08.04.2008 — Can you imagine a day when A/V gear is given to clients for free, and the only way you make money is on your labor or on recurring revenue services? No more high-margin products generating profits?

It could happen, according many integrators who have decided to shift their business models away from highly profitable mega-installations to smaller, repeatable installations that provide ongoing revenues.

As the market changes, dealers are seeking ways to more effectively sell ongoing services to new and existing customers.

Among the process strategies that appear to be working are reducing the warranty term on your installation labor and extending commissions to your salespeople for not only the initial contract sale but also for the annual renewal.

Whatever the methodology, integrators are recognizing that they can build "clients for life" with service agreements rather than continuing to look at customers as one-time sales opportunities.

The biggest payoff: Service contracts carry a 70 percent margin for the dealer.

Facing a Changing Industry, New Customer Types

The sea change occurring in the industry is being caused by numerous influences.

First, there's the influx of security companies in the industry. These companies come from a world in which the installation labor itself is de-valued, often even subsidized, in order to receive a long-term, highly profitable monitoring contract.

Second, there's the trend of IT value-added resellers moving into the custom installation business. These companies come from an industry in which the products are inexpensive (with no mark up), but the installation labor has a high value.

They also covet recurring contracts to maintain computer systems against viruses, to provide backup storage and to offer software upgrades. Some integrators have stolen a page from these companies by charging for system design services.

Third, the economy is slowing and operational costs are increasing -- duh! Integrators need to create ongoing agreements to stabilize cash flow. This can go a long way in offsetting spiraling gasoline costs.

Fourth, profit margins are dropping on products. This is not news to most integrators.

Fifth, the client demographics are changing. Of course, dealers know that the days of selling to an audiophile, two-channel listener are long-gone.

While the high-end of the market appears to be somewhat stable, middle-class customers have less expendable income for high-end A/V gear. However, that same gen-X/gen-Y client is devoted to his X-Box or PS3, his AppleTV and his PC home network.

Moreover, this client base is impatient; they don't want to physically rent movies or buy CDs. They are digital.

They also feel empowered -- they've grown up being catered to with designer coffee and cable TV. While these customers have less money to spend on an initial installation, they tend to spend more money on ongoing services (while saving less money overall, unfortunately).

		How to Sell Proactive Service Agreements Reducing your installation labor warranties and offering sales commissions on renewals can lead to 70% margins on service contracts. What is Proactive Service? The customer is guaranteed not only quick system repairs, but also regular service intervals. Why Aren’t Integrators Selling Service Agreements? More than half of integrators do not even try to sell service agreements, according to CE Pro research. Who Buys Service Agreements? Gary Kayye of Kayye Consulting breaks down potential buyers into five groups.
Integrators are recognizing that they can build "clients for life" with service agreements rather than continuing to look at customers as one-time sales opportunities.