts will outweigh getting less money in each one. But this isn’t a sustainable system because it destroys your profit margin.
The only way you can underbid without sacrificing your profit margin is to cut costs - and that’s a lot harder than it sounds. Insurance costs are non-negotiable, equipment will always need updating and replacing, and a security officer who feels underpaid will not provide quality security services to your clients.
Instead of cutting your bill rate, show your customers why you’re worth every penny you charge them. Check out this blog that talks about winning security contracts without being the lowest bid.
Having a high turnover is expensive and can be a killer for even the most successful businesses. Every time an officer leaves your company and you have to hire a new one. there is a laundry list of costs associated with hiring including: uniform replacement, recruiting, onboarding, and training.
How do you prevent turnover? It starts with making the right hires out of the gate. Once you have the right people for the job, keeping officers accountable lets you see who your highest and lowest performers are.
You can incentivize high performers to stay with raises and promotions to ensure you keep your best officers. Growing the best employees that you already have will bring more profit to your business and give them more ownership over their role in your organization.
3. Picking the Wrong Industry Or Service
Some industries and services can be tempting to enter because of their high price tags. But, charging more doesn’t always mean you take home all of that money.
For example, armed guarding services demand a higher bill rate than unarmed services. The problem is, armed guarding also demands a higher cost. Not only do armed officers want to be paid more, but it also requires more training, insurance, and in many cases, you’ll have to provide the firearms. Check out this blog before you take the leap into armed guard services.
Government contracts also seem lucrative on the surface. But usually, those higher paying contracts come with more regulations on what you pay the officers that service them.
To avoid these problems, always research the new industry or service you want to step into and make sure your margins won’t shrink because of it.
What Can Increase Margins?
It’s important to make sure profit margins don’t decrease, but you also want to actively grow your company. Here are 3 ways you can increase your profit margins and have more money to put back into your security company.
1. Charging More for Security Services
Even though charging more for security services doesn’t always mean more profit, increasing bill rates can increase your margins when done the right way. Use this guide to figure out what should be included in hourly bill rates.
If your bill rates have stayed the same for a long time, start thinking about how you can better prove the value of your security services to clients. Implementing incident reporting software will show any client everything that you take care of at their property. We’ve even seen security companies use Silvertrac to convince current clients to increase the price of their contract.
2. Picking the Right Industry
We already saw that government contracts are not the best for increasing your margins. But, there are industries that have a lot of potential.
Cannabis security is an up and coming industry that can make your security company a lot of money. Most dispensaries are willing to pay a premium for security services and you don’t necessarily need officers with specialized training or experience to work the property.
Healthcare security is another industry that has a lot of demand. Keep in mind that there are a lot of regulations and training that come along with this industry, though. If you want more information on healthcare security, check out this Thinkcurity webinar.
These are obviously not the only two industries that can help increase your margins. This blog has some general advice on getting into new industries.
3. Keep Costs Low
Like we’ve already determined, cutting costs can be difficult in the contract security industry. One place you should never cut costs is when it comes to officer pay. Instead, look at these two areas that you might be able to prevent yourself from overspending.
Office Space - Renting office space can add a lot of burden to your overhead costs. Make sure you check all of your local laws so you know the requirements for having an office. Then only spend money on what you need. If you’re a heavily mobile patrol operation or only have a few officers, you might need much less office space to start out.
Cell Phones - There is a lot of confusion about cell phone laws in contract security. Should you provide company phones or have officers use their own? You might be able to keep costs down by having officers use their own phones, just make sure you check regulations in your area.
There is a lot that goes into physical security bill rates and making sure you have profitable margins. We just hit the tip of the iceberg here. If you want more information on contract security margins and how they relate to pay rates and bill rates, check out this awesome paper.