06.20.2008 — The economy is weakening. Competition is growing. Product margins are shrinking. There is no better time to conduct a financial analysis of your company.

Areas like tallying showroom expenses, boosting cash flow and delineating income among installation, design and programming can help an integrator determine his real profit margins.

Other key areas that require analysis include sales compensation, incentive programs and overall sales costs.

These analyses are the bailiwick of Darrell McComber of McComber & Associates, a veteran accounting and operations consultant for hybrid consumer electronics retailers.

McComber gave a detailed analysis that outlined several financial targets for custom integrators during a session at the CEDIA Management Conference in San Diego, entitled "The Custom Installation Business from a Financial Perspective."

As a backdrop, McComber started by saying "95 percent" of specialty retailers are now installation companies. Therefore, he told attendees, there can no longer be a distinction between the two groups.

Here are 11 financial takeaways and benchmarks for integrators.

Maximize Your Revenue Per Location

According to McComber, most integrators and hybrid specialty retailers will hit a revenue wall between $4 million and $7 million per location.

"It is my experience that no matter how hard some of my dealers try, growing beyond this [plateau] is extremely difficult," he says. "If you are a single-store operation, it is really hard to grow bigger."

He told the story of one hybrid custom retailer with a one-store operation doing about $5.5 million who spent $340,000 in advertising one year and sales went down. The following year, the company cut its advertising expenditures to $30,000 and revenue increased.

"The lesson is that you cannot artificially increase business. Referrals are the way to go," he adds. To that end, he recommends integrators do whatever it takes to maximize sales levels within their existing business.

That means taking time to properly train the sales staff. He recommends matching the video prices of the big-box stores if possible, but boosting margin on everything else.

Change Your Showroom Locale

McComber also believes changing the location of your one-showroom business can be helpful — for both a custom integrator and a hybrid retailer.

He cited a custom integration company that recently moved from a 5,300-square-foot private, appointment-only showroom in an industrial center to a new 12,000-square-foot showroom close to a lighting and leather store.

The showroom is still private, but allows people to walk in off the street without appointments. No retail selling is done. The company more than doubled its rent, from $5,000 to $12,000 per month.

According to McComber, the verdict is still out on the success or failure of the move, but he believes it will be positive.

Add Another Showspace

McComber advises dealers who do not have showrooms to think about opening one. For integrators that already have a design center, but are experiencing a leveling off in income, he believes they should consider opening a secondary location.

"Putting a store in a different geographic location can boost revenue. One company I work with grew 30 percent to 40 percent in one year by adding a design center," he says.

"But I don't recommend you put a lot of personnel in a new location. Try to manage it from a remote location."

McComber also says it's common to ignore your original operation when you expand to a second location. "You are at your highest risk of failure because everyone is focused on the new showroom," he says.

"If you can finance the expansion out of your working capital, it has less of a chance of becoming the kiss of death."

Out of any secondary location, whether it is a showroom or just a remote service location, McComber believes having a key salesperson at that site is vital. After that, a good installer/technician is important.