IBISWorld Procurement Report: 62559584 Security …... Procurement Report: Security Guard Services0D\ ~ 2 At a Glance Vendor Cost Benchmarks Key Price Drivers Major Vendors Arrow indicates

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WWW.IBISWORLD.COM Master Page Head in the US May 2013 1

IBISWorld Procurement Report: 62559584Security Guard Services

Roshan Sathyanarayana

2 At a Glance

3 Executive Summary

4 Price Environment4 Price Fundamentals

4 Benchmark Price5 Pricing Model

6 Price Drivers6 Input Cost Drivers6 External Demand Drivers

8 Recent Price Trend9 Price Forecast

10 Product Characteristics10 Product Life Cycle

11 Total Cost of Ownership11 Product Specialization11 Related Goods12 Substitute Goods13 Regulation14 Quality Control

15 Supply Chain & Vendors15 Supply Chain Dynamics

15 Supply Chain Risk16 Geographic Locations16 Imports

16 Competitive Environment16 Market Share Concentration17 Vendor Company Types

19 MarketProfitability

19 Switching Cost

20 Purchasing Process20 Buying Basics

20 Buying Lead Time20 Selection Process20 Buying-Decision Scorecard

21 Key RFP Elements

23 Negotiation Questions

24 Buyer Power Score Components

25 Jargon & Glossary

About this Report

Table of Contents

www.ibisworld.com | 1-800-330-3772 | [email protected]

This report is intended to assist buyers of security guard services. Vendors in this market provide security guards to patrol a company’s facilities and grounds and control access to company property. Guards serve as a deterrent for crimes and trespassers, as well as record and report suspicious activities. Their access-control duties may involve personnel screening, visitor processing, package screening, traffic control and vehicle inspection. Security guards are usually dedicated to a particular facility, although mobile patrol units can be used to serve multiple locations and clients. Security guard services can include bodyguard services, but they exclude investigative or detective services and guard dog rental.

May 2017

This report was provided toJohn Jenkins (2125729732)by IBISWorld on 21 June 2017 in accordance with their license agreement with IBISWorld

WWW.IBISWORLD.COM Procurement Report: Security Guard Services May2017 2

At a Glance

Vendor Cost Benchmarks

Major VendorsKey Price Drivers

Arrow indicates trend during the past year and next year.

$21.76

3.8

per hour per guard

See p. 24 for details.

Benchmark Price

Buyer Power Score

0.9%

1.7%

Recent Price

Forecast Price

Demand for security guard services has been increasing as government consumption and the number of businesses have risen, thereby enabling suppliers to raise prices.

Prices for security guard services are forecast to increase in the three years to 2020. This growth stems will stem from continued rising demand due to increased value of nonresidential construction and government investment.

2014-2017

2017-2020

Growth percentages represent annualized data.

MEDIUM

LOW

MEDIUM

LOW

HIGH

LOW

MEDIUM

LOW

Market Characteristics

Market Risk

Availability of Substitutes

Recent Demand Driver Volatility

Market Share Concentration

Recent Price Volatility

Product Specialization

Vendor Financial Risk

Switching Costs

Supply Chain Risk

Overhead costs – administrative servicesAverage wages – security servicesValue of private nonresidential constructionNumber of businessesGovernment consumption and investment

Allied Universal 15-20%G4S PLC 5-10%Securitas AB 5-10%Covenant Services Worldwide LLC 5-10%US Security Associates Inc. <5%

5.2%Profit

64.1%Wages

9.2%Overhead21.5%

Purchases

Provided to: John Jenkins (2125729732) | 21 June 2017

WWW.IBISWORLD.COM Procurement Report: Security Guard ServicesMay2017 3

Executive Summary

The security guard service market has a buyer power score of 3.8 out of 5. This score indicates that buyers have a slight advantage over suppliers during price negotiations. The primary reasons driving this advantage are stable prices and a low level of vendor financial risk. In the three years to 2017, increasing demand for security guard services has been pushing prices up at a moderate pace, hurting buyer power. However, from 2017 to 2020, prices are forecast to rise at a slower pace as the crime rate continues its forecast decline, slowing growth in demand. Despite increasing prices, price volatility has been low is forecast to remain low during the next three years. As a result, buyers can better budget for their procurement of security guard services.

Buyers benefit from low bankruptcy risk among suppliers, which limits the likelihood that a supplier will go out of business and thus ensures the continued availability of security guard services. Supply chain risk is also low in the

market. Suppliers rely primarily on employees to provide their services, and although obtaining skilled security guards is vital to suppliers’ operations, the risk of labor shortages or wage spikes is low. Consequently, price spikes or service problems resulting from supply chain issues are unlikely.

Other factors, however, detract from buyer power. High specialization in the marketplace limits buyer power. It can be difficult for buyers to locate services providers that supply sufficiently qualified guards to monitor high-risk premises due to the geographically fragmented nature of the market. Additionally, large-scale buyers incur moderate costs when switching providers if they require highly specialized security guard services Because many buyers tend to have contracts in place when acquiring specialized services, switching costs rise if buyers must terminate a contract early.. Consequently, high specialization and medium switching costs detract from buyer power.

Buyer Power Score

The IBISWorld Buyer Power Score is a weighted score based on a number of quantitative and qualitative criteria associated with buying a product or service. The score is calculated between 1 and 5, with 1

signifying low buyer power and 5 meaning high buyer power. The more power a buyer has the greater leverage they have to get lower prices and better contract terms. For more information see page 24.

Executive Summary

Price Trend

Supplier Power Buyer Power1 5

Market Structure

Market Risk

3.6

2.5

5.0

3.85



Price Fundamentals

Benchmark PriceThe average price for security guard services in 2017 is $21.76 per hour per security guard; however, the hourly price per guard can range widely from $10 to $100 depending on the number of guards needed, their degree of training, the length of the service contract, the type of service desired and the geographic location of the supplier.

Inexpensive guards work for observe-and-report agencies and are not trained to act in high-risk situations. These guards typically cost $12 to $30 per hour to hire, while an armed security guard typically costs $15 to $40 per hour. Specialized guards are trained to detain people and work effectively in high-threat situations. Consequently, these guards command higher prices. Highly skilled

guards are expensive to train, so suppliers must charge more for their services to cover the additional cost.

The number of guards impacts the price as well. Suppliers typically lower the amount buyers pay per guard per hour if they hire multiple guards at a time. In addition, buyers that require security guards for a longer period of time can sign a longer contract to negotiate lower hourly rates. However, suppliers that offer a range of security guard services can charge more because it is more convenient for buyers to satisfy all their security guard needs from the same supplier. Moreover, suppliers that provide a wider range of security guard types must provide a wider range of training programs as well, which increases their overhead costs and boosts their prices.

