Where Does Your Profit Come From?
Part of that answer was recently revealed among the executive overview of the CEDIA Benchmarking Study. The study, which had 88 responses, shows the average custom integration firm with six employees has revenues of $799,000 with a median profit of $20,774, or 2.6 percent. However, the typical company owner pays himself a salary of $79,101, or 9.9 percent. That adds up to a total discretionary profit of $99,875, or 12.5 percent.
The percentages vary for small companies versus larger ones. Small firms (less than five employees with net revenues of $301,000) earn a median operating profit of 4.1 percent (only $12,341) and a median discretionary profit of 19.6 percent ($58,996). Larger CE pros with six or more employees have average net revenues of $887,381. The data show a 2.4 percent median operating profit ($21,297) and a median discretionary profit of 11.8 percent ($104,710).
So clearly, there is a windfall for a company owner who nearly doubles his own overall compensation if he is able to grow his revenues. However, it’s worth noting that an owner only keeps about $5,000 more in profit when he grows his revenues by more than $88,000, indicating there is an operational inefficiency plateau that seems to kick in for companies growing beyond six employees.
In terms of where the profit and revenue come from, dealers report earning an average 32.8 percent gross margin on their equipment, and 31.3 percent gross margin on their labor. The Benchmarking study also reveals:
- Median revenue per employee = $135,000
- Median gross profit per employee = $48,740
- 85 percent of integrators provide “Fixed Fee” pricing, while 15 percent charge clients by time and materials
- 44.7 percent of integrators have some sort of recurring monthly revenue services
- Median total operating expenses equal 34.1 percent
- Average collection period is 16.5 days
- Total payroll expense averages 33.7 percent of revenue (16.3 percent is direct payroll and 17.4 percent is G&A)
- 72.3 percent of all installations are under $10,000
- 60 percent of integrators charge and itemize for project design documents
- 78.8 percent of integrators use design software
- 50 percent of integrators collect a design retainer fee (that averages 4 percent of the total job cost)
Integrators who participate in the CEDIA Benchmarking study not only get a fully detailed set of benchmarks, but also a side-by-side comparison of their individual company against other custom installation companies of a comparable size. Participation is free for association members.
Profit-Making Product Categories
According to Steve Firszt of Fast Forward Business Coaching, a typical CE pro used to earn 63 percent of his profit from equipment. That business model is changing as product margin in certain categories drops rapidly.
But not every category has become a commodity like flat-panel displays. So what are the safe haven profit categories for dealers? Anecdotal interviews with integrators reveal many categories of products still retain margin, including furniture/seating, cables, acoustical treatments, central vac, racks and cables. Also, new categories like LED lighting offer profit potential.
Click through the photo gallery to view the top profit-making product categories, according to CE pros.