CE Pro’s State of the Industry Report Exposes One Big Problem
Unemployment is down, housing starts are up and the stock market is high. However, CE Pro's State of the Industry report saw a big drop in revenue per installation. Here's what you can do to fix it.
CE Pro recently released its annual State of the Industry report. Their findings paint a picture of an industry that is clearly benefiting from a healthy economy. Many key indicators such as unemployment rates, new housing starts and stock market levels are pointing in the right direction.
Meanwhile, industry-specific trends such as raised consumer awareness and advances in smart home technologies are contributing to a thriving installation business.
These positive factors have combined to bring the median integrator gross revenue in 2016 up to $968,852, a healthy 8.1 percent increase over last year.
Not All Sunshine and Roses
In spite of all the positive signs, however, the report clearly indicates a number of warning signs we should be paying very close attention to.
A lack of qualified job candidates is making it very difficult for integrators to service their install base, let alone expand their reach.
Additionally, consumer-focused smart home products such as video doorbells, voice control and AI assistants, and DIY cameras are significantly eroding product margins.
Perhaps most interesting, however, is the drop in revenue per installation. While the median number of installations per year rose by a dramatic 66 percent (up from 30 to 50), revenue per installation fell by 29 percent (down to $17,826 from $25,446). CE Pro summed it up best in their report:
“(This) means technologists are working harder (with fewer employees) against a backdrop of endless demand but earning less money per project.”
Are We Missing the Boat?
While these concerns clearly point to an increasing need for service-based pricing models, the report highlights an industry still grappling with how to solve this problem.
One of every three integrators surveyed is still earning $0 from recurring revenue (or RMR). Of the integrators who are earning RMR, these revenues represent a mere 8 percent of their total income, although we’ve conducted surveys internally that show this number is closer to 1 percent.
The report also cites that less than one in three integrators surveyed are aiming to increase RMR in 2017.
Clearly there is some sort of disconnect. Our conversations with integrators all over the country clearly indicate a growing demand for effective RMR strategies. But for an industry that has long thrived on one-time project sales, the adoption of these new pricing models continues to elude those who need it the most.
As product margins are rapidly eroding and revenue per installation falls, it’s important to understand that one-time project sales represent a small portion of the potential lifetime value of our clients. The remaining majority of that value — which most integrators are still leaving on the table — is locked in the potential RMR that lies in the ten years of service post-install.
So What Can You Do?
The combination of OneVision’s past experience selling service contracts directly to consumers and our last year of developing RMR plans with integrators has shown us that the profit from this ongoing service can more than double what is earned on the installation.
Our background in service has also taught us that most clients will demand basic support for the life of their system. Therefore, much like manufacturers who bake the cost of support into the price of their products, we should be accounting for these support costs as a line item in our project proposals.
For example, you could present an item called “Unlimited Basic Remote Support” for $X. This line item could cover an RSM appliance combined with the number of labor hours you expect their system to require.
By presenting this as a line item, you are not only assigning a value to the service your clients might otherwise expect for free, but you are helping to weed out clients who don’t recognize the true value you bring to the table.
Now Is the Time for RMR Solutions
The trends cited in CE Pro’s annual report clearly indicate that we are quietly, but undeniably, approaching a critical juncture. Smart home technology is commoditizing at a rapid pace, driving consumer awareness while also driving demand for service (the more technology in the home, the more fragile the entire experience becomes).
Moreover, since the lifetime cost of the technology is shifting from the hardware itself to the service that hardware requires, the clock is ticking on our industry to figure out ways to meet the demand in a profitable manner.
Reading between the lines of CE Pro’s report, it’s clear to see that the time to solve the problem of RMR has arrived. We should not allow the positive wave we are riding as an industry to make us complacent.
Instead, we should be using this cushion as an opportunity to freely experiment with innovative new pricing models that will position us for success long into the future.
For more information about service and using it to create RMR, visit www.onevisionresources.com/blog.
Joseph Kolchinsky is the founder of OneVision Resources and investor of companies in the personal and home technology industry. He is also a frequent speaker on the evolving nature of supporting the connected home and related IoT. Have a suggestion or a topic you want to read more about? Email Joseph at [email protected]
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