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Brand-Centric Business Model Boosts Integrator’s Profits by 50%

Houston integrator Digital Delight leaves traditional business model based on equipment margin for a high-volume operation using Logitech for control.

Brand-Centric Business Model Boosts Integrator’s Profits by 50%
JJ Canon (left) and Peter Friesen of Digital Delight in Houston previously installed 30 systems per year ranging from $50,000 to $200,000. Today, the company does 30 installations per month averaging about $5,000 per project.

Jason Knott · August 11, 2017

After 18 years as a traditional custom installation company, JJ Canon and Peter Friesen of Digital Delight in Houston knew something had to change. Since 1999, Digital Delight had operated pretty much like many other CE pro businesses, installing a small number of high-ticket systems for affluent clientele while earning most of their profit from equipment margin. But that changed about one year ago.

“We basically sat down and realized we personally could not afford to buy the $50K+ custom systems we were installing. So, we challenged the business model and decided to focus on smart home systems that a median income family could afford,” recalls Friesen.

Digital Delight previously installed 30 systems per year ranging from $50K to $200K. Today, the company does 360 jobs per year averaging $5K per project. Profits are up 50 percent.

That decision led Digital Delight to analyze various IoT solutions on the market, but the “missing link was control,” says Canon. “We had these cool, new-to-market IoT solutions that were affordable, but couldn’t find the right solution for control.” That’s when Canon got a call from a previous client who asked for assistance for her son-in-law who needed help programming a new Logitech Harmony remote.

“I downloaded the new software and I was worried it would take me a long time to figure out how to program this thing, then learn how to teach the client how to operate it; or perhaps sit online for hours with tech support trying to figure out how to integrate all these devices into a new control system that I wasn't familiar with. But once I downloaded the software, which was really easy, programmed the system, and gave the client the customer education, I found it only took me 30 minutes for the entire process. My eyes were opened to what Logitech could provide our company. It filled the void of a control system for our clients. That's how we got hooked on Logitech as our controller,” says Canon.

Soon, Digital Delight was pairing Logitech control with other recognizable brands, including Nest, Roku, Sonos and Lutron, into its new “silo’ed” business model the company has dubbed “DIFY (Do It For You) Tech.”

“They all play together in this nice unified ecosystem and at a full system price point that allows JJ and I to offer a smart home solution to far more clients,” adds Friesen.

Complete Business Transformation

The transformation has been lucrative. Digital Delight previously installed about 30 systems per year ranging from $50,000 to $200,000, and earning about a 20 percent net profit per project, mostly from equipment markup. Today, the company performs 30 installations per month averaging about $5,000 per project. Meanwhile, company profits are up 50 percent with about 20 percent of profit coming from equipment margin, and the rest coming from labor.

“When we got Logitech, it transformed the business."
— Peter Friesen, Digital Delight

“When we got Logitech, it transformed the business,” notes Friesen. “We had a certain way of doing things with matrix switchers, large eight-zone amplifiers, equipment racks and all that stuff. Today, everything we integrate into a smart house is the size of the hub. We don't build racks anymore. Everything is small, centrally located in every room for the client but it’s just as powerful and can do the same or much more than some traditional systems on the market today.”

Canon calls the process “siloing” meaning that everything is isolated in a particular zone. “And if there is an issue with that particular zone, it's easy to have those products in stock to make a repair the same day,” he adds. It’s not unusual for a Digital Delight installation to have between six and nine Logitech Harmony remotes… one for each room.

Streamlined Back-end Processes

The new business model not only streamlined the installation process, but the back-end as well. Digital Delight was able to transition a high cost custom programmer role to regular installers, further reducing costs and boosting productivity. The company can onboard new technicians much more quickly because learning the systems is not as complex.

“The Logitech and SONOS setup wizards have lifted a financial burden on our company because the learning curve is a lot faster than past CI solutions,” says Friesen.

Meanwhile, Return Authorizations (RA) for these newer products are much easier than classic CI brands because they typically involve a simple swap of a single amplifier versus a complex process of replacing an eight-zone amplifier, during which a client’s entire system is down while the integrator waits weeks to months for the repaired component. Instead, the structure of brands like SONOS and Logitech allow the integrator to have a few units on the truck if something goes wrong.

Rory Dooley, head of Smart Home at Logitech, says Logitech is committed to supporting integrators in the field. "Integrators are the frontline of this industry, and we take pride in the level of support we are able to offer them. It starts with one of the deepest programming databases in the industry. Not just a set of codes, we take the time to test TVs, AVRs and other equipment to make sure power on and input delays are accurate and don’t require the integrator to spend additional time in the field fixing broken macros. Paired with our dedicated dealer support line which is open 7 days a week, and a two-year warranty on all Harmony Pro product, it’s that commitment to the integrator that makes us so popular with our dealers," he says.

