As the physical security industry continues to develop technology-rich solutions, leasing is an increasingly viable way to renew, refresh and replace products, courtesy of the digital transformation.
Flashback to decades when professional security systems for commercial markets and smart home automation first burst onto the scene. Equipment leasing and financing was common because of the hefty price tag associated with the hardware-heavy and often proprietary systems.
Fast-forward to wireless communication service providers that have pioneered bundling equipment with monthly service costs, making it a normal and expected part of the process. There’s little resistance from those who are leasing, and monthly prices are palatable for users who can stay with their current equipment or move to newer models at the end of the contract.
According to research from the Equipment Leasing and Finance Association, 78% of U.S. companies use some form of financing to acquire equipment, including loans, leases and lines of credit (but excluding credit cards). From 2017 to 2018, there was a 4.4% increase in equipment financing, the ninth consecutive year of growth.
Equipment leasing is a viable option that spreads costs over time and gives the user a navigable pathway to upgrade and migrate to newer equipment as technology changes, which is quite rapidly these days. It is easier for users to plan for operating rather than capital expenses. When leasing, fixed monthly payments enable more accurate budgeting throughout the term and easier cash-flow forecasting for the business.
Leasing is also an incentive for manufacturers to provide greater reliability as part of the experience, which increases their profit margins for the term of the contract. Fewer maintenance or service calls on equipment leads to higher returns. For the service provider, leasing forces them to be more diligent in servicing the customer by creating a lifetime value that’s a critical measurement of company success. Since leasing doesn’t involve a substantial upfront investment, contractors can often afford more sophisticated, high-ticket technologies while gaining a competitive market advantage.
In addition, as robotics, drones, facial recognition and other physical security technologies become more complex and post higher price tags, leasing is a way for users to deploy the latest solutions without waiting years for funds while their current equipment becomes obsolete.
The physical security industry is evolving a flexible, hybrid model to leasing, according to Jack Wu, co-founder and CEO of Nightingale Security Systems, maker of robotic aerial security systems, Mountain View, Calif. Since 2014, Nightingale has offered its drone solutions through a subscription model tailored to suit the customer and their budget.
“Leasing has been part of our model from the beginning. The industry continues to develop a hybrid process that allows the customer the flexibility to buy the equipment outright, lease it to return it or upgrade to newer equipment,” he said. “The lease needs to make certain margins exist for every model; the upgrade is accounted for; and ongoing maintenance and service is fully supported.”
Wu said what the customer often chooses depends on how long they plan on keeping the equipment. For example, a temporary construction site might opt for a lease versus purchasing equipment.
Nightingale’s Robot as a Service subscription is based on an annual contract and monthly fee. Installation, integration, maintenance and future software and hardware upgrades are performed by Nightingale, so the user’s system stays current.
“With leasing in the security industry, the model has to be flexible. No products and company are the same. If our customer buys the system, they get a maintenance contract,” Wu said. “If they lease it, we include maintenance and repair as well. If they decide on the lease, it’s an OpEx [operating expense] that allows us an opportunity to continue to service our customer, as do the other types of plans.”
Leasing system solutions continues to present opportunities for systems contractors and users who want to maintain the most future-forward technology.
“Everyone wins under this type of arrangement,” Wu said. “The service provider role is incentivized and they can build brand loyalty and find opportunity for additional business. Loyalty with product is something you can’t buy with money; you buy that with time. The challenge is convincing the market that the service you are providing is worthy of the long-term contract.”