Margin Erosion and Securing More Profit

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27 February 2015 | Updated 01 January 1970

The 2015 Incentive FM Group roundtable addressed the issue of margin erosion in the UK contract security industry, and asked whether it is having a detrimental affect on the safety of client’s buildings and the viability of the security industry at large.

The attendees also addressed what could be done to address this commodity pricing approach and whether the industry is selling itself short by broking labour as opposed to defeating risks. In short, is there a way of setting a new standard and options for a better way of working?

Attending the event were: Jeremy Waud, Incentive FM Group (Chair), Craig Pickard, Incentive-Lynx Security, Simon Chapman, Lodge Service, Steve Hall, Ultimate Security , Chris Kenneally, Cordant Services, Bobby Logue, Security Industry Strategist, Paul Harvey, Emprise and Chris Wisely, Axis Security.

Jeremy Waud, Chairman at Incentive FM Group, chaired the event and started by getting a consensus from the Group that the low margins that are now the norm in the sector make it extremely difficult for security companies to survive.

Questions on price

However, the Group was split over whether prices had finally bottomed out with some seeing a slight upturn in recent months. 

“Margins have been falling for many years and in more recent times, this has been exacerbated by the economic downturn,” explained Chris Wisely, MD, Axis Security. “While it remains a challenge for businesses within the sector to generate margin improvement, we now feel that it is acceptable to some of the more discerning customers to pay more where a higher quality service can be evidenced.”

Craig Pickard, MD, Incentive Lynx Security, believed procurement processes that focused too heavily on price would often result in contracts that are “underfunded and do not achieve best value”.

It was agreed that the margins issue was not being helped by the large TFM companies that are often offering security with an extremely low (or zero) margin so that they could get other elements of the operation, such as M&E, which attracted a much higher margin. “This is very predatory behaviour and results in the smaller firms being knocked out of the equation,” asserted Jeremy Waud, Chairman, Incentive FM Group.

Heart of the matter

The Group felt strongly that what is at the heart of the challenge is that all too frequently customers simply did not understand what they were buying and that the industry needed to work harder to educate customers. It was felt that existing trade bodies had failed to do this and there was little confidence that they would in the future. “The various trade bodies have lost their way and I’m not sure how they can turn it around,” said Steve Hall, Ultimate Security. “They need to show what they can do.”

Key members of the Group felt that lack of differentiation between companies and what they were offering was also something that needed to be addressed and that added value niche services should be considered. “The security industry is partly to blame for its troubles as they are not offering any clear differentiation and in the absence of anything else clients will buy on price.” Observed Paul Harvey, Emprise. “There is too much of a victim attitude in the industry – we need to step up and show where we can add value.”

Correct training

The group agreed unanimously in the belief that the industry needed to attract more good people or train the exiting ones to enable them get these changes made.

They acknowledged that this was a difficult task against the backdrop of falling margins. Nevertheless, it was felt that a key account management approach would help to drive the education process. “The longevity of our relationships with our retail customers has to some extent helped us to maintain good margins,” stated Simon Chapman, Lodge Service.  “As we truly understand their business, it is easier to deliver and demonstrate value.”

Conclusion

The Group concluded their discussions by ‘brainstorming’ the idea of bringing together a number of security businesses to agree a high standard service offering – a ‘best of breed solution’ – that could be offered to clients.

It was agreed that this was an exciting development but to be successful it would need marketing to raise awareness. Plans were made for the group to meet next month to discuss this further, along with ‘innovative pricing’, and in due course, to invite key clients to critique the output plans.

“The time is right to stop skirting around these issues and address them,” said Bobby Logue, Security Industry Strategist. “We need to re-engineer the way that we sell security to deliver better value.”

Picture: The 2015 Incentive FM Group roundtable dealt with the issue of margin erosion in the UK contract security industry.

Article written by Mike Gannon | Published 27 February 2015

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