CE Pro 2015 State of the Industry Report
Average custom integration company experiences a whopping 27% median revenue jump in 2014 with bullish outlook for 2015. Dig deeper in CE Pro's 2015 State of the Industry report.
Jason Knott · January 15, 2015
Keep up the good work! It’s about all that can be said to the entire custom installation industry in reference to their performance in 2014. According to exclusive data from the 2014 CE Pro Annual Readership Study, the typical custom integrator had a whopping 27 percent increase in revenue in 2014. And more good fortune appears to be on the way, with dealers predicting an increase of 7.1 percent for 2015.
The research, which was conducted in October 2014 with 346 respondents, reveals that the median revenue of a CE pro grew to $821,500 in 2014. That’s up an incredible 27 percent from the 2013 median revenue number of $644,000. Moreover, the 2014 revenue level is now up a mind-blowing 51.8 percent compared to 2011 in the depths of the recession.
The 2014 gross revenues are still lower than the peak of $1.2 million in the pre-recession year of 2007. Gross revenues reflect income from all sources (both commercial and residential), including equipment, labor, service and recurring monthly revenue (RMR) sources such as security alarm monitoring and service agreements.
Installations Up; Average Prices Stable
But the good news does not end there. Not only were revenues up but so was the average number of installations. The typical custom installation company performed 86 jobs in 2014, up from 68 in 2013. That’s a 26 percent increase in one year. Pretty good, but it also means dealers are working much harder, while at the same time becoming much more efficient.
Meanwhile, the average revenue-per-project was lower but not by much … another good sign. Since the recession began there has been a steady drop in the median revenue per project. At one point prior to the economic slowdown, a typical job garnered well over $15,000. In 2013, it was $9,800. For 2014, the median price per job was $9,552. That’s a tiny 2.5 percent drop.
Median Integrator Gross Revenue in 2014
Percentage Increase in Gross Revenue in 2014 vs. 2013
Predicted Revenue Increase by 2015 by Integrators
Median Number of Employees
Percentage of Integrators Predicting Flat or Higher Revenue in 2015
Average Number of Installations
Median Installation Price at End-User Level in 2014
Falling project prices are likely being driven by macro trends such as lower equipment prices for key categories such as entry-level home automation (primarily from security-based entrants), multiroom audio (increasingly wireless) and projectors, to name a few.
At the same time, the stemming of the average system price decline could reveal that dealers are starting to find a palatable balance with clients for their labor costs. With all that growth comes the need for employees. The typical residential integration company now has a median of eight employees. That’s up from seven last year and four a few years back during the recession and housing collapse.
New Home Construction Coming Back
Speaking of housing, the percentage of income derived from new home construction rose to 44.6 percent. That’s up from 40.6 percent in 2013. Before the housing bust, the average integrator saw more than 60 percent of revenues from homebuilders and new construction. But the economy forced dealers to adopt sales and marketing techniques to attract existing homeowners and the majority pendulum swung to retrofit business several years ago.
It appears to be swinging back now. Indeed, recent data from the National Association of Home Builders (NAHB) and Moody’s predicted a dramatic spike — as much as 50 percent higher — in single-family home construction over the next two years.
The fact that new home construction is on the comeback trail might be why the percentage of revenue derived from commercial installation fell slightly in 2014. Prior to the recession, very little income was derived from commercial projects, like bars, restaurants, corporate boardrooms, schools, etc., for residential integrators. But over the past several years it has grown, peaking at nearly 40 percent of total revenue. In 2014, dealers garnered 33.5 percent of their revenue from commercial jobs, down 1 percent from 2013.
Home Networking, RMR on Upswing
Another trend apparent from this year’s data is the growth of the home networking category. Increasingly, home technology components are IP addressable. They rely on a strong enterprise-level home network to support streaming audio/video, security communication, web-connected thermostats, home automation and more.
Dealers recognize that any installation starts and ends with the home network. Eighty-three percent of integrators installed home networking products in 2014. That made it the most-popular product category, more prevalent than staples like in-wall/in-ceiling speakers (69 percent), HDTVs (68 percent), multiroom audio (73 percent) and hotter than other popular new categories like Ultra HDTVs (61 percent).
It’s also not surprising to see that the average integrator bought 20 percent more networking/communications equipment in 2014 ($70,415) compared to 2013 ($58,513). It was by far the largest individual product category increase, but purchases jumped in every product category in 2014 but one.
Indeed, dealers bought 11 percent more security equipment, 7 percent more home automation equipment, and 1 percent worth more home theater components (which is still the largest category, with an average of $96,763 in purchases last year.) Only audio saw a decrease in 2014 vs. 2013 and it was just a 2 percent dip. Again, that is likely reflective of the growth in less-expensive wireless multiroom audio components.
Recurring monthly revenue (RMR) is still slowly making headway among custom integrators. More than one in four (27 percent) say their RMR revenue increased in 2014. Security monitoring and service contracts lead the way, with 60 percent of custom installers offering alarm monitoring and 51 percent selling service agreements. However, both categories still represent a small portion of overall revenues for the typical company.
Meanwhile, remote managed services are growing, with about four in 10 dealers installing some sort of remote power management or full system management device from which they earn service revenue (not necessarily RMR).
Bullish on 2015 Prospects
Even though dealers have experienced revenue growth the past four years, they do not intend to rest on their laurels in 2015. The data show that the typical custom installation company believes its revenues will rise another 7.1 percent this year. Fully, 96.2 percent of companies anticipate the same or increased growth in 2015. Only 3.8 percent think they will be down this year.
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Jason Knott is Chief Content Officer for Emerald Expositions Connected Brands. Jason has covered low-voltage electronics as an editor since 1990, serving as editor and publisher of Security Sales & Integration. He joined CE Pro in 2000 and serves as Editor-in-Chief of that brand. 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 has been a member of the CEDIA Business Working Group since 2010. Jason graduated from the University of Southern California. Have a suggestion or a topic you want to read more about? Email Jason at firstname.lastname@example.org
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