Month-to-month contracts: Boon or bane for alarm industry?

SSN readers divided on the risks and benefits
Wednesday, April 17, 2013

YARMOUTH, Maine—It’s a model that was discarded by big players in the alarm industry long ago: Pay-as-you-go monitoring, with customers covering the cost of equipment and installation upfront. But in a world where flexibility is increasingly driving purchasing decisions, is it time to turn back the clock? Have consumers had enough of long-term contracts?

SecureWatch 24, a New York-based company specializing in property surveillance and facilities management, is betting on it. SW 24 entered the residential intrusion market last fall by offering month-to-month contracts, calling the approach “a game-changer.” To find out if the industry agreed, SSN asked readers about it in the May News Poll.

The responses were largely divided along the lines of company size. For many smaller service providers, month-to-month is the way they’ve always done business.

“Game-changer? Perhaps among mass marketers,” one reader wrote. “Small electronic security providers have been doing this forever.”

“Been doing this for years,” another reader said. “This is how we compete with the big boys.”

Among the respondents who use long-term contracts, more than half (51 percent) said consumers would agree to pay more upfront as long as they received good service. Thirty-eight percent of respondents disagreed, saying their customers would balk at the larger initial investment required with the month-to-month approach.

“We offer both options to customers, but they overwhelmingly choose the lower upfront costs,” a reader said. “I see a smaller market for customers who have an extra $1,000 to $2,000 set aside to spend on a security system.”

“Some will be willing to pay the larger [upfront] fees necessary for month-to-month monitoring. The great majority will not, but it’s hard to see what the downside would be as long as a company is well capitalized,” another respondent wrote.

Nearly a dozen readers commented on the need for long-term contracts because of the financial stability they provide.

“A key determination of the value of your company in this business is your RMR base, along with the average length of your contracts,” a reader said. “If a contract is month-to-month, there is little value in the RMR of that contract, and in turn your company.”

“There is no value in month-to-month contracts in the eyes of lenders,” wrote another respondent. “Stub your toe a bit and you are in unrecoverable debt with no long-term agreements to count on or show as collateral. ... The success of this entire industry has always been longer-term contracts.”

Many others pointed to service as the most important factor for retaining customers and increasing revenue, regardless of whether the contract was monthly or long-term.

“Even though we have auto-renewing annual contracts, we don’t hold customers’ feet to the fire and never charge a [disconnect] fee,” a reader wrote. “Personally, if a customer is unhappy enough to want to leave, I think they deserve an apology. ... We should try to salvage the relationship, but they should be allowed to go.”