Total Cost to Serve
White Paper by Dean Drako, CEO of Eagle Eye Networks
The PDF version includes additional content; download for more on this subject.
Reducing Total Cost to Serve
As with many industries, today’s security industry technology is heavily based on information technology. This has introduced new cost dynamics for customers as well as for security system service providers. For example, the price of a server is typically only 15% to 25% of the total cost of owning and operating the server over its lifetime, usually a four- to five-year period.
Total Cost of Ownership (TCO) is an analysis used to uncover all the lifetime costs that follow from owning certain kinds of assets. Lifetime costs for a product can be double, triple, or even quadruple the original purchase price – often to the distress of customers who had not been aware of the lifetime cost requirements. Thus, TCO has become an important business tool for buyers of security system technologies.
Similarly, the IT elements of security systems impact what it costs a service provider to service its customers. In this age of IT-driven, rapid security technology advancement, how particular types of technologies impact Total Cost to Serve (TCS) is as important to the service provider as TCO is to the customer.
Reducing Total Cost to Serve
Total Cost to Serve calculates the profitability of a customer account, based on the actual business activities and overhead costs incurred to service that customer. Some costs are easy to track per customer, such as service billable labor hours. Other costs are not easily tracked per customer but are still tracked by service providers as a category, such as monthly fuel costs and vehicle maintenance costs for service vans.
Security system service providers experience labor costs in managing parts and cable inventory, stocking service vans, staying up to date on product update advisories, vendor training, and other activities. While such costs are not always directly assignable to individual customers, they can be averaged over the volume of customers serviced.
It is a complex enough picture that most service providers don’t track Total Cost to Serve. However, they do have a general sense of how the cost to serve factors would add up, higher or lower, for specific products and for certain types of customers.
Total Cost to Serve is something that for decades service providers have rated qualitatively, rather than quantitatively, as a factor in evaluating the value of product lines they carry. Most service providers can say right away which products or systems are easier to install and service compared to a competing product they know, based on accumulated experience. This is important because:
- The less trouble to install and service, the more customers can be serviced in any calendar timeframe.
- The less service work needed, the more trust and satisfaction customers have in the solution provided.
Customers have begun to demand more than service calls and maintenance fees, preferring the managed services business model by which many IT services are now provided, including cloud-based services. Under this model service providers proactively take responsibility for system performance and uptime. Service providers keep an eye on system performance metrics. They keep software and firmware up to date and automatically perform lifecycle-based technology infrastructure upgrades as part of the service subscription. The idea is to provide a reliable, high-performing infrastructure that supports current and future needs, reasonable total cost of ownership. This kind of added value is what customers are looking for from service providers. It is becoming an increasingly important competitive factor.
Reducing the cost of servicing security systems contributes to a reduced customer TCO. Based on their consumer technology experiences, customers believe that modern technology shouldn’t require a lot of service and should upgrade itself automatically for both security and feature improvements. Example consumer products that are automatically updated are smartphones and cable TV boxes (a type of multichannel DVR).
Until recently, the TCS for very similar security products and systems has been close enough between manufacturers in the same class that service providers didn’t need to give it much analysis. That is no longer the case for a video management system (VMS).
Please download the PDF to read more.