Service Agreement ROI Analysis

Case Study Overview

Let’s examine the ROI of a service agreement for a commercial security system through a hypothetical case study. We compare two scenarios over a one-year period:

  • Scenario A: With a service agreement
  • Scenario B: Without a service agreement

Assumptions for the Case Study:

  • Cost of security system: $20,000
  • Annual service agreement cost: $5,000
  • Average cost per emergency repair (without service agreement): $1,500
  • Estimated number of emergency repairs per year (without service agreement): 2
  • Assumed non-compliance fines without regular maintenance and checks: $2,000 per year

ROI Calculation

The formula to calculate ROI is:

ROI = ((Total Benefits – Total Costs) / Total Costs) * 100

Scenario A: With Service Agreement

  • Total Costs: Cost of security system + Service agreement = $20,000 + $5,000 = $25,000
  • Total Benefits: Avoided emergency repair costs + Avoided non-compliance fines = $3,000 + $2,000 = $5,000

Calculating ROI for Scenario A:

ROI_A = ((5,000 – 25,000) / 25,000) * 100 = -80%

Scenario B: Without Service Agreement

  • Total Costs: Security system + Emergency repairs = $20,000 + (2 x $1,500) = $23,000
  • Total Benefits: None, as no service agreement fees are paid but additional costs are incurred

Calculating ROI for Scenario B:

ROI_B = ((0 – 23,000) / 23,000) * 100 = -100%

Conclusion

The calculation shows that in the first year, both scenarios have a negative ROI due to the initial investment and costs. However, Scenario A, which includes a service agreement, demonstrates a less negative ROI because it factors in the avoidance of emergency repair costs and non-compliance fines. Over time, as these benefits accumulate and the system continues to operate without incurring additional costs, the ROI for Scenario A is expected to improve and surpass that of Scenario B.

This simplified case study highlights the importance of considering both direct and indirect costs and benefits when evaluating the ROI of a service agreement for a commercial security system.

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