Price Summary

Price Environment

% C

hang

e

4

0

1

2

3

2109 11 13 15 17 19Year

Price of Administrative ServicesPrice of Security Guard Services

Producer Price Index - Price of Security Guard Services vs. Sector

SOURCE: IBISWorld

Three-yearPrice Trend 1.7%

Three-yearPrice Forecast 0.9%

Factor is a threat to buyerFactor should be investigatedFactor is not a threat to buyer

Average Price $21.76 per hour per guard

Price Range WIDE: $10 to $100 per hour per guard

Key Pricing Factors Degree of guard trainingNumber of guardsLength of contract Range of servicesGeographic location



Price Environment

Price Fundamentalscontinued

Geographic location also has a significant effect on market prices. Buyers in high-demand areas such as Washington, DC, which is home to a variety of federal buildings that require security guard services, will pay substantially more than the benchmark price for security guard services. In addition, areas like New York City and San Francisco, which are densely populated urban areas with a significant number of construction projects, also have rates that are well above the national average. In contrast, buyers in rural and low-demand urban areas will pay lower prices.

Pricing ModelSuppliers of security guard services typically use a fixed price model. The security business standard is to provide a wage range for officers in vendor bids, including the monthly and yearly price of the total contract. Because guards’ wages are transparent, the buyer has an immediate glimpse at the bidder’s valuation of its employees. The contract’s markup over the guards’ wages contains further information about the provider’s business model, investment in its guards and customer service; this information can be elicited through the RFP process, (see the Purchasing Process chapter of this report). Buyers can expect the markup, determined by dividing the total yearly contract price by the guards’ yearly base wage, to be roughly between 10.0% and 45.0%.

The majority of guard service contracts last for one year and usually contain automatic renewal clauses. Multiyear contracts that provide slight discounts can sometimes be negotiated, but buyers generally leave their options open and sign for a single year. This practice is common because the cost of switching providers typically only consists of the opportunity cost of repeating the RFP process. That said, a firm with experience on a company’s

grounds should already possess a high level of understanding of the work demanded at the facility. Therefore, continuity with a service provider from year to year is preferable if the service meets expectations.

While fixed price models are the standard in the security guard service business, some suppliers also negotiate under time and materials agreements to cater to buyers that have sporadic security guard service needs, such as companies that retain security services for large company parties. Under such arrangements, buyers are charged on an hourly basis for guards. Suppliers typically charge higher hourly rates than

Geographic Pricing

City

Average Price

($)

Difference from

National Average

($)Atlanta, GA 21.95 0.19Boston, MA 22.73 0.97Charlotte, NC 18.50 -3.26Chicago, IL 23.40 1.64Cincinnati, OH 18.66 3.10Cleveland, OH 23.66 1.90Dallas-Fort Worth, TX 20.94 -0.82Denver, CO 24.21 2.45Detroit, MI 18.48 -3.28Houston, TX 23.96 2.20Las Vegas. NV 19.54 -2.22Los Angeles, CA 26.23 4.47Miami, FL 15.23 -6.53Minneapolis, MN 22.77 1.01New York, NY 24.77 3.01Philadelphia, PA 18.37 -3.31Phoenix, AZ 23.36 1.60Portland, OR 24.12 2.36San Diego, CA 23.62 1.86San Francisco, CA 24.36 2.61San Jose, CA 25.06 3.31Seattle, WA 26.12 4.36Tampa, FL 14.68 -7.08Washington, DC 29.84 8.08

SOURCE: IBISWorld and US Census Bureau



Price Environment

Price Drivers Price driver volatility in the security guard service market has been low in the three years to 2017. Although the value of private nonresidential construction has shifted frequently throughout the period, other external demand drivers, such as the number of businesses, have not been volatile. Furthermore, input costs, including overhead and wages, have been very stable during the past three years. Therefore, the volatility of private nonresidential construction has been offset by the stability of the market’s other price drivers, leading to overall low driver volatility. Low volatility from other price drivers has helped maintain stability in the market price for security guard services.

Input Cost DriversOverhead costs – administrative services: Key costs for security guard providers include overhead costs such as liability insurance and professional association fees. Security guards are exposed to numerous occupational hazards, so suppliers must purchase insurance to limit their liability in the event an employee is injured. Suppliers also invest in accreditation by professional associations. In the three years to 2017, overhead costs for administrative services have been rising at an estimated average annual rate of 1.2%. Growth in these overhead costs is forecast to continue in the three years to 2020 at an average annual rate of 1.8%. As these costs continue to rise, suppliers will pass a portion of their higher costs to buyers in the form of higher prices.

Average wages – security services: Wages are the highest cost for security guard firms, accounting for about 64.1% of the average vendor’s revenue. Average wages for security services have remained flat during the three years to 2020. IBISWorld projects that average wages will remain mostly flat in the three years to 2020, growing slightly at an estimated average annual rate of 0.1%. Stagnant average wages have resulted in stable wages as a share of revenue. As a result, stability in wages does not have an effect on security guard service prices.

External Demand DriversValue of private nonresidential construction: The value of private nonresidential construction includes expenditure on structures, such as office buildings, hospitals and factories. Many of these structures require security services, which are more easily justified as construction activity increases. Nonresidential construction activity has been decreasing at an estimated average annual rate of 1.2% in the three years to 2017. Nonetheless, the real estate market is well known for its boom- and- bust cycles, resulting in a high level of volatility and, as such in, the value of private nonresidential construction exhibits a high level of volatility. This driver is forecast to grow at an annualized rate of 3.9% in the three years to 2020 due to an increase in spending on healthcare facilities. Rising nonresidential construction activity contributes to higher demand and prices for security guard services which decreases buyer power.

Price Fundamentalscontinued

Price DriverVolatility Level LOW

the benchmark price rate under the time and materials model since a steady source of revenue from the deal is not guaranteed.



Price Environment

Price Driverscontinued

Number of businesses: Because businesses comprise the bulk of the buyer market for security guard services, growth in the number of businesses spurs demand for security guards and encourages the price of guard services to go up. Since 2014, the number of businesses has been expanding at an estimated annualized rate of 1.5%. Easy lending standards are responsible for the growth in new businesses. Growth is forecast to continue at an average annual rate of 0.8% from 2017 to 2020. The resulting boost in demand for security services will empower suppliers with greater price control.

Government consumption and investment: Government clients are responsible for a substantial chunk of security firms’ revenue. Due to increasing tax receipts, government expenditure has been increasing from 2014 to 2017 at an estimated annualized rate of 1.3%, which has put upward pressure on demand and prices for

security guard services. From 2017 to 2020, government expenditure is forecast to grow at an annualized rate of 2.5%, increasing demand for security guard services and allowing service providers to raise their prices.

Crime rate: The crime rate represents the total reported violent and property crimes per 100,000 people. Actual and

% C

hang

e

2.5

0.0

0.5

1.0

1.5

2.0

2109 11 13 15 17 19Year

Overhead Costs - Administrative Services

SOURCE: IBISWorld

Price Driver StatisticsAverage Wages

- Security Services

($)Change

(%)

Value of Private Nonresidential Construction

($b)Change

(%)

Number of Businesses

(Million)Change

(%)

Government Consumption & Investment

($b)Change

(%)

Crime Rate(Crimes per

100,000 people)

Change(%)

2007 26,124.41 -3.66 509.00 12.70 7.71 1.40 2,914.40 1.60 3,748.20 -2.002008 25,682.85 -1.69 540.20 6.10 7.60 -1.30 2,994.80 2.80 3,673.20 -2.002009 25,811.02 0.49 438.20 -18.90 7.43 -2.20 3,089.10 3.10 3,473.20 -5.402010 26,612.29 3.10 366.30 -16.40 7.40 -0.50 3,091.40 0.10 3,350.40 -3.502011 26,703.49 0.34 374.70 2.30 7.35 -0.60 2,997.40 -3.00 3,292.50 -1.702012 26,728.69 0.09 423.10 12.90 7.43 1.10 2,941.60 -1.90 3,255.80 -1.102013 25,725.28 -3.75 428.80 1.30 7.49 0.80 2,857.60 -2.90 3,102.70 -4.702014 25,627.08 -0.38 472.90 10.30 7.56 1.00 2,833.00 -0.90 2,935.70 -5.402015 25,667.23 0.15 452.10 -4.40 7.76 2.70 2,883.70 1.80 2,859.60 -2.602016 25,635.20 -0.12 438.40 -3.00 7.83 0.80 2,907.30 0.80 2,772.83 -3.002017 25,658.38 0.09 456.37 4.10 7.90 0.90 2,944.16 1.30 2,680.07 -3.302018 25,683.67 0.09 474.02 3.90 7.97 0.90 3,006.07 2.10 2,583.71 -3.602019 25,713.37 0.11 492.90 4.00 8.03 0.80 3,090.83 2.80 2,485.02 -3.802020 25,703.05 -0.04 512.25 3.90 8.09 0.80 3,168.42 2.50 2,384.67 -4.002021 25,738.16 0.13 532.50 4.00 8.16 0.80 3,242.91 2.40 2,283.03 -4.30

SOURCE: IBISWorld



Price Environment

Recent Price Trend

The average price of security guard services has been increasing at an estimated annualized rate of 1.7% from 2014 to 2017, primarily due to increased demand. Among demand drivers, government consumption and the number of businesses have both been growing with the broader economy during the past three years. However, demand growth has been mitigated by falling nonresidential construction activity and crime rate. Despite these drivers falling, demand overall has been rising. Higher aggregate demand has, in turn, enabled suppliers to raise prices for security guard services.

Large providers of security guard services have been raising their prices at a faster rate than the market average and have thus benefited the most from growing demand for services. These vendors’ diversified service offerings give them more room to implement price increases without risking a significant loss of business because their larger

customers can still source multiple services from them and still save money. In addition, their customers are inherently less sensitive to price changes because top buyers have diversified revenue streams and tend to operate with large security budgets. Small operators have, however, also been able to raise prices in response to demand increases, thus limiting buyer negotiation power across the board.

Fortunately, price volatility has been low in the three years to 2017, making it easy for buyers to forecast prices and budget for security guard services. Steady increases in demand and stable input costs have prevented any drastic price fluctuations from occurring. Although buyers procure services on a case-by-case basis and cannot always anticipate how many security guards are needed, buyers that anticipate a need for the services in the next three years should consider entering long-term contracts to lock in prices before they rise further.

Price Driverscontinued

perceived increases in crime and terrorism often lead to more security guard service upgrades, renewals and new contracts so that businesses can protect against both property and violent crime. In the three years to 2017, the crime rate has decreased at an estimated annualized rate of 3.0%. In the three years to 2020, the crime rate is projected to decline at an annualized rate of 3.8%. Although a declining crime rate, in and of itself, places downward pressure on demand, strong growth in other demand drivers will counteract this decline, resulting in an increase in aggregate market demand. Higher overall demand for security guard

services places upward pressure on price to the detriment of buyers.

Vendor Average Cost Structure

Proportion of Revenue

(%)Profi t 5.2Wages 64.1Purchases 9.2Overhead 21.5Insurance & Administrative Fees 4.8

Insurance 1.2Marketing 1.2Other 14.3

Total 100.0

SOURCE: IBISWorld

Three-Year Average Annual Price Trend:

1.7%

PriceVolatility LOW



Price Environment

Price Forecast During the three years to 2020, demand for security guard services will increase as economic growth continues. Growing demand, in conjunction with increasing market share concentration, is expected to result in prices growing at a rate of 0.9% per year on average through 2020.

The rising value of nonresidential construction will be the primary driver of market demand and price growth during the period. As construction activity rebounds, more buyers will demand security guards to patrol their new facilities. Such buyers are typically willing to pay more for services because the construction of buildings requires a significant investment and owners have a substantial interest in protecting their property. Additionally, the anticipated growth in government spending will contribute to rising security guard service demand and prices. Buyers that benefit from government investment and previously delayed procuring services are expected to increase their demand for these services as government funding rises. The number of businesses is also forecast to rise in the three years to 2020, thereby driving up demand for security services. These factors will counteract a decline in the crime rate, allowing for an increase in aggregate demand for security guard services. Rising demand will permit suppliers to raise prices during this period.

Increasing market share concentration, triggered by mergers and acquisitions, will help increase the rate of

price growth during this period. In August 2016, two of the largest vendors in the market, AlliedBarton Security Services LLC and Universal Services of America Inc., finalized their merger agreement to become a single entity. This merger greatly increases market share concentration and will reduce price-based competition in the three years to 2020. With less competition, large firms will be able to charge buyers higher prices. As such, prices will continue to increase in the three years to 2020, which decreases buyer power.

Fortunately for buyers, market prices are projected to remain stable in the next three years, and flat inputs costs will prevent drastic price swings. Low price volatility will allow buyers to budget for security guard services with more certainty.

$ pe

r hou

r per

gua

rd

23.0

19.5

20.0

20.5

21.0

21.5

22.0

22.5

2109 11 13 15 17 19Year

Security Guard Services - Benchmark Price

SOURCE: IBISWorld

Three-Year Average Annual Price Forecast:

0.9%



Product Life Cycle

Security guard services are in the mature phase of the product life cycle. Guard services are well established, and the market is nearly saturated. In the three years to 2017, sales have been steadily growing thanks to growth in demand due to the rising number of businesses, and increased government spending. Sales will continue to steadily grow in the three years to 2020 as the economy continues to expand and businesses seek out ways to protect against theft and vandalism. Current merger and acquisition activity is also indicative of the market being in the mature phase of the product life cycle. Buyers benefit from the mature phase of

the life cycle because services are fully developed and have established distribution methods.

Product Characteristics

MaturityLife Cycle Stage:

Intro

duct

ion

Mat

urity

Dec

line

Sale

s Vo

lum

e

Time

Gro

wth

Life Cycle Factor Security Guard Services Characteristics

Price Trend Prices have been rising slowly due to increasing corporate demand. Higher government spending and a growing number of businesses are projected to continue supporting demand and price growth in the three years to 2020. Increasing market share concentration created by mergers and acquisitions activity will also exert an upward pressure on price during this period.

Product Change Basic security guard services are well established and have not historically been subject to much change. With the exception of the wider array of equipment available for guards, services are used for basically the same purpose as they have been for hundreds of years: to deter crime and control access to grounds and facilities. Cameras and control centers have improved guard services over the past several decades. Over the past three years, there has been a growth in the amount of technological assistance provided to guards and guard services are often combined with remote monitoring systems.

Distribution Scope Security guard services have a wide distribution scope with many national and local vendors for buyers to choose from. Despite strong M&A activity among major national vendors, which has enabled them to control an increasing portion of the market, there is still significant fragmentation. This high fragmentation will benefit buyers because they have an expanded array of vendors to leverage.

Marketing Trends Marketing is a minimal cost for suppliers because the service is well established and the largest vendors in every geographic segment are often well known in the area. Customers approach vendors and base decisions on vendor bids and responses to RFPs as well as their reputation and range of services. Winning government and national contracts is a source of prestige for security guard service providers, and these contracts can benefit a firm’s image. Small providers market themselves through local channels; brochures and sales calls to property managers of buildings, shopping centers and residential developments.




Related Goods

Larger security guard service providers offer a range of services that they may upsell to buyers, which can then reduce buyers’ overall costs. A security guard provider’s knowledge of a client’s facilities, personnel and operations may

provide them with an advantage in terms of efficiency when it comes to providing the following add-on services. Depending on the service, buyers may be able to negotiate additional discounts by bundling.

Product Specialization

The level of product specialization is high, and a guard service provider should possess experience working with a facility or industry similar to that of the buyer’s firm. Most large firms have security guards specialized in specific industries or situations. The service supplier and the security guards should demonstrate a solid understanding of a buyer’s work because services are customizable. Providers’

specialties range from basic observe-and-report guarding to armed guarding for high-threat situations. Training for security guards varies by the type of security guard needed. More skilled security guards are paid more per hour because their training costs more and they typically have more experience. Therefore, buyers have less negotiation power when procuring more specialized services.

Total Cost of Ownership

Assuming that the security guard provider is properly insured and licensed, which should be determined through the RFP process, there are no hidden fees or additional long-term costs of ownership associated with outsourcing security guard duties. A contract is for a definite period of time, and it specifies the price of service during the period.

However, there are few costs that the buyer must be aware of prior to procuring services., and can vary based on when service is requested and the number of

people required. Suppliers can charge higher prices if services are requested on high-demand days such as weekends or holidays. The total cost of ownership will also increase with added features like mobile patrol services or armed guard services because of the additional training involved. Additionally, the buyer must consider insurance costs. Although the supplier often covers such costs, buyers can choose to purchase insurance as well to provide additional coverage in the case of an incident.

Total Cost ofOwnership LOW

ProductSpecialization HIGH




Substitute Goods

The availability of substitutes is medium in this market. Substitute products for security guard services include remote security monitoring services, guard dogs and security fences; however, these substitutes do not offer the combination of responsiveness and rational decision-making ability that security guards possess. Therefore, these substitutes may only be suitable for buyers operating in

lower security risk environments. In-house guards that are not contracted through companies dedicated to guard services are also substitutes, although most guards are not employed in this manner. A medium availability of substitutes bolsters buyer power by providing buyers with other less costly options that they can leverage during negotiations with suppliers to achieve price breaks.

Related Goodscontinued

Availability ofSubstitutes MEDIUM

Related Goods Description

Consulting & Investigative Services

Investigative services are largely used to investigate accidents, arson, employee check fraud and other white-collar crime. Because background screening is such a critical part of the recruitment process for security guard firms, many investigative divisions can perform employee screens for clients. Providers that offer consulting services may can advise clients on safety issues and help them design security programs.

Armored Vehicles Services

Armored vehicles collect, count and deliver cash from financial institutions, casinos and retailers (particularly those dealing in precious metals and stones). They also provide document transfers, including canceled checks, and secure safes for clients, such as convenience stores and gas stations. A subcomponent of the armored vehicle segment is the servicing of ATMs, which has largely been outsourced by banks.

Remote Security Monitoring Services

Remote monitoring provides alerts in the case of a security breach on the buyer’s property. Monitoring is generally conducted in a remote facility operated by the supplier where video cameras and alarm systems are monitored. These services, offered by many security guard providers, are often used in conjunction with security guard services and can reduce buyers’ costs by allowing for a facility to be secured with less labor.




Regulation Regulatory change in the three years to 2017 has been medium. State agencies grant the licenses that are required to operate private security guard businesses, and many require specific licenses for guards. If guard licenses are required, states generally perform background checks and may require guards to complete a series of training courses. For example, most states require employees to complete a specific amount of training in the first months of employment and ongoing training after that. Many states also require guards to have a criminal background check. In 2016, California passed a law requiring more stringent training and screening requirements, such as mental health examinations, for armed security guards.

Other states are looking into tightening training and screening requirements,

especially for armed guards. A moderate rate of regulatory change complicates the purchasing process. Buyers must make sure suppliers are complying with the current regulations in the state in which they are operating. At the same time, more stringent screening and hiring regulations benefit buyers by providing more assurance that the guards sent to their facility will be well-trained and competent.

Some states have lax regulations concerning the qualifications of security guards. Hence, it is important for buyers to ensure that their potential providers have screened their employees and provided them with in-house training even if the law does not require it. Retaining the services of a supplier that employs poorly trained guards can jeopardize the security of the buyer.

RegulatoryChange MEDIUM

Substitutes Description

Remote Security Monitoring Services

While buyers often obtain security monitoring services in conjunction with security guard services, monitoring services can be obtained without guard services. Such an option is less expensive and is priced on a subscription basis rather than on an hourly basis. Although security monitoring services pick up intruders and notify authorities, response time is far slower than manned services. Therefore, this option may not be suitable for some buyers.

Guard Dogs Guard dogs are trained to alert individuals of a threat within a facility. The presence of guard dogs may also deter criminals from entering a property. However, they lack the capability to apprehend an intruder.

Security Fences Barbed wire or other types of security fences can be erected around a buyer’s premises to deter break-ins. Erecting a security fence is a one-time expense that has a lower yearly total cost of ownership than procuring security guard services. However, security fences can provide inadequate protection against determined intruders.

In-House Guards Instead of outsourcing security guard services, some buyers hire security guards internally and add them to the company payroll. On one hand, by hiring in-house guards, buyers are not subject to the labor mark-up costs factored in suppliers’ rates. On the other hand, buyers will have to pay for guard benefits, security equipment, training, and other overhead costs. These ancillary costs often make hiring an in-house guard more expensive than obtaining the services of a security guard servicemarket supplier.

Substitute Goodscontinued




Quality Control

Quality control over security guard services is largely left to firms themselves. Because regulation is not consistent across the country (see the Regulation section of this report), no market-wide quality standards exist. As a result, firms vary in their hiring, training and performance standards. Buyers should gather information about the screening process and training regimen that potential providers put their guards through. Buyers should ensure that their supplier conducts thorough background checks on the guards that they hire. This aspect is a significant one in the selection process because security guards can have a major influence on public safety.

Buyers should carefully examine the training that security guards are provided in order to assess quality. Higher-quality firms will provide guards with a higher level of training. Ideally, guards should receive training about what powers they

have under the law; their legal and ethical obligations; how to work and collaborate with law enforcement; public relations; and observation and documentation. In addition, armed guards should receive extensive weapons training and legal instruction. Guards that receive quality training will be more effective on the job.

Low turnover also impacts the quality of the supplier and the security guards. Suppliers with lower turnover rates typically have better management practices and understand the needs of the market more clearly. Such suppliers also tend to offer extensive training and benefits to encourage guards to continue working for them. Guards that have been working for the same supplier for an extended period of time prove that they are reliable, have a clean record and have extensive experience.

Key Quality Factors Employee screeningGuard trainingLow turnover



Supply Chain Dynamics

Supply Chain RiskSecurity guard service providers face a number of upstream supply chain risks, but the potential costs associated with these risks do not threaten the continuity of business. As a result, the level of supply chain risk for security services is low. Security guard service providers purchase uniforms, weapons, weapon and security licenses, as well as invest in commercial real estate leases, background checks and insurance. The prices of these inputs are generally stable and they are widely available.

Labor costs comprise the bulk of input costs for security guard companies. Securing well-trained and highly qualified staff is vital for market providers. Some security guards unionize through security-only unions. However, only about 8.0% of private security officers in the United States are unionized, according to the Service Employees International Union. Prices

for other labor-based services have increased in the past due to unionization. In this market, however, labor risks are generally low and wage shocks that could impact prices are unlikely because unionization is not common in this market.Primary buyers include educational institutions, hospitals and healthcare facilities, commercial and industrial building managers, retail establishments and government agencies. Government agencies are among the biggest buyers of security guard services. Municipal government agencies tend to be risky because their budgets tend to fluctuate year over year. Nonetheless, given the wide variety of buyers, the overall downstream supply risk is low because declines in one buyer sector could be offset by growth in another.

Overall, both upstream suppliers and downstream buyers exhibit an overall low likelihood of supply chain disruptions. Consequently, buyers have reasonable

Supply Chain & Vendors

AverageVendor Risk LOW

SupplyChain Risk LOW

High risk

Medium risk

Low risk

Security Guard Services

Government Agencies

Retail Establishments

Commercial & Industrial Building

Managers

Hospitals & Healthcare Facilities

Educational Institutions

Credit Bureaus & Ratings Agencies

Government Public Record

Agencies

Background Check

Companies

State Governments

State Security Licensing Agencies

Weapons Manufacturers

Weapons Retailers

Textiles Manufacturers Uniform

Wholesalers

2nd Tier Suppliers 1st Tier Suppliers Vendor Key Buyers

SOURCE: IBISWORLD




Competitive Environment

Market Share ConcentrationIn 2017, the top four security guard service providers have a combined market share of 40% to 50% of the market’s revenue, which indicates a medium level of market share concentration. Overall, about 9,630 companies provide security guard services in the United States. Together they employ about 695,382 people. The majority of the market’s companies employ fewer than 20 people and operate locally; however, businesses that employ fewer than 20 people individually control a low share of market revenue.

Although competition is still robust, market share concentration has been

increasing in the three years to 2017 due to mergers and acquisitions, resulting in the average firm in this market having grown in size. In August 2016, two major players, AlliedBarton Security Services LLC and Universal Services of America, merged to form Allied Universal, which now commands the largest US market share out of any security guard services firm. Allied Universal has continued its consolidation of the market in 2017, acquiring Yale Enforcement Service’s security division as well. The geographically fragmented nature of the market helps mitigate the effects that increasing market share concentration has on competition. Over 70.0% of the

Supply Chain Dynamicscontinued

assurance that they will not experience disruptions in the supply of security guard services.

Geographic LocationsTwo of the largest guard service providers, Securitas AB and G4S PLC, are based abroad and have offices across the globe, including in the United States. Other large guard service providers have offices throughout the country. Offices are generally concentrated in densely populated regions of the country, meaning that buyers in major metropolitan areas have the lowest supply risk due to the multitude of firms that can compete for their business.

The five states with the largest concentration of security guard services include California, Florida, Texas, New York and Illinois. These states account for about 45.1% of all establishments. Security services are provided on site, either through guards dedicated to a particular facility or through mobile units that may serve several clients. Although there are buyers in every region that are likely to require services, suppliers gravitate toward the more populous

states, as there is more business activity in such areas and therefore more buyers demanding services. In addition, suppliers are likely to locate to areas with large and cheap labor forces. The Southeast, West and Mid-Atlantic regions have the largest concentrations of suppliers. In regions with few suppliers, buyers lose negotiation power since they have fewer suppliers to compare and use as leverage; this factor allows suppliers to increase prices, and such buyers may need to use a larger supplier that provides services on a national scale.

ImportsThere are no imports of security guard services due to the service-based nature of the market; however, two of the largest security guard service providers are headquartered in Europe and have made significant acquisitions of US companies. If buyers require security guard services for facilities located abroad, they may be able to negotiate more favorable deals by using the international suppliers, especially if they these buyers use the same suppliers for services within the United States as well.

Market ShareConcentration MEDIUM




Competitive Environmentcontinued

market is comprised of firms with fewer than 50 people, while 6.0% of all enterprises in the market have more than 1,000 employees. This trend of growing market share concentration is expected to continue over the next three years as mergers and acquisitions continue. Increasing market share concentration detracts from buyer power by giving buyers fewer large national security firms from which to choose. With less competition, large firms will be better able to charge buyers higher prices.

Vendor Company TypesThe estimated 9,630 firms that offer security guard services in the United States range in size and specialty. Some larger suppliers offer diversified services, such as investigative services and armored vehicle services, in addition to guard services. Other firms operate solely as government contractors or derive a large portion of their business from government contracts. The decision to contract with one company over another is typically based on the type of guard

service required and the size and geographic scope of the buying company’s operations. Buyers have more leverage with smaller locally based companies, but when buying for multiple facilities across different regions, purchasing power goes further with a large supplier. Although buyers can sometimes negotiate multiyear contracts that offer slight discounts, buyers typically leave their options open and sign for a single year. This practice is common because the cost of switching providers is not particularly high.

Large vendors: Large vendors are security firms that generate more than $500 million in yearly revenue and operate at a national scale. Five companies meet these criteria and are considered large vendors. These top suppliers have grown through extensive mergers and acquisitions, bolstering their market shares. Large vendors have divisions or subsidiaries that specialize in nearly all branches of security guarding, including government contract specialists. US

Vendor Statistics - Security Guard ServicesUS Product

Market Share (%)

Market Share Performance

(3-yr trend)

Total Revenue

($m)1Profit Margin

(%)Financial

Risk Level2

Allied Universal 15-20 Increasing 2,000-5,000 N/A N/AG4S PLC 5-10 Increasing 10,778 5.1 LowSecuritas AB 5-10 Increasing 9,798 5.1 LowCovenant Services Worldwide LLC 5-10 Steady 100-250 N/A N/A

US Security Associates Inc. <5 Increasing 1,000-2,000 N/A N/A

Akal Security Inc. <5 Increasing 250-500 N/A N/AInter-Con Security Systems Inc. <5 Increasing 500-1,000 N/A N/A

Metropolitan Security Inc. <5 Steady 250-500 N/A N/A

SOS Security LLC <5 Increasing 100-250 N/A N/AWhelan Security Co. <5 Steady 100-250 N/A N/A1: Revenue refers to the latest fi nancial year for which data is available. Private company revenue is expressed as a range.2: Financial Risk Level is based on the Altman Z-Score, which uses a formula to predict a company’s risk of bankruptcy. See Glossary for more details.

SOURCE: IBISWorld





government-focused subsidiaries of large firms include Securitas’ Pinkerton Government Services and G4S’s All Star International.Large service providers are well suited for national or international companies with locations nationwide that may require different services at each. Furthermore, national and international firms offer centralized invoicing, which can facilitate easier payment and accounting operations. These companies try not to compete primarily on the basis of price, but rather through service content and quality. Due to their brand-name recognition and national capabilities, large vendors often command higher prices than medium-size and small vendors. The management strength of these companies at the local level varies, though, as can the consistency of service across regions. Buyers from large firms must ensure that these major providers can offer them ready access to account managers with decision-making authority. A lack of access can be problematic, and ineffective security policies need to be remedied quickly.

Medium-size vendors: Medium-size vendors are vendors that have $20 million to $500 million in annual revenue, and about 50 medium-size vendors exist in the market. Although still large in comparison to the bulk of firms serving the market, medium-size vendors mostly include large regional firms and national firms that specialize in particular segments of security guard services, such as government contracting (e.g. Akal) and unarmed service. Medium-size suppliers generally bid lower for contracts than

large firms because they do not have as much name recognition and because they cannot offer the same range of services or cover the same geographic areas as large firms. They also serve a market segment that is more price-sensitive than that of large companies. Government contract security firms are the exception, serving a market that is less price-sensitive than most. Medium-size suppliers are very responsive to customer needs because of their proximity to buyers’ offices and because each customer represents a larger share of their business. As a result, medium-size vendors are a good choice for buyers that desire security services in only one geographic region.

Small vendors: There are about 9,575 small vendors that operate in the market, all of which generate less than $20 million in revenue. Small suppliers underbid larger, more-recognized security firms because the customer segment they serve is especially sensitive to price and usually only requires basic unarmed service. These suppliers can operate at lower costs because they do not have to license or equip armed guards. Additionally, they only operate a small number of offices, usually within a single geographic region. Small suppliers are well equipped to offer security services to localized businesses like single-location offices, bars and nightclubs. Small vendors are also an appealing option for larger buyers that only desire a small amount of security personnel for a special event (e.g. a company party). They can also offer bodyguard services.

Supplier DiversityOwnershipCategory

This Market(%)

Overall Sector(%)

Overall Economy(%)

Women 20.0 20.7 19.4Minority 24.0 14.9 17.5Veteran 18.9 7.1 7.5

Ownership is defi ned as owning at least 51 percent of a fi rm, which is the defi nition used by the Small Business Administration for government procurement programs.

SOURCE: IBISWorld and US Census Bureau




Market Profitability

The average profit margin for suppliers in the market is medium at about 5.2% of total revenue in 2017. During the three years to 2017, the average profit margin of suppliers has remained stable as wage costs have remained mostly flat. Marketplace competition, even accounting for a recent increase in market share concentration, has prevented suppliers from raising prices enough to increase profit margins.

Medium profit margins limit buyers’ negotiation power because suppliers cannot reduce prices much before suffering losses. Some large players can afford to compete on the basis of service content and quality instead of price because their buyers are less price sensitive buyers or because these suppliers can provide a broader range of services under

one contract. However, the vast majority of security guard firms cannot compete in this way. Consequently, profit margins are typically higher for larger players, which have fewer direct competitors. Buyers may have some additional negotiation power with larger players because they tend to have higher profit margins and therefore more leeway with prices.

Security guard service suppliers have low financial risk and can typically honor long-term contracts, which ensure continuous service availability for buyers. Because financial information is not readily available for private companies, buyers should ask for such data to compare the financial health of companies and make better-informed decisions when selecting a vendor.


Supplier diversity: Minority-, women- and veteran-owned businesses are more common in the security guard services market than in the economy. Minority-owned businesses comprise 24.0% of companies in this market compared to 17.5% of companies in the economy. Similarly, veteran-owned businesses represent 18.9% of all businesses in this

market compared to only 7.5% in the broader economy. However, women-owned businesses are only slightly more common in this market (20.0%) than in the broader economy (19.4%). Nonetheless, there are many opportunities in the security services market for buyers that need to fulfill supplier diversity requirements.

Profit Level MEDIUM

Profit Trend STABLE

Switching Costs

The cost of switching providers is medium, but it can fluctuate depending on the level of security guard specialization. Most contracts can be terminated by either party with 30 to 90 days of written notice with no financial penalty. Although new guards will need to be trained to serve the buyer’s facility, the provider incurs these costs, not the buyer’s firm. The opportunity cost of finding a new provider can represent a considerable burden, however, and this opportunity cost increases with buying lead time (discussed in the Buying Lead

Time section of this report). In addition, add-on services may increase switching costs; for example, a proprietary electronic monitoring system operated by a specific provider’s guards may need to be replaced when switching providers.

Furthermore, buyers with lengthy training protocols may incur some switching costs in the form of lost time. Although the price of training is generally borne by the supplier, buyers may spend a significant amount of time unprotected while new employees are trained on the new facility.

SwitchingCosts MEDIUM



Buying Basics Buying Lead TimeBuying lead time is usually moderate and considerably shorter than the duration of most contracts, which gives buyers the opportunity to evaluate and switch suppliers more easily. The lead time, which is the time between RFP publication and contract signing, for procuring security guard services ranges from one to three months. For a large government entity, however, procurement lead times are typically longer and can range from just less than six months to more than a year. Various procedures cause government procurement to last longer than a commercial buyer’s. For example, some cities require public hearings for proposed high-value contracts. Most buyers would like to reduce lead time to the shortest possible duration, but because vendor competition is based on the quality of service as well as price, evaluations take some time.

The purchasing process begins when the buyer addresses the business’ need for security guard services. The buyer then drafts an RFP to explain to potential vendors the types of services that are required and the desired terms of the contract. The lead time usually increases with the number of vendors that respond to the RFP. Once the buyer selects a supplier, the security guards are sent to the buyer’s facility. The buying lead time then ends when the security guards are integrated into the buyer’s operations.

The acquisition process of identifying and selecting a supplier can be time consuming, especially if the buyer has multiple suppliers to select from in a region. The buyer must take the time to understand the supplier’s business, determine whether the desired services are offered and then negotiate an appropriate price for the contract period. Then the buyer must become familiar with the security guards assigned to the facility.

Although suppliers train security guards, the buyer might need to provide further instruction on any expectations or requirements during the security guard’s shift. In addition, the security guard must understand the buyer’s business, become familiar with the building and learn to identify anyone that should not be in the building or on the premises.

Selection ProcessSecurity guard services are generally obtained under a negotiated buyer-supplier relationship. This kind of relationship is common in markets where services are not vital to the buyer’s operations but the continued supply of the service is subject to some risk. Generally, most businesses would be able to continue operating if security guard services were to become temporarily unavailable. Numerous substitutes for security guard services exist, including security monitoring services, guard dogs and security cameras.

While thousands of suppliers operate in the market, the security market is subject to some risk due to moderate switching costs. Buyers often enter into long-term contracts with suppliers. Terminating a contract prematurely can come with large financial penalties. Moreover, it will take a new supplier some time to learn and adapt to the buyer’s facilities. Accordingly, once engaged in a contract, buyers should invest extensive resources in order to maintain a strong relationship with their security guard provider.

Buying-Decision ScorecardThe Buying-Decision Scorecard outlines the key criteria a buyer should consider when purchasing this good or service. When weighing the importance of each factor, we assume that a buyer has narrowed down potential suppliers to those that meet the technical and price criteria specified in the RFP. The criteria

Purchasing Process

BuyingLead Time MEDIUM



Purchasing Process

Key RFP Elements

Specific information to impart to suppliers in the RFP includes:

• The criteria used to evaluate vendors’ bids

• The desired contract term and termination requirements

• The number of weekly hours needed from security guards

• The scope of services (e.g. entry and access control, patrolling interior

and exterior of buildings, armed guards, visitor and employee identification verification and other specific tasks as required)

• Specific consequences if guards do not fully perform their duties

• The required equipment from suppliers (e.g. uniforms, watch systems, weapons and vehicles), and be specific about the types and quantities

Buying Basicscontinued

and weights assigned below can be used as guidelines to help further differentiate already qualified vendors.

Buying-Decision ScorecardFactor Weight

(%)Description

Technical Factors 80.0QualificationsofPersonnel

25.0 Buyers should heavily weigh the qualifications of personnel to protect against undertrained guards and high turnover rates. Account managers must demonstrate that they are accessible and responsive. They must communicate effectively with guards and enact immediate staffing or procedural changes if necessary.

Quality of Service 30.0 In addition to being the first responders to threatening situations, security guards are often the source of visitors’ first impressions. A buyer must ensure that a provider’s guards represent the interests and culture of the buyer’s company. Interviewing the existing and past clients of a provider’s firm gives a buyer insight into a provider’s service and relationship management.

Annual Training & Weapons Proficiency

15.0 Regular training enables guards to perform their duties more effectively. It also protects against costly or dangerous mistakes made by a guard at a buyer’s facility.

Corporate Experience

10.0 Buyers should consider the other companies a provider serves when making their decision. A provider with high-profile clients may have especially strong service, though high-profile clients can detract from the attention given to a smaller firm. Also, buyers should make sure their industry is represented among a provider’s clients.

Cost 20.0Price 20.0 Price is usually outweighed by technical considerations in choosing a guard provider.

Prices for this service are not volatile, and buyers should investigate large price increases to existing contracts.

Total 100.0



Purchasing Process

Key RFP Elementscontinued

Specific information to gather from suppliers in the RFP includes:

• The company cost structure, including costs for liability insurance, workers’ compensation, unemployment insurance, medical insurance and corporate overhead

• Proof of the vendor’s automobile liability insurance and excess umbrella insurance, including terrorism coverage

• Proof of licenses to do business in all areas covered by the RFP

• Any pending litigation• The management structure as it

relates to the buyer’s account, including all account support personnel, their functions and their responsibilities

• Resumes or biographical information about management, the potential account manager and the security guards

• How security officers are recruited, including the criteria applicants must meet before being hired and the methods used for applicant background screening

• The security personnel turnover rates during the past three years and initiatives the vendor has implemented to promote employee retention

• The vendor’s invoicing frequency, procedures and, if applicable, whether centralized billing is available

• Descriptions of training programs officers go through and the types of licenses they hold

• Whether guards hold the licenses and permits necessary to comply with all federal, state and local requirements

• The vendor’s transition plan for implementing security services should they be awarded the contract and ensure that specific tasks and time frames are discussed

• At least three client references whose facilities are comparable in industry, size and scope to the buyer’s company

• The pricing information, which should include base wages by post and rank and should explain how billing rates are to be quoted

Standard Elements in an RFPOverview & Scope This tells the vendor about your company, why your company needs this product and what you

hope to achieve from its purchase. Deadlines for steps in the procurement process should be clearly defined in the section.

Vendor Qualification This section details the features a winning company must possess, such financial size, scope of work completed or geographical reach. This section will also explain the criteria used in evaluating the bid and its relative importance in your scorecard. This section might disqualify some companies, such as suppliers to your competitors.

Technical Specifications

This section details the technical and functional specifications of the product you want. The more detail provided, the shorter the procurement cycle since all vendors are bidding to the same, exact specifications. Further, if all needs are specified there is less chance of additional costs will surface down the road. This section will also look at service level agreement needs.

Financial Factors This section is where vendor quotes prices for the product or service being supplied. This section should specify cost breakdowns, billing frequency (with specific dates, time periods), billing methods (mode of payment, including currency) and taxes.

Legal Framework This section should reference the legal jurisdiction in the event of a dispute, methods for arbitration and contract termination mechanisms. Nondisclosure agreements are also part of this section, as are escrow agreements (mainly in the event of shared proprietary knowledge).



Negotiation QuestionsIssue QuestionsManagement Structure & Implementation of Service: Suppliers should have well-managed operations and should give buyers an idea of the attention their account will receive.

• How many accounts does each manager serve? • Is my account manager able to make significant changes to my service if I am unsatisfied? • What is your transition plan for implementing security services at my company? • Am I able to get immediate assistance from an account manager if decisions need to be made?• Are you available 24 hours a day, seven days a week?

Industry Experience: A supplier’s niche will help determine whether the provider is a good fit for the buyer’s company.

• How well do you know my company’s industry and the types of facilities I need to have guarded? • What other clients have you served in my industry and were you able to retain them over multiple contracts? • Who are your competitors and how does your experience in my firm’s industry compare to theirs?• How will ordering multiple services from your firm improve my costs and quality of service?

Employee Screening & Retention: Screening is a highly important part of the recruitment process for security guards. In addition, employees who are thoroughly screened may have higher retention rates.

• What methods are used for applicant background screening? • What qualifications must security personnel have before being hired? • How often are guards drug screened, and for what drugs?• What measures do you put into place to improve your retention rate?

Employee Training: Proper training is critically important for security guards because their duties influence public safety and the safety of the assets of a buyer’s company.

• What pre-assignment and orientation training do guards go through? • What on-the-job, facility-specific or industry-specific training do guards go through? • How is training delivered (e.g. classroom, books and videos in the field)? • How do you measure the success of your training program? • What are the qualifications and years of service of the guards that will serve my facility?• What happens when a guard does not show up on-site? How am I notified and how quickly do you provide a substitute?

Retention of Accounts: A supplier’s retention of accounts serves as an indicator of attrition rates, wages, performance and client satisfaction.

• What is your client retention rate? • Why do clients choose not to renew with your company? • How do you win clients from other security guard providers? Do you offer multiyear discounts or early renewal discounts?• How many of your clients take advantage of these discounts?

Employee Turnover: Employee turnover is high for security guard service companies, so low rates of turnover can indicate positive employee-employer relationships as well as a more experienced workforce.

• How long do employees stay with your firm? • How do you expect staff turnover to affect service at my company? • What personal development or continuing education programs does your company offer employees? • What promotional opportunities are available for officers?• Are any of your guards unionized?

Insurance & Benefits: High rates of liability insurance, worker compensation and unemployment insurance might be red flags, while high levels of employee medical insurance are a favorable signal.

• What are the rates of the various types of insurance that your firm purchases? • How have insurance rates changed over the past several years? • How have changing insurance rates impacted your service prices? • What type of benefits do you offer your employees?• Do you offer your employees medical insurance?



Buyer Power Score Components

IBISWorld’s Buyer Power Score is a calculation based on weighted quantitative and qualitative factors that measure a buyers’ ability to negotiate lower prices and favorable contract terms. The higher the Buyer Power Score, the greater the average buyer’s negotiating strength for this product. The overall score is composed of three components: 1) Price Trend: compares this product’s average recent and forecast price change to the economy-wide inflation rate;2) Market Structure: assesses the availability of alternatives and ease of purchasing in this product’s marketplace3) Market Risk: measures elements of volatility and risk impacting a buyer’s confidence in making long-terms deals with suppliers of this product.

Overall Buyer Power Score 3.8

Price TrendFactor Defi nition Weight ScoreRecent Price 40% 3

Neutral Compound annual growth rate in benchmark price over the past three years 1.5-3.0%Forecast Price 60% 4

Favorable Compound annual growth rate in benchmark price in the next three years 0.1-1.4%Weighted Score 50% 3.6

Market StructureFactor Defi nition Weight ScoreAvailability of Substitutes 35% 3

Medium There are some substitutes for this product/serviceMarket Share Concentration 25% 3

Medium The top four suppliers of this product/service have 30.1-49.9% market shareProduct Specialization 25% 1

High The product/service is assessed as having a high level of specializationSwitching Costs 15% 3

Medium The cost of switching from this product and/or supplier is assessed as mediumWeighted Score 20% 2.5

Market RiskFactor Defi nition Weight ScorePrice Driver Volatility 25% 5

Low Average absolute difference in percentage change of external drivers < 1.0%Recent Price Volatility 25% 5

Low Average absolute difference in % change in price over last 3 years < 1.0%Vendor Financial Risk 25% 5

Low The average level of financial risk for product/service vendors is assessed as lowSupply Chain Risk 25% 5

Low The average level of product/service supply chain risk is assessed as lowWeighted Score 30% 5.0



Jargon & Glossary

Jargon

Glossary

Unarmed Guard A guard that is not licensed to carry guns or trained to detain people. Also called an observe and report guard.

Markup The total yearly price of security guard services divided by the yearly base wage of the guards.Roving Patrol Guarding done at multiple facilities that belong to different customers.

HS The Harmonized Commodity Description and Coding System is maintained by the World Customs Organization as a standardized system of names and numbers for classifying traded products.Life Cycle All products and services go through periods of growth, maturity and decline. IBISWorld determines a life cycle by considering factors such as pricing trends, the level and speed of product or service change, the extent of a product’s distribution and the maturity of marketing trends.Market Share Concentration Determined by the market share of the top four vendors for a given product or service: high is when the top four vendors account for more than 50.0% of the product or service market share, medium is from 30.0% to 50.0%, and low is less than 30.0%.NAICS The North American Industry Classifications System is the standard by which industries (not products) in the United States, Canada and Mexico are classified.Price Driver Volatility Level Determined by the average absolute difference in the percentage change of input cost items and external demand drivers over the past three years: high is 3.5% or greater for all drivers, medium is from 2.0% to 3.4% for all drivers, and low is 1.9% or less for all drivers.Price Range The difference between the upper and lower price bounds divided by the benchmark price: wide is greater than 50.0%, medium is from 25.0% to 50.0%, and narrow is less than 25.0%.Price Volatility Level Determined by the average absolute difference in the percentage change of the benchmark price over the past three years: high is 3.5% or greater, medium is from 2.0% to 3.4%, and low is 1.9% or less.

Producer Price Index (PPI) This index represents the change in the amount that producers receive for their products or services, as opposed to the prices that consumers pay for them.Profit IBISWorld uses earnings before interest and tax (EBIT) as an indicator of a company’s profitability. It is calculated as revenue minus expenses, excluding interest and tax.Profit Level Determined by the average profitability of the industry in which a product or service vendor operates, compared to the average profit margin for all industries in the US. There are around 700 industries in the US classified using the NAICS taxonomy (see NAICS).Total Cost of Ownership Level Determined by the total cost of ownership as a percentage of the benchmark purchase price per year: high is when the total cost of ownership is greater than 100.0% of the benchmark purchase price per year, medium is from 50.0% to 100.0%, and low is less than 50.0%.UNSPSC Coding for each report title is based primarily on the United Nations Standard Products & Services Code. The code is a hierarchical classification codeset of expenditure items.Wages The gross total wages and salaries of all employees in the industry. The cost of benefits is also included in this figure.Z-Score The Altman Z-score formula is used to help predict a company’s chances of going bankrupt within the next two years. The Z-score uses multiple corporate income and balance sheet values to measure the financial health of a company. Z-scores above 2.9 are defined as having a low financial risk level; scores between 1.23-2.9 are at a medium risk level and scores below 1.23 are a high financial risk level.


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IBISWorld Procurement Report: 62559584 Security …... Procurement Report: Security Guard Services0D\ ~ 2 At a Glance Vendor Cost Benchmarks Key Price Drivers Major Vendors Arrow indicates