SDM 2020 Industry Forecast: Insight for the New Year
The ‘20s are here and security integrators have come roaring in with expected revenue growth of 19 percent this year, in the wake of 16 percent last year.
Security integrators expect their brilliant business performance of 2019 to continue into 2020, according to results of SDM’s Industry Forecast Study, a report published each year since 1982. The results of the study — illustrated in the graphs on the following pages and on SDM’s website at www.SDMmag.com/annual-security-industry-forecast — show that there was double-digit growth in both total annual revenue and recurring monthly revenue (RMR) for integrators and dealers who participated in the study. Their total annual revenue increased by an average of 16 percent, while RMR grew by 28 percent, on average, during 2019.
And the start of this decade should be comparably successful for security companies. Two-thirds of integrators anticipate their total annual revenues will increase in 2020 and — among those who foresee expansion — the expected increase is 19 percent, on average.
“We have visibility into about six months of [this] year’s backlog, looking at about a 20 percent growth overall and 15 percent to 20 percent in security,” says Chris Larker, chief operating officer at S3 Technologies LLC, an IT-focused integrator based in Akron, Ohio. “In the first six months, especially, it’s really a flow-through from [last] year and having an existing backlog to work through,” Larker notes.
“We’ve started to bundle our security maintenance with our other services, and that has made an impact that’ll continue to grow. So, if we’re selling an IT service, we’re going to bundle that preventative maintenance (PM) work for the security into those product sets. It’s given us an upsell opportunity in a lot of ways,” he describes.
Phoenix, Ariz.-based Titan Alarm Inc., at the time of this writing in mid-December, expected to end 2019 at between $6.3 million and $6.4 million in total annual revenue, which is 8 percent to 9 percent higher than the previous year. “We’ve grown pretty aggressively,” says Mike Proudfit, CEO of Titan Alarm, adding that it was all organic growth. He anticipates approximately 13 percent growth in 2020. But, he adds, “[one or two acquisitions] would slingshot us past that. We have a $15 million line of credit this year from a private party who helped us grow through acquisitions, so we are heavily focused on organic growth, but also acquisitions. We anticipate … some great acquisitions in 2020 and 2021.”
Mike Mathes, executive vice president at Convergint Technologies, No. 1 on SDM’s Top Systems Integrators Report, says the company’s 2019 revenue growth was anticipated to be about 22 percent to 23 percent. “I would say that we’re expecting very similar results [in 2020], with growth between 20 percent and 25 percent at a top line from a revenue perspective,” Mathes says.
“We have two main avenues of growth: one is acquisitive. The acquisition market remains relatively healthy and we’ve had great success in acquiring companies with a similar culture to our own. The other one is through organic growth,” Mathes describes.
(To read more about the strategies of each of these security professionals, see the sidebars throughout this article and on SDM’s webs story, “The Panel Speaks,” at www.SDMmag.com/annual-security-industry-forecast.)
While the foresight of these security integrators into 2020 performance aligns well with survey responses from the Industry Forecast Study, it also shows that integrators have no shortsightedness about the factors that will affect their sales this year and the challenges their businesses will face, including the critical need for more labor to deliver the intelligent security solutions the marketplace is demanding.
Security integrators for at least the last decade have consistently ranked “economic conditions” and “capital spending by business” as the top two factors they think will significantly affect their sales. And “finding/retaining employees” is the No. 1 challenge for security integrators in the study, selected by 42 percent of respondents.
“While economic conditions are always important for all companies and can impact us all equally, I think our primary challenge is our ability to find the resources to both develop business and deliver the services that we bring to the marketplace,” Mathes describes. “So our growth is going to be limited by how quickly we can resource people to address the demand that we’re seeing in the marketplace.”
For the first time this year, the SDM Industry Forecast Study asked respondents what sources they typically use to locate/procure talent. “Peer recommendation” was the single-most cited answer (see chart on page xx). In addition, security integrators increasingly are working with their local educational institutions in a variety of ways, such as sitting on school boards, helping develop curriculum, participating in career fairs, hosting students for professional days, and more. (See sidebar, “Where Security Professionals Find Recruits,”).
“At the end of the day, our whole mission is to bring value to our clients and help them grow and protect their businesses,” Larker says. “Our business is in a growth phase, so the ability to effectively provide value to our clients is ultimately going to determine [our] success regardless of the market conditions.”
Editor’s Note: This article is based primarily on a report produced by Clear Seas Research, “SDM Industry Forecast,” produced November 2019. To learn more about the report or to purchase, visit https://bit.ly/2PBvuh0.
Clear Seas Research is a full service, B-to-B market research company focused on making the complex clear. Custom research solutions include brand positioning, new product development, customer experiences and marketing effectiveness solutions. Clear Seas offers a broad portfolio of primary, syndicated research reports and powers the leading B-to-B panel for corporate researchers, myCLEARopinion Panel, in the architecture, engineering, construction, food, beverage, manufacturing, packaging and security industries. Learn more at clearseasresearch.com.
SDM 2020 INDUSTRY FORECAST
OUTLOOK: Two-Thirds of Security Companies Expect Growth This Year
Security integrators were asked: “How do you expect your overall company revenue to change compared with 2019?”
