There was a lot of hope going into 2021 that, with the rollout of vaccines, by the time we got to January of 2022 the COVID-19 pandemic would be largely in the rearview mirror. Alas, many of the issues caused by COVID-19 remained. Even so, security dealers and integrators again showed resilience and positive trends continuing from last year.
Looking back at last year’s Industry Forecast, respondents were cautiously optimistic, with 60 percent of them predicting an increase in revenue by the end of 2021, and 36 percent at least expecting revenues to stay the same. The 2022 SDM Industry Forecast Study (a report published every year since 1982) results suggest the reality was not quite as rosy, with 41 percent realizing that increase and 47 percent staying the same. Twelve percent decreased their revenue in 2021 from 2020. However, the changes last year versus those predicted were 28 percent increasing, 40 percent staying the same and 31 decreasing. So, while things may not be roaring back as fast as had been hoped, they are definitely on the upswing.
This year’s forecast — illustrated in the graphs here and on SDM’s website at www.SDMmag.com/annual-security-industry-forecast — shows an industry finding its footing in a changing landscape, while continuing to demonstrate the hallmark staying power that is the security industry in good times and bad.
As was the case last year, there was double-digit growth in both total annual revenue and recurring monthly revenue (RMR) for security integrators and dealers who participated in the study. Their total annual revenue increased by an average of 18 percent (up from 17 percent last year), while RMR grew at an even higher rate by an average of 29 percent, up from 23 percent last year for a 6 percentage point increase.
“We had a great year from an RMR standpoint,” says Louis Boulgarides, president and CEO of Ollivier Corp., Los Angeles, and one of this year’s four panelists. “We are expecting to see similar if not greater growth in 2022.” For Aurora, Ill.-based Alarm Detection Systems, 2021 saw approximately a 5 percent increase in RMR, says chief operations officer Amy Becker. “RMR is expected to increase by roughly 8 percent in 2022.”
This optimism extends to annual revenues for both this year’s Industry Forecast panelists — consisting of four security dealers and integrators from all over the country — and the survey respondents, with 67 percent predicting an increase in revenues in 2022. Of those, the average anticipated increase is 20 percent. However, there are signs of adjusting expectations this year. While fewer anticipated an increase last year, the average increase expected was higher; and slightly more anticipate a decrease in 2022 — 6 percent — up from 4 percent last year.
While panelist Jerrod Smith, president of Fortress Security, Arlington, Texas, is in line with the respondents anticipating a healthy 25 percent to 35 percent increase this year, Becker predicts her company’s total revenue will increase by a more modest 9 percent in 2022; and Boulgarides predicts 5 percent increase in revenues.
Where things get interesting, both with our panelists and on the Industry Forecast, is on the service-revenue side. Boulgarides projects his company will realize a 20 percent growth in its managed services business in 2022.
Joe Oliveri, president and CEO of CTSI, Chantilly, Va., predicts that demand for subscription-based offerings will continue to increase.
Among Industry Forecast respondents, almost 60 percent reported an increase in RMR in 2021. Managed access control, video surveillance as a service, and access control as a service all reported healthy increases of at least 7 percentage points — with access as a service jumping 12 percentage points over 2020.
This is not totally surprising, given ongoing pandemic impacts that saw businesses continuing to have employees work from home, often necessitating relying on cloud-based technology to maintain security.
Both in the Industry Forecast responses and for our panel, the pandemic continues to play a looming role, both positively and negatively.
“Our team has done a fantastic job adjusting to COVID and we are having a great year,” Becker says.
Asked about top business challenges next year, almost 50 percent of Industry Forecast respondents listed supply chain issues — a new option this year — as their top concern, with finding/retaining employees and ongoing pandemic impacts rounding out the top three.
“We are communicating to customers that we do have an issue with supply chain and we are asking them to get purchase orders to us early,” Oliveri says. “But I will tell you the biggest impact for us has been labor and deployment because we will get a third of the equipment in to do the job, then another third and do the job, so we are not as efficient with our labor.”
Boulgarides adds, “We have gone to customers and ordered hundreds of HID readers for customers. They are basically ordering it now to be installed next year. We have tried to get the customer to foot the bill for that rather than us having to carry that inventory.”
Boulgarides doesn’t see the supply issue going away immediately but is ultimately optimistic. “I drive by Newport Beach every day and I can see the boats backed up from Long Beach into the harbor. The manufacturers I have talked to say the first half of the year is going to be tough and then they are going to get caught up, and may even have surplus at that point. I am optimistic that about halfway through the year we will see things start to resolve themselves.”
Listen to what our industry panelists had to say about supply chain challenges and more in our podcast.
SDM 2021 INDUSTRY FORECAST
Security dealers and integrators were asked: How do you expect your overall company revenue to change compared with 2021?Respondents to SDM’s Industry Forecast Study are a little more optimistic this year, with 67 percent still expecting double-digit revenue growth in 2022, versus 60 percent last year. However, among those, the expected mean increase is 20 percent, down slightly from last year’s mean of 23 percent; and 6 percent expect a decrease, versus 4 percent last year. // SOURCE: SDM 2022 INDUSTRY FORECAST
Security dealers and integrators were asked: How would you rate the current state of the market for each of the following areasVideo surveillance was again the top rewarding market segment for producing sales in 2021, giving it an average of 3.8 out of 5, up slightly from 3.6 last year. Following video surveillance was access control, followed by monitoring and intrusion alarms. // SOURCE: SDM 2022 INDUSTRY FORECAST
Distribution of Recurring Monthly Revenue in 2020/2021Among companies that generate recurring monthly revenue, almost 60 percent reported an increase in their RMR in 2021 over 2020, the same percentage as last year. Average 2021 RMR growth was 29 percent higher than 2020’s. This table shows the distribution of RMR in various dollar ranges, comparing 2021 with 2020. About half of the companies who responded to the study have $25,000 or less in RMR. // SOURCE: SDM 2022 INDUSTRY FORECAST
Top Business Challenges: Supply Chain, Finding Employees & Ongoing Pandemic Impacts
The factors security integrators feel will be major challenges to their companies in 2022 (ranked among top three)The percent of respondents citing COVID-19 impacts as their biggest challenge fell by 18 percentage points, from 50 percent last year, but it still makes the top three. New this year and topping the list at nearly 50 percent is the issue of supply chain shortages. Finding/retaining employees is back in second place following 2021’s “great resignation” and employee shortages. Generating recurring revenue continues to be less of a concern, falling 10 percentage points as a concern from last year, which in turn was down 11 percentage points from 2019. // SOURCE: SDM 2022 INDUSTRY FORECAST
COVID-19 & Economic Conditions Remain Greatest Influencer on 2022 Sales
The factors security integrators think will have the most impact on sales of security systems by their companies in 2022Economic conditions is once again the top factor security integrators and dealers believe will impact 2022 sales, after falling to second last year, after COVID-19. This year COVID-19 is still the second most cited factor, followed by sales and marketing of security systems, with a 7 percentage point increase. The factors cited in this list could have either a positive or a negative effect on sales. // SOURCE: SDM 2022 INDUSTRY FORECAST
Managed/Cloud-Based Services Currently Offered
The specific managed/cloud-based services currently offered by security integratorsManaged access control continues its rise as the top managed/cloud-based service currently offered by SDM Industry Forecast respondents, up 8 percentage points over last year. Access control as a service grew the most over last year’s report, with a 12 percentage point jump to 60 percent now offering it. Of the service offerings, only network health and cybersecurity services fell, by 10 and 6 percentage points, respectively. Remote video monitoring is the service most respondents are planning to offer in the next two years, with 69 percent of respondents indicating that is their plan. // SOURCE: SDM 2022 INDUSTRY FORECAST
Revenue Change Expectations for 2022
Among those who currently offer the following products/services, respondents were asked: Compared to this year, how do you expect your company’s revenue in each of the following categories to change next year?Almost two-thirds of respondents expect their company’s revenue to increase within the video surveillance category in 2022. Managed/cloud-based services, monitoring and smart home systems are also expected to see revenue growth for about half of respondents. Very few expect to see declines across any technology categories. // SOURCE: SDM 2022 INDUSTRY FORECAST
5-YEAR REVENUE BREAKOUT BY: Type of Service SDM’s Industry Forecast Survey tracks how security dealers’ and integrators’ total revenue is distributed among types of services. Together, 51 percent of revenue comes from sales and installation — across both residential and non-residential segments with the residential portion increasing 5 percentage points over last year and he non-residential remaining steady. // SOURCE: SDM 2022 INDUSTRY FORECAST
5-YEAR REVENUE BREAKOUT BY: Type of Service SDM’s Industry Forecast Survey tracks how security dealers’ and integrators’ total revenue is distributed among types of products. The 2022 results show video surveillance steady and still on top, with intrusion alarms rising 6 percentage points after a dip last year and back in second place. Most product categories held steady year over year. // SOURCE: SDM 2022 INDUSTRY FORECAST
STRONGEST RESIDENTIAL MARKET: Middle-Market Homes & High-End Homes
Security dealers were asked to indicate the one residential market segment where they expect to see the highest rate of revenue growth for their companies in 2022.The results of SDM’s 2022 Industry Forecast Study show that security dealers continue to look to existing middle-market homes for their residential sales. New construction, however, fell significantly by 13 percentage points, perhaps reflecting ongoing issues with supply chain that are slowing down projects. // SOURCE: SDM 2022 INDUSTRY FORECAST
5 STRONGEST NON-RESIDENTIAL MARKETS: Commercial, Industrial, Retail, Government, Healthcare
Security dealers and integrators were asked to indicate the one non-residential market segment where they expect to see the highest rate of revenue growth for their companies in 2022.The dealer and integrator channel expects its top three most prolific segments in 2022 to be commercial office space — up 5 percentage points over last year and back in first place — industrial/manufacturing/distribution, and retail — up 4 percentage points and back up to third place after a dip last year. // SOURCE: SDM 2022 INDUSTRY FORECAST
Average Monthly – Residential: $112
Security dealers were asked to indicate the one residential market segment where they expect to see the highest rate of revenue growth for their companies in 2022.The average monthly monitoring price of residential systems among respondents to the study was $112; however, the median price of $35 is likely more realistic. Both numbers rose over last year’s, with the median reported last year as $30. A majority — 60 percent — reported their average residential price was $31 or higher. // SOURCE: SDM 2022 INDUSTRY FORECAST
External Capital Usage
Security dealers and integrators were asked: Do you currently or are you planning on utilizing external capital to support your business this year?Thirty-five percent of dealers and integrators say they currently use external capital or plan to for the first time this year. A larger percentage don’t plan to use external capital or don’t know. // SOURCE: SDM 2022 INDUSTRY FORECAST
EDITOR’S NOTE: This article is based primarily on a report produced by Clear Seas Research, “SDM Industry Forecast,” produced in November 2021. To learn more about the report or to purchase, visit https://www.sdmmag.com/annual-security-industry-forecast.
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