Also, from a service standpoint, Digital Delight can remotely access each client’s system by logging in via the Logitech Harmony Pro portal and forcing syncs. The company is no longer dealing with complex home networks, VPNs with backdoors and other remote access methods. If a truck needs to be rolled, technicians are no longer crawling through attics since all the products are typically isolated in individual rooms.

"Doing those larger systems is stressful. My stress today is greatly reduced. It's fantastic."
— JJ Canon, Digital Delight

“I don't need to have a technician start tracing wires to see where things are plugged in. They can just go straight to that one room where the problem exists,” says Friesen.

“So in totality, Logitech has transformed the business… I mean it's night and day from where we sat 12 months ago to where we sit today.”

Digital Delight routinely couples Logitech Harmony with a Sony display, DISH Network Joey 4K satellite system, Sonos soundbar, Nest thermostat, garage door control, and even Amazon Alexa voice control.

Lastly, Canon says the simplification of their business is less stressful.

“Doing those larger systems is stressful,” he says. “I mean, just knowing that you have a mountain of programming ahead of you. And the financials that are on the line for those larger systems are very, very stressful. For a two-year-long project, you might have $200,000 tied up. My stress today is greatly reduced. It's fantastic. I get to spend time with my family now and don’t worry about my installers in the field.”



  About the Author

Jason has covered low-voltage electronics as an editor since 1990. He joined EH Publishing in 2000, and before that served as publisher and editor of Security Sales, a leading magazine for the security industry. He served as chairman of the Security Industry Association’s Education Committee from 2000-2004 and sat on the board of that association from 1998-2002. He is also a former board member of the Alarm Industry Research and Educational Foundation. He is currently a member of the CEDIA Education Action Team for Electronic Systems Business. Jason graduated from the University of Southern California. Have a suggestion or a topic you want to read more about? Email Jason at [email protected]

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View Jason Knott's complete profile.



  Article Topics


Control & Automation · Automation · Business · Business Operations · News · Sponsored · Logitech · All Topics
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Comments

Posted by Jason Knott on August 21, 2017

Niko—According to data from Honeywell, over 50% of people who buy a DIY thermostat end up hiring a professional to install it, so there is installation revenue potential in markets that are beyond affluent areas.

Posted by Niko on August 20, 2017

(Different Niko).  I could be cynical and say that these guys couldn’t hang with the big boys at high end homes so they’re going after the tract home market but I’ll assume they genuinely want to serve an under-served market.  The problem is, consumer products are here already.  The DIYers and people who live in a $200k house already own an amazon echo and can do many things on their own with Nest Cameras, thermostats, Caseta wireless lighting, etc. Why do they need THESE guys? On top of that, what happens if these guys go out of business or move on to a different product? The customer is stuck with an obsolete product that they can’t get support for.

There is a reason why professional installations of systems are limited to the houses on exclusive neighborhoods (River Oaks and Memorial in Houston).  They can afford the best of the best, and they’re willing to throw it all out in 10 years and start over.  Every now and then I get a call from someone in an upper middle class house in the suburb where their builder decided it was a good idea to put in a Lutron Homeworks system and of course the original installer is long out of business. When I explain to them how much it costs to fix (which involves upgrading to QS), they go into shock.  “What?!?  None of our lights are working and we have to spend that much to get it going again?!?  This came with the house we bought! If we knew it would cost this much, we wouldn’t have bought it!”. 

In contrast, you talk to someone in a $4 million house and tell them “Yeah, your system is no longer supported, it would cost xxxxx to upgrade”, they are usually ok with it.  We are not needed for the middle class. They already have amazon and google.

Posted by bbjorkquist on August 15, 2017

Thank you Topp we appreciate the loyalty. If you aren’t already you should send me an email and I’ll make sure you get invited to our Webinar series. We have great tips and tricks for new guys and those 10 years in. In September we will do a CEDIA recap, followed by product training and some industry trend data, you haven’t seen anywhere else. Plus it’s an open forum with Pike and myself where we answer questions live for an hour, register for giveaways and just have a good time while supporting our dealers. Actually I’d invite any dealer that wants to learn more to email me and I’ll get you signed up.

Posted by topp on August 15, 2017

I have been using Harmony exclusively for more than 10 years.  I will work/have worked on a number of large pre-existing centralized systems but I always talk people out of doing that on jobs I start/finish.  I love the single room system, and I love the middle market.  Perfect for my two person business.

Posted by bbjorkquist on August 15, 2017

Agreed Ron. In my 15 years in the CI space I’ve programmed a variety of different sized systems. There is no question that the middle market is underserved by our channel, but is growing dramatically, spurred on by brands that haven’t classically been considered CI. While Digital Delight decided to change their entire business model, I speak with a few dealers a week that are looking to capture new market with brands like Harmony, Sonos, Lutron, Amazon Alexa, Nest and others; all while maintaining their larger control business. I sit down and help them design a quick, profitable, solution-driven business model with premium products their installers can get up to speed on quickly. This segment of the market will continue to be one of the strongest growth areas for the industry, and we just want to make sure as many dealers as possible take advantage of that growth.

Posted by Ron Callis - One Firefly on August 15, 2017

What a great business turn around success story. We are going to see more and more “classic” large project integrators turn to the middle market. These “DIFY” customers want and need the help. Who better than our channel to design business models to support them. Great job Jason finding this story and sharing with the industry .

Posted by bbjorkquist on August 14, 2017

@MaverickAV I’d be more than happy to put a call together and go over the capabilities of our products. If you ever run into a programming issue, we have a dedicated dealer support line, open 7 days a week for installers. If you email me, I am happy to provide it to you or anyone else that needs it. Let me know and I am happy to set up a video conference call to walk you through anything you might want to know.

Posted by MaverickAV on August 14, 2017

I’m glad someone is finding success in this niche, but I’d be curious to know what the service call rate is on consumer equipment, with customers having access to programming, etc.  I’ve personally spent a few hours trying to get a customers harmony remote to do something that took us 5 minutes with C4 or Savant.  I’d be interested to see how their pro offerings have changed.  As for the stress of financials of a larger system?  A company should never float costs for a large project, or any project for that matter.  Customers should always have a clearly planned draw schedule.  It’s not uncommon for our customers to pay 60% down on contract closure, no matter how small or big the project.  This protects us and allows us to be assured that the customer is truly financially capable of handling the financials associated with a large project.

Posted by bbjorkquist on August 14, 2017

Brett Bjorkquist
[email protected]

Shoot me an email and we can figure out a time to talk today and get your questions answered.

Posted by Ridogn on August 14, 2017

@bbjorkquist Great.  How do I get a hold of you?

View all comments.

Posted by nicko82 on August 13, 2017

Funny when the people vocally against these types of installs disappear when a success story comes up.

Posted by Ridogn on August 13, 2017

How do we get a hold of Rory Dooley?

Posted by bbjorkquist on August 13, 2017

Hey Ridogn, I work on the pro channel for Logitech. What can I help you out with?

Posted by bbjorkquist on August 13, 2017

nicko82. We are just happy when articles like this are shared highlighting that Logitech has a real solution for the channel. I was on the phone an hour ago with a dealer in LA who was saying how much he liked our products, and thanked me for helping him to find a distributor and answer some of his product questions. Are you already a Harmony dealer nicko82?

Posted by Ridogn on August 14, 2017

@bbjorkquist Great.  How do I get a hold of you?

Posted by bbjorkquist on August 14, 2017

Brett Bjorkquist
[email protected]

Shoot me an email and we can figure out a time to talk today and get your questions answered.

Posted by MaverickAV on August 14, 2017

I’m glad someone is finding success in this niche, but I’d be curious to know what the service call rate is on consumer equipment, with customers having access to programming, etc.  I’ve personally spent a few hours trying to get a customers harmony remote to do something that took us 5 minutes with C4 or Savant.  I’d be interested to see how their pro offerings have changed.  As for the stress of financials of a larger system?  A company should never float costs for a large project, or any project for that matter.  Customers should always have a clearly planned draw schedule.  It’s not uncommon for our customers to pay 60% down on contract closure, no matter how small or big the project.  This protects us and allows us to be assured that the customer is truly financially capable of handling the financials associated with a large project.

Posted by bbjorkquist on August 14, 2017

@MaverickAV I’d be more than happy to put a call together and go over the capabilities of our products. If you ever run into a programming issue, we have a dedicated dealer support line, open 7 days a week for installers. If you email me, I am happy to provide it to you or anyone else that needs it. Let me know and I am happy to set up a video conference call to walk you through anything you might want to know.

Posted by Ron Callis - One Firefly on August 15, 2017

What a great business turn around success story. We are going to see more and more “classic” large project integrators turn to the middle market. These “DIFY” customers want and need the help. Who better than our channel to design business models to support them. Great job Jason finding this story and sharing with the industry .

Posted by bbjorkquist on August 15, 2017

Agreed Ron. In my 15 years in the CI space I’ve programmed a variety of different sized systems. There is no question that the middle market is underserved by our channel, but is growing dramatically, spurred on by brands that haven’t classically been considered CI. While Digital Delight decided to change their entire business model, I speak with a few dealers a week that are looking to capture new market with brands like Harmony, Sonos, Lutron, Amazon Alexa, Nest and others; all while maintaining their larger control business. I sit down and help them design a quick, profitable, solution-driven business model with premium products their installers can get up to speed on quickly. This segment of the market will continue to be one of the strongest growth areas for the industry, and we just want to make sure as many dealers as possible take advantage of that growth.

View all comments.