Respondents to SDM’s Industry Forecast Study once again expect double-digit revenue growth in 2020, just as they did last year. Nearly two-thirds anticipate their total annual revenues to increase, and among those, the expected mean increase is 19 percent.
Security integrators were asked: How would you rate the current state of the market in each of the following areas?
Security integrators indicate that video surveillance was the most rewarding market segment for producing sales in 2019. When asked to rate the state of the market among various product and service segments, they gave it an average rating of 3.83 out of 5. Following video surveillance was access control, then fire alarm.
Distribution of Recurring Monthly Revenue in 2018/2019
Among companies that generate recurring monthly revenue, approximately seven in 10 (70 percent) noted an increase in their RMR in 2019 over 2018, roughly the same result as last year. Average 2019 RMR growth was 28 percent higher than 2018’s. This table shows the distribution of RMR in various dollar ranges, comparing 2019 with 2018. About six in 10 security companies who responded to the study have $25,000 or less in RMR.
Security integrators were asked to pick the top three major challenges to their companies in 2020 (ranked among top three).
Finding/retaining employees is the No. 1 challenge faced by security integrators as they meet 2020. Forty-two percent of survey respondents selected this answer, when asked to indicate the three greatest challenges their business expects to have this year. (Note: comparison with prior years’ results could not be shown because the survey methodology was changed from selection of a single answer to selection of multiple answers; however, “finding/retaining employees” also topped the list last year.)
Security integrators were asked to select three sources they typically use to locate/procure talent.
Security integrators use a wide array of sources to find the right job candidates, with peer recommendation and LinkedIn being the top two. This question was included in the Industry Forecast Study for the first time.
Security integrators were asked: “Which of the following sources are you most likely to reach out to for help, if you needed money to grow your business?”
By a wide margin, the No. 1 choice for financial support among security integrators is their local bank or credit union. This question was included in the Industry Forecast Study for the first time.
Security integrators were asked: “Which of the following do you view as your greatest competition in 2020?”
For the fifth consecutive year, SDM’s Industry Forecast Study respondents selected DIY security providers as their foremost group of competitors. This is usually a selection made by residential security dealers, while non-residential security integrators are more likely to choose national/global security companies: 24 percent of respondents to the current study.
The factors security integrators think will have the most impact on sales of security systems by their companies in 2020
Security integrators for at least the last decade have consistently ranked “economic conditions” and “capital spending by business” as the top two factors they think will significantly affect their sales. The factors in this list could have either a positive or a negative effect on sales. For example, economic conditions topped the list both during times when the economy was poor as well as when it was strong.
The specific managed/cloud-based services currently offered by security integrators
Remote video monitoring emerges as the primary managed/cloud-based service currently offered by SDM Industry Forecast respondents, as well as planned-to-be-offered by those that intend to get into the services area. Managed access control and access-control-as-a-service closely follow with two-thirds or more of respondents’ companies currently offering it.
REVENUE BREAKOUT BY: Type of Service
SDM’s Industry Forecast Survey tracks how integrators’ total revenue is distributed among types of services. Together, 47 percent of revenue comes from sales and installation — across both residential and non-residential segments. The share-of-revenue from monitoring, across both segments, increased 5 percentage points in 2019.
REVENUE BREAKOUT BY: Type of Product
SDM’s Industry Forecast Survey tracks how integrators’ total revenue is distributed among types of products. The 2020 results show how the channel is very diversified in its product offerings, with up to 18 percent of revenue stemming from non-residential integrated security systems, while the remainder of the categories represent stand-alone systems. There was not a significant change from year to year.
Security integrators were asked to indicate the one residential market segment where they expect to see the highest rate of revenue growth for their companies in 2020.
The results of SDM’s 2020 Industry Forecast Study show that security integrators plan to look to existing middle-market homes for their residential sales. The multi-unit market has been steadily growing over the past few years. There are approximately 129 million households in the U.S. According to CBRE Research, 280,000 multifamily units were expected to be produced in 2019.
Security 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 2020.
The integrator channel expects its top three most prolific segments in 2020 to be commercial office space — which gained 7 percentage points year-over-year from respondents selecting it as their top non-residential market for growth — then retail and education.
Security integrators were asked: “How do you expect your overall company revenue to change compared with 2019?”
The average monthly monitoring price of residential systems among respondents to the study was $57; however, the median price of $30 is likely more realistic. Just over half (52 percent) of security integrators report their average residential price is $30 or less.
Security integrators were asked to indicate the average monthly monitoring price of the residential systems their companies currently monitor.
The average monthly monitoring price of non-residential systems among respondents to the study was $161; however, the median price of $40 is likely more realistic. Due to the broad nature of types of conditions that can be monitored for a non-residential subscriber, the prices charged by security companies are distributed across a wide range of categories.
Security integrators were asked: “For each of the following types of products and services your company currently purchases, please indicate how you expect your level of spending in 2020 will compare with 2019?”
Security integrators were asked to rate how their level of spending on certain products and services will change in 2020 compared with 2019. This table is based on a 7-point scale where 1 = down more than 20%; 2 = down 11% to 20%; 3 = down 1% to 10%; 4 = no change; 5 = up 1% to 10%; 6 = up 11% to 20%; and 7 = up more than 20%. The top three categories with the most potential for growth in spending are video surveillance systems, access control systems, and video analytics. // Source: SDM, ClearSeas Research