By Grayling D. Livingston [topic: bill rate, pricing calculation ] written for GASQ.us  |

GASQ - bill rate, pricing calculation | Stop wasting time and money using outdated pricing calculation concepts!It happened again…you lost out on a lucrative security contract and found out that it went to the lowest bidder. Even more troubling, you know that the services cannot be effectively performed at that price without the security vendor operating the contract at a potential loss. Your first instinct might be to find a way to reduce your costs and maybe even your profit margin so that you can be more competitive next time. WAIT! I’d like to offer you a different way of looking at how you should price your security services. The continued effect of underbidding has caused the security industry to become undervalued by consumers and has created a cut-throat atmosphere within the industry.  Neither of which is beneficial for the small operator trying to compete or even work with larger security companies.

How do you currently price your security services? For most security companies, having to compete on the lowest price is not a good policy or good for business. In the end, the right price for your service is that price the consumer is willing to pay for it.

However, making a mistake in your bill rate calculations could be even worse and rob you of your potential profit margins. In the security guard and patrol industry you have several ways to price your services. You can base it either on:

  • Direct labor cost plus fixed overhead and profits; (The most common way and most profitable)
  • Percentage of return on sales; or
  • Direct labor costs plus management fees based on a target profit margin.

Let’s look at a direct labor cost plus fixed overhead and profits example. Direct labor cost of $15.00 and total overhead/operation cost of $18.12 = $33.12. Divide $33.12 by .70 = $47.31. That generates a $14.91 profit which equals 30 percent of $47.31. See Example A – Sample Bill Rate Breakdown.

On the other hand, in Example B, if you took the same direct labor costs of $15.00 and total overhead/operation costs of $18.12 = $33.12. Multiply $33.12 by 1.3 = $43.05. The $9.93 profit that results is only 23% of $43.05. Not to mention that a 168-weekly hourly account, would cause you to lose $4.98 per billable hour or $43,505.00 in annual net profits or 30% in profit. It would also take a replacement cost in future guard force sales of $145,016.00 using the pricing calculation method shown in Example B.

Example A – Sample Bill Rate Breakdown
Security Officer Wages $15.00
Overhead & Operations Cost $18.12
Total $33.12
Profit 30% $14.91
Total Billing Rate $47.31

 

Example B – Sample Bill Rate Breakdown
Security Officer Wages $15.00
Overhead & Operations Cost $18.12
Total $33.12
Profit $9.93
Total Billing Rate $43.05

Stop wasting time and money using outdated pricing calculation concepts! There is nothing wrong with a security guard service provider making a reasonable profit per engagement and operating a successful business. Keep in mind that competing on the lowest price is not a good policy or good for your business. The right price for your service is that price the consumer is willing to pay for it. If setting your price to the lowest is your pricing plan, it will not be long before you are looking for a way out of your business, or needing to continually win new low bid contracts to cover the money you are losing by underbidding. But that hamster wheel could abruptly end when you have a sustained gap in closing contracts.

Get A Security Quote (GASQ), Grayling D. Livingston’s company, stresses to its professional network of preferred security service providers that they should not have to compete based on price alone. Prequalifying end-users and security sellers before pursuit inspired our vision of a request for security services process that provides the end-user with information that allows them to make an intelligent decision regarding the service being requested. It also means the service provider can be open about the confidential details of their business to someone who is likely to buy, able to buy, and who can benefit from what they must offer at a cost less than what those clients would pay if they performed the security function in-house. In this methodology, security vendors are never competing with each other on price, but on qualifications of the security service they can provide.

 

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) the premier search for hire, lead generation and referral services for the contract security services industry.  GASQ specializes in sending and receiving qualified client referrals and leads to a network of contract security service providers and other security professionals.  GASQ customers and clients of contract security services are looking for the best value for their money and expect the services to match the fees or services.

GASQ can help security vendors with their bill rate pricing calculations and preparation of pricing proposals. Learn more about our services for security vendors.