Controlled growth and measured expectations are the terms of the year for 2015 and 2016, according to research from CE Pro, the leading trade publication for the home technology channel. Following two years of strong double-digit growth, the custom electronics industry came ever so close for a third year, but still the typical home technology integration firm reported solid revenue increases of 9.1 percent in 2015. That increase puts the median revenues for an installation company at $896,256, including both residential and commercial projects.
Given how hard the industry overall was hit by the recession, the comeback is quite remarkable. The data means that gross revenues for home technology professionals have risen 69 percent since they bottomed out in 2009 at $531,250, the first year of the recession. Since 2009, median revenues have been:
- 2010 – Up 6.5 percent
- 2011 – Down 4.5 percent
- 2012 – Up 5 percent
- 2013 – Up 13 percent
- 2014 – Up 27 percent
- 2015 – Up 9 percent
The 2015 CE Pro Annual Readership study, which was conducted by CE Pro in October 2015, had 272 respondents. All responses are presented only in aggregate and are kept individually anonymous.
In the meantime, some of the other key benchmarks in the study also seem to reflect that integrators are in a controlled growth mode. The median number of employees rose to 10 in 2015 compared with eight last year. The demand for skilled labor (and the lack thereof) was named by numerous respondents in the open-ended commentary as inhibiting faster growth potential. Reflecting the cottage nature roots of the industry about 12 percent of integration companies are one-man shops, while one out of every five (20 percent) are two- to four-man shops.
Tempered Optimism Shown
For 2016, integrators report that they expect to grow by 10.7 percent. On the surface, that double-digit number might sound great, but it is only slightly higher than 2015. The past two years might indicate a new trend developing. Last year was the first in which dealers did not expect double-digit growth — they only predicted 7.1 percent growth (which means they actually out-performed their expectations!).
Median Integrator Gross Revenue in 2015
Predicted Revenue Increase in 2016 by Integrators
Median Number of Employees
Percentage of Integrators Predicting Higher Revenue in 2016
Median Number of Installations
Average Installation Price at End-User Level in 2015
Even in the depths of the recession, custom integration companies had optimistically called for 13 percent to 15 percent growth rates in the following year. Perhaps the lower expectations for 2015 and now for 2016 are more a dose of realism, or maybe the rosy optimism that integrators usually have is a bit tempered by the past years. Who knows?
Meanwhile, three out of every four custom installation firms (74.2 percent) expect to grow revenues this year. That number, again, is noticeably lower than expectations in the past. Another 15.7 percent of integrators are anticipating flat revenues in 2016. Combined, that adds up to 89.9 percent, or nearly nine out 10 companