Security Guard Profit Margin:
3 Ways to Stop Your Client Killing Yours
Security guard profit margins are important to your success. We all want to be successful in business. This usually means making money.
However, for security mangers looking after contracts making money is tough. You are constantly told your profit margin is not high enough.
As a result, accountants bark at you and put you under pressure.
Discover our three rock solid profit margin hacks and get the accountant monkey off your back.
First, what is in a security guard’s charge rate?
How your accountant measures profit
When an accountant talks about profit, they usually talk about profit margin percentage. What is a profit margin percentage?
Lets take a look at a security guard’s profit margin percentage. The above guard’s charge rate per hour is broken down as:
- Client charge £10
- Guard pay £8
- Other costs (uniform, training etc.) £1
- Profit margin £1
The profit margin is calculated as profit (£1) over charge rate (£10).
This is 1/10 = 10%.
Accountants want this margin percentage to be kept or go up.
1. Defend your margin: Get the right charge rate increase
Each year a security manager sits down with a client to review prices. Many managers will ask for an increase. As a result, the client may agree.
However, the client will often insist the increase is given only to the guard’s pay.
Isn’t a pay increase a good thing?
At first this looks okay. It is good for guards and you can tell the accountant you got an increase in the charge rate.
But, this kills your security guard profit margin percentage!
Why a pay increase kills your security guard profit margin percentage
Your profit margin is under attack when only the pay rate gets an increase.
For example, lets say a client wants to move your guard’s pay up from £8 to £9. They are explicit, they only want the guard’s pay to increase.
The charge rate now looks like this:
- Client charge: £11
- Guard pay: £9
- Other costs: £1
- Profit margin £1
At first, this looks okay. Your profit margin in £pounds is the same as before £1. But look at what happens to the margin percentage:
Profit (£1) over charge rate (£11) = 1/11
Even though your company makes the same amount of money, its margin percentage drops from 10% to 9.1%.
Remember, accountants care about the profit margin percentage.
Why clients only want pay increases
Clients will often want their guard’s pay to be in-line with industry standards. For example, the London Living Wage. Therefore, they will be willing to increase a guard’s pay but see no reason to increase anything else.
This is a perception problem. And, it needs to be fixed.
The client perception problem
The client wants to increase a guard’s pay because they think they are only paying for a guard. But they are not. They forget they are paying for a service.
Security managers provide a service. For example:
- Replacing absent guards
- Recruiting guards
- Training guards
- Managing guard disputes
This is a service. The client must constantly be reminded of this service. Otherwise, they will suffer from a perception problem.
If you allow your client to attack your margin in this way your margin is in trouble. For instance, over a three year contract a £1 increase in guard pay will reduce your margin from 10.00% to 7.7%!
That’s nearly a 3% drop in profit! Many businesses will go bust if they lose that much profit margin!
Remember, get an increase for your guard’s pay in-line with your profit margin!
Another way to defend your margin is to talk to these people:
- Uniform suppliers
- Training companies
- Software services
Defend your margin from attack by agreeing with these suppliers to fix their prices. In return offer them more work when you win new business.
This is one reason growing businesses make more money. They keep costs low by freezing supplier prices and in exchange offer them more business.
This kills the supplier’s profit margin percentage and defends yours!
2. Stop your margin from leaking
Is your margin leaking money?
Do you bill all the hours your guards work? Many companies will bill only 99% of work. But what about the other 1% of work? If you do not bill 100% of work you will kill your security guard profit margin!
Others bill less!
Surprisingly, lots of industries have billing problems. For example, shops suffer from customer and employee theft. As a result, shops do not charge for about 2% of their goods.
What is the problem in security?
The problem is simple. If a guard goes not get money for the hours they work they will shout loudly. But if a client does not get a bill for hours worked then they will say nothing!
This is a particular problem with short term and ad hoc work. Because:
- The security manager gets a call from a client asking for a guard
- The manager will in-turn phone a guard to get them quickly to the client
- Because this process is managed by phone there is no record of the client instruction
If the manger forgets to tell the billing department about the instruction the billing may never happen.
How to fix it
This problem is super easy to fix. Tell guards they need an authorisation number to do non-contract work. The security manager gives them this number.
The security manager gets the authorization number from their billing system. Therefore, a record is kept.
TIP! Learn from the gig economy
The gig economy totally relies on good systems to bill work hours. Look at how they use technology to track work and bill hours.
3. Get others to grow your margin
Profit margins are hard work to grow. Why not get others to grow your margin? Use partnerships.
Grow by partnership
There is a buzz around the word ‘partnership’. They are super popular in the world of technology.
What is a partnership?
In many ways a partnership is just another name for good sales practice. It works by one person introducing another person to their existing client. If the introduction results in a sale, then the introducer gets a cut of the sale.
A partnership in security is formed by offering a client something that is complimentary. For example, a good partnership may be a security manager introducing a receptionist company.
Introducing receptionists sounds ideal. However, they too have a small profit margin. Therefore, they do not give much in return for the introduction.
Great partnerships that go wrong
A guarding company and a systems company should be a great partnership.
Two things tell us this should work:
- The guarding company is introducing a related party. It is easy to bring-up the topic of security systems and not look like a pushy sales person.
- The client will often buy both security systems and guards. Therefore, an introduction is straightforward.
However, this partnership is not great because guards and systems are bought at different times.
For example, a client will buy a security system every 10 – 20 years. The system will be updated throughout this time. But a client will usually buy guarding every three years.
Also, like receptionists, security systems have low profit margins. This means they will not give your margin a big boost.
Keys to a great partnership
Getting a great partnership can revolutionise your business and build huge margin. However, getting a great partnership needs to have:
- More than introductions. Each party needs to agree to add time, effort and money to make it work.
- An agreed measure for success.
- A long-term commitment. Partnerships can take years to be successful.
Security partnerships that work
Partnerships work well when the people introduced have a high profit margin. This means they can afford to give some of it away to the introducer. This is one reason partnerships in technology work well. Because technology companies have high profit margins.
At SIRV we have a number of successful partnerships. Our partners introduce us and get 50% of our margin! This gives a massive boost to a security guard profit margin.
Tell me more about your partnership programme
Conclusion – Will you boost your security guard profit margin?
Did you read this article and think security managers do not like doing this stuff?
Few people like to doing this stuff. The barking accountant does not like doing it.
Train and involve
If you train and involve a security manager they will do these things.
Tell me and I forget, teach me and I may remember, involve me and I learn. Benjamin Franklin
Land and Expand
‘Land and expand’ is a phrase that means the first sale to a customer is only the start of a success story.
To provide security to a client means you have done a lot of work already and they trust you.
Therefore, after you land a contract, expand your security guard profit margin. Our three hacks are a great starting point.