In the last article I wrote, I talked about sourcing security services. Since publishing this article, I have spoken with a few property and facility managers. Those conversations inevitably turned to pricing. I wanted to take this opportunity to answer a few of these questions. It is my commitment to explain in detail how to unmask the secrets of service costs.
How does a provider set the price for a service?
Every supplier is different, which is not always good for you, the consumer. To be effective in comparing the best value for the product, you must compare everything equally. For a long time, the security industry standard has been to provide a pay scale for security guards and the monthly and annual cost of total contact. This has obscured the substance of the true cost and what it means to you. When purchasing from a construction supplier, material costs are itemized and labor is broken down for each specific task. I suggest that you require an itemized list of costs from each security vendor when requesting services from them. The way to standardize this is to provide a detailed price sheet in the RFP, which all suppliers are required to complete. It sounds simple, however, rarely is the fee schedule detailed enough for you to fully understand all the costs. The following section will give you some ideas on what factors you should include in this price sheet. It is thanks to this standardized approach that you will be able to evaluate the best value for money.
What line items are included in an hourly billing rate?
The first two items are base salaries and FICA/Medicare. However, if each company pays the same base salary, these costs will not differ from supplier to supplier. Liability insurance, workers compensation and unemployment insurance will differ from provider to provider depending on the claims against their company. Accelerated cadences in these areas can be a very good barometer of how the seller is running their business. Medical insurance, profits, and business overhead will be the biggest gaps between providers. There is no industry standard for what a security company should offer its employees when it comes to medical insurance; However, asking this question of each supplier will ensure a better understanding of the value they place on their employees. Next, corporate overhead should include management of your contract by the supplier’s management staff. These costs have a direct relationship with the supplier’s management structure. Other variables to include are sick pay, vacation pay, and vacation pay because, along with medical benefits, these directly reflect how well a provider takes care of its employees. Requiring the cost of each of these items will help you distribute the proposals evenly and efficiently.
What should I consider a reasonable markup?
There is no right answer to this question. I can only explain how a markup is calculated. The increase is the total annual amount divided by the annual base salary. This increase can be between 1.4% and 1.7% depending on the company. Keep in mind that each of the factors mentioned in the last section is included in the mark-up after base salary is determined. As you now know from the last section, some of these costs vary from provider to provider. The example of two items that would affect a higher markup are medical insurance and company overhead. In these areas, a higher markup wouldn’t necessarily be bad for you because a company can provide better benefits to its employees, which means better caliber of security guard and lower turnover or better response from direction to your contract. Again, you need to understand the cost and compare it to the value of the service to you. A markup caveat, a provider offering a very low markup for the same salary, does not necessarily mean they are the right company for you. This could be a red flag. Just like a seller needing to justify a higher markup, you should ask the same from the lowest bidder.
Anyway, I’ll leave you with that. Understand the cost to you by detailing each line item to provide you with a clear understanding of how it affects you. By doing this correctly, you will be able to answer your own markup questions and establish the pricing standard comparatively. If you have any questions, please call me. The worst thing that can happen is that I would have to write another article.