I don’t necessarily have the answer to this, but it seems nearly inevitable that, in the near future (if not already), your business is going to have to stop relying on product margins to survive.
Considering most margins are made on accessories, you can’t make money on big-ticket items. Most savvy consumers are anti-expensive cabling and are looking to the Internet anyway to comparison shop.
Obviously, exclusive dealer lines help, but can you survive on them?
The biggest moneymaker you have is your service and your company’s brand. That’s what differentiates you from the competition, and they can’t match your price on that.
I don’t necessarily have the answer to this, but it seems nearly inevitable that, in the near future (if not already), your business is going to have to stop relying on product margins to survive.
Considering most margins are made on accessories, you can’t make money on big-ticket items. Most savvy consumers are anti-expensive cabling and are looking to the Internet anyway to comparison shop.
Obviously, exclusive dealer lines help, but can you survive on them?
The biggest moneymaker you have is your service and your company’s brand. That’s what differentiates you from the competition, and they can’t match your price on that.
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Jason...trying to solve the “margin” issue is a little like trying to solve the middle east peace issue! The installer/integrator community will always spar with manufacturers on margins. And as the switch to digital video systems has made our systems even more video dominant...the situation only gets worse!
The problem is that the video side of the business is geared for only one thing: mass market volume. As video manufacturers fight for retail market share leadership, we all become “collateral damage” as margins become the first casualty iin this war.
I recently wrote an article about this very topic after speaking with an integrator who was dropping video. (Time to Drop Video?)
However, I agree with you that what the specialty community needs to do is change our thought process. While product margins are important, they are only one link in the value chain. Pricing labor such that it also adds to the system margin and offering your clients add-on (profitable) options are all part of how we can take care of our customers while being sure we’ll be around for the long haul.
I think you can survive on product margins, IF you have the right products. My company chooses products that aren’t all over the internet, B&W;, Rotel, TruAudio and you can find video lines as well (Hitachi Director’s series). However, it is very important to separate yourself from competitors to keep clients coming in to buy such products. BB and CC make it harder and harder every product generation by cutting huge chunks of retail out of brand new products, which only devalues any similar products. Our industry needs to focus on the end-result, and get the client to do the same. Don’t think so much about specific products, but what the system is required to do when completed. This type of thinking should make it easier to get away from line-item proposals, thus keeping margins up.
The biggest product margin squeeze is in the A/V side of the industry. The best way to keep margins high is to up-sell A/V clients to whole home automation control, or at least lighting controls. These product lines still have good margins!
We rely on products which have strict Internet selling policies and internal sku’s we can use in proposals… which don’t show up in online searches. We also do NOT accept responsibility for Client-supplied equipment. It is outside our system warranty-- i.e. If it fails there is a paid service call to fix it.
It is my opinion that the future of the AV integration industry will rely on control systems and related programming for the majority of margin in a given project. With more OEM’s dealing direct with consumers and more gear becoming a commodity there is no doubt our cottage industry will never get beyond that scope… the very nimble and multi-talented will continue to do well.
It has always humored me why AV companies want to get big, with multiple project managers, teams, etc. The custom nature of our business doesn’t lend itself to that sort of business model. The usual result of high volume is inattention to detail, lengthy installation times, inability to find installers with well-rounded skillsets, high burnout rate and ultimately-- pissed-off Clients. If you install marginal, cookie-cutter systems with tight margins I suppose it could be made to work providing the volume is there.
Our small team consists of guys who can handle most anything related to construction during the course of our jobs… we could build the house around our AV system if we had to. You simply cannot find affordable employees with talent like that who aren’t entrepreneurial (running a business out the back of your shop or lifting your business model).
Having worked in both the IT and CI worlds on both sides of the pond, I’m consistently surprized by the number of businesses that don’t understand the difference between cost and value. In this sector more than most, an understanding of value is vital since we don’t exactly sell stuff people NEED. We are in the business of creating and fulfilling desire, which means if a customer starts thinking in terms of cost you are on a road to nowhere, because ultimately everything we sell them is non-essential.
If you look at other companies in similar situations (Apple, Ferrari, Gucci, etc) they sell aspiration, design, status - anything but solutions to problems that could have a real world cost that a customer will relate to. They say we give you something better than a computer, a car or a pair of sunglasses - we give you cool, fun, style, whatever. Things that a customer finds hard to attach a price to, but they do attach a great deal of value to.
So the CI industry isn’t selling TVs and speakers, it’s selling entertainment, convenience, the home of tomorrow or whatever else the customer desires. If you choose to use brands that work with the channel’s commercial needs that’s a bonus but it shouldn’t get in the way of fulfilling the customer’s desire. If you end up with a customer worried about the pricing for individual components and comparing with a big box store, it shows a fundamental disconnect between what you are offering them and their understanding of your value.
You can always shuffle numbers on an invoice to assauge concerns about the price of specific parts of a job. But if the customer doesn’t understand that the bottom line figure is for more than a bunch of components it’s going be a tough sell to say the least. More importantly they’re never really going to get past that faint feeling of being ripped off even if you do get the job. In and industry that relies heavily on word of mouth marketing, having customers who are lesss than delighted is a huge risk since we all know complaints get aired much more widely than praise.
The CI business is about creating and fulfilling dreams for a customer. If you find yourself selling products, customers will obviously start looking at the costs of those products which means your margin, and therefore your business, is now controlled by other companies.
I have to agree that the margins have fallen hard lately. I’m a Pioneer dealer, and had a client request a quote for the new PDP-5020. Just today, I checked a couple of my suppliers (yep, two...), and compiled pricing for him. Just for S&G;, I thought I’d check the price at Amazon. They’re an authorized reseller of Pioneer, and are listed on P’s website as such. I can buy the TV from amazon, shipped, for less than I can have it shipped to my local ADI, at COST…
Again, what’s a margin?
I try to offer and represent only dealer-available products (Lutron, NetStreams, NuVision, RTI, Vantage, etc., etc.). Pioneer has always been a huge part of my business, and I think that they’re by far the best option available for plasma displays. How can a dealer compete with the prices on Amazon, when they’re authorized to sell the same gear?
Sure, margins haven’t been great on TVs, but crap…
If you approach your prospect during the conceptual phase of a particular project with a cost breakdown as you proceed I believe you are setting yourself up for a reduced bottom line in every case… that is, there’s a lot of value in having an experienced (team of) professional(s) design, build, program and service a complex AV system. You, as a system integrator know which products work together, their limitations, are compatible with present and future technologies, have decent support and warranties, stellar performance vs. cost… you are selling “you”, not an installation, you’re already there because you’re the expert… gear your presentation around a bottom-line, a client will usually not hold you to it if you go over 10-15%. Timid souls see problems where the real entrepreneur sees opportunities… these obstacles are merely exciting challenges.
If you position yourself and your company at a certain performance level, backing your claims if necessary in pre-sales meetings through previous installations and with a list of satisfied clients (loudspeakers), your service/product will amazingly fall secondary to the relationship and trust you are building with your prospect. I’ve had meetings where we discussed everything “except” AV and closed the deal with a trusting handshake. Incurable optimism will sweep people away, nobody will follow a skeptic very far… however, needed is a delicate balance between rampant optimism and realism. After all, we are selling dreams, aren’t we?
One important aspect of selling AV… you cannot be afraid to walk away from a potential project with limited profits and a difficult client (-$)… if you’ve done your job and convinced that prospect that you will deliver value-- going the extra mile for them (margin be damned) to insure they are totally satisfied, the rest will follow. It isn’t always about the bottom line, a difficult client will usually recognize integrity and refer you based on it… and you’ll sail on your self-confident way.
And, oh yeah, who usually makes the decision in residential AV?… the wife, fool… so propose, design and program your remote accordingly!… the kids and hubby will appreciate the tech stuff.
Considering most margins are made on accessories, you can’t make money on big-ticket items. Most savvy consumers are anti-expensive cabling and are looking to the Internet anyway to comparison shop.
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It’s simple Jason, you don’t present yourself as a commodity to the public.
But Jason, I do have some questions for you. Are most savvy customers, as you said, our clients? What is a savvy customer? One who can engineer their own system, one who knows how to integrate it all together but just hasn’t the time to do it? When you say savvy consumers are anti-expensive cabling, are you talking about an HDMI cable for a flat screen TV? Is that really our client, the product focused client ? Our clients purchase thousands of feet of cat6, RG6quad, RG59 to the tune of thousands of dollars and a few gold plated a/v cables for 10-20% of the overall cabling budget won’t even get a second look. Our clients are the installation and project driven client.
When examples of the average customer get tossed around by the professional media why does it seem to have the resemblance of the average big box store customer? Our specialty market, like any other specialty market deals with the 20%. What’s acceptable for the rest of the 80% is not necessarily acceptable for 20% and vice-versa. The 80% expect the world for $1999.00 + tax out the door. The 20% expect the world as you describe it to them and you’d better back everything up for life and the cost is irrelevant provided you are earnest and demonstrate value. The 20% might, and I repeat might check the price of the flat screen TV you are proposing, and if your within a few bucks your okay, but that’s where it ends. The cables, the keypads, the a/v receiver, the speakers, media server and all the other widgets are there for you to propose as you see fit and it’s the total cost that is listed on the contract that becomes relevant, not the pieces. If you did your job listening to the client when you asked your qualifying questions your proposal cost will be anticipated, expected and ultimately accepted. You should know this stuff. So let’s get off the product price is a hindering factor for of our lack of success in a particular economy or competitive marketplace, the product price isn’t the problem. It’s our excuse.
A well trained, motivated sales force with incentives based on margins is the best way to stay profitable. At my store we pay full commission on forty point deals only. As the ticket becomes less profitable the salesperson makes less. The keys is to make the penalties substantial. Our salespeople are also trained in project management. They are not allowed to sell it and forget it. It is a cradle to the grave sale. They are the first and last person the client sees. Trust me the first time a lousy deal blows up in a salespersons face, he learns alot about risk/reward. And, never tie the success or failure of your company to something as volatile as televisions. Look at Circuit City’s buisiness model if you don’t believe me. When they finally do fold it’ll be TVs that killed them. Stick to high performance displays that don’t break. The sticker will scare off cutomers you don’t need and you won’t get buried by service calls for a panel you made litlle on in the first place. If your customer wants to internet shop you on the TV, let him. It is dead weight. Don’t let it drag down the rest of the sale. If there is no rest of the sale, you are not doing your job.
cyberManor Wins Microsoft Media Center Install Contest
Integrator on the Scene: PlanetWaves, Knoll, Brother
You simply cannot find affordable employees with talent like that who aren’t entrepreneurial (running a business out the back of your shop or lifting your business model).
