When end-users of security services clearly understand security companies’ pricing concepts and methods, only then can they identify excessive costs and effectively negotiate reasonable pay rates for the security officer and final billing rates while ensuring quality service. Hiring a contract security service provider can help your company save time, find the best solution, add value and reduce costs. The contract security service provider recruits, develops, trains and maintain a professional staff of employees and provides you with human capital options that match the qualifications, skills, and experience that an organization is seeking for any given security project.
Hiring a contract security service provider can be highly valuable, but it comes at a price. You must pay the firm for its services on top of paying for the cost of wages, training, projected overtime, vacation accrual, payroll taxes, uniforms, benefits, and other specified or mutually agreed upon services.
The cost of hiring a contract security vendor oftentimes will be more cost-effective than the cost of hiring in-house security staff. Though prices will vary depending on the industry, contract security firm and the professional talent/solution you’re looking for, the concept of how the prices are determined is the same across the industry. It consists of pay rate, overhead cost, and profit margin. Essentially, the pay rate plus the overhead cost plus the profit margin equals the total bill rate.
After learning what your security service cost would be if you performed the function in-house, here’s what you need to know about the three different pricing components – and often competing aspects – of outsourcing contract security services.
Security Officer Pay Rate
This rate is the labor hourly amount the security vendor is paying the security professional for the services he or she will be providing to your company. It’s the largest aspect of the bill rate. Normally 55 to 65 percent of the total bill rate is paid to the security officer. It also plays a significant role in the fair market value and quality of the talent you’ll ultimately receive to perform the safety and security functions. Generally, the higher this pay rate is, the more certified, qualified, educated, and experienced the security officer will be and the quicker the contract security service provider will be able to find a suitable candidate to hire. Changes to this rate will affect the talent absenteeism and turnover.
When you hire a contract security service provider, you not only spend money on the pay rate but also on the firm’s overhead cost. This is a percentage applied on top of the pay rate and it is being provided to the contract security service provider. It typically includes the pass-through costs that adjust over the contract, such as employment taxes, the fixed pass-through costs that are agreed upon ahead of time, such as equipment, uniforms, benefits, training, workers’ compensation and insurance, as well as the gross profit for the contract security service provider.
Here, you’ll see great variation, which is based on the contract security service provider’s true cost of service to client, service provider’s cost plus fixed overhead and profit, service provider’s percentage of return on sales, market demand, assignment duration, buyer’s knowledge, type of security officers and skill sets, weekly billable hours volume and more. You’ll usually see an overhead rate from as low as 10 percent but it can go as high as 50 percent or more. Changes to this cost are commonplace but should only be based on current economics.
Finally, the bill rate is the combination of the two above components to include the profit margin. This is the full amount that you’ll ultimately end up paying for the contract security services. Knowledge of this information should help you obtain the best possible security service without overpaying for the services and paying a fair and reasonable price for the quality of service received.
How to Reduce Outsourcing Security Services Expenses
Many buyers of security services don’t understand exactly what they’re paying for when they engage the services of a contract security service provider. However, contract security service providers billing rates don’t have to be a mystery. Due to price shopping for the lowest bill rate – which often leads to slave labor pay rates for the security officer and underbidding by industry competition – contract security service providers will always try to negotiate the lowest security officer pay rate (which is currently below poverty level wages) and the highest bill rate so they can make a higher profit with the markup. By understanding the three different components of this outsourcing labor expense, you can better control your costs for service and make an informed hiring decision.
Before contacting a contract security service provider, understand the cost of the type of security service you’re looking for (armed vs unarmed, foot patrol vs mobile patrol) and provide a proposed security officer pay rate and bill rate to the firm to ensure you’re spending an appropriate amount for the security professional and services you’ll be receiving. Shop around and take a closer look at security officer pay rates and company bill rates before you get into a relationship and sign a contract with a specific security service provider. Most importantly, know your cost for service if you performed the security function inhouse before you buy.
*Note This article is presented for informational purposes only and is not intended to constitute legal advice.
About the Author:
Grayling D. Livingston is the founder and president of Get A Security Quote (GASQ), a search for hire, lead generation, and sales support-type service that support contract security firms, to include security consulting, sales and marketing activity. GASQ work with end-users of contract security services who don’t want to own a full-time security staff and are looking for the best value for their money and expect the services to match the fees or services. For more information, visit www.gasq.us.