There is no set formula.

It is not a race to the bottom.

As you need to make money to stay in business, so do security companies, consultants and contractors.

Donʼt ask what a providerʼs profit margin is for their product or service.

No one ever tells the truth and it is the height of arrogance to demand such information from providers despite your own secrecy around your own profit margins on products and services.

Big companies or supposedly prestige brands try this bullying of providers.

Quality providers simply arenʼt interested in being bullied or threatened by a buyer before a project/task has even begun.

Pricing is always negotiable.

Providers offering manpower or contractor type services are more inclined to use the “how much will the client bear” formula to determine pricing.

Users of this approach also try to extract larger fees from larger clients if permissible.

Providers using the value based fees approach will seek to understand the project and the value generated with their pricing consisting of a percentage (usually up to 15%) of the final value contribution.

Itemized pricing is just an attempt to justify each and every resource where possible and add more to the final account.

Buyers are regularly guilty of trying to force all providers to quote using the same formula for their own internal accounting purposes.

This approach typically results in all providers trying to take advantage of the system and “pad” their pricing within the parameters of the clientʼs inflexible system.

As noted earlier, anyone using a per diem (daily) quotation formula is motivated by delaying results and consuming more time (hours/days) to solve the problem in order to receive more money for a task.

CPI (Consumer Price Index) increased pricing on an annual basis is a legitimate excuse to marginally increase the price of standardized or annual fees only if the base CPI rate is clear and transparent.

Any other attempts to raise the price quarterly, bi-annually, based on currency exchange or annually, is bad business and just an excuse to try and extract more money from an existing, paying client.

Getting new business can be difficult so some resort to just increasing fees of existing clients to compensate.

Beware of discounted new customer offerings as it means someone is subsidizing cheap new business for the company.

This is typically long term, existing customers.

This could be you in the new future.

Be sure to understand the difference between a resource and service agreement.

Resource agreements are set resources (manpower, systems, software, locks, etc.) at an agreed price with limited variables included outside of deployment/installation and administration costs.

Service agreements are based on an agreed outcome or standard that is then at the discretion of the provider to how best achieve the results through use of resources, methodology or management.

The pricing difference can be minimal or significant depending on the project but the deliverables and outcome will be vastly different.

Resource agreements reflect a buyerʼs self-assessment of what is required or a long- standing practice of only doing it one way.

Additionally it could be a means of trying to get standardized quotes and pricing from all the various providers.

Resource agreements are inflexible and restrictive with the only outcome assured is that a buyer can say, “Yes, we have security” without defined outcomes, benefits or maximizing all options to solve a problem.

Service agreements are a much smarter approach but can be harder to scope if inexperienced, too liberal with providers or unclear on the definitive outcomes and objectives.

As a result, pricing will be determined on a case-by-case or provider-by-provider basis.

Purist procurement and finance departments donʼt like this approach only for accounting reasons.

By all means, seek to understand how a price has been calculated (this can provide insight into the ability of the provider as a sound business administrator) but donʼt pull each and every quote apart and try to assess each and every dollar for potential savings.

Doing this will mean you only end up with providers tolerant enough to put up with such processes or the provider will actively seek new and creative ways to hide their costs and profits.

Confirm that prices are final and not subject to further “plus, plus” concepts where base pricing is quoted but a small clause later reveals it is exclusive of VAT/GST, taxes, administration, service charges, expenses and so on.

Local contracts will be in local currency but regional or international quotes and tasks are likely to use a base line currency (typically US dollars of British pounds) if the project is across borders.

Donʼt let international companies quote international currency pricing for local (non-cross border) projects unless for a very, very good reason.

Additional administrative costs will increase along with administrative burdens for payments if tolerated.

Tony Ridley

Travel Safety Experts
Travel Safety Experts

Travel health, safety, security and risk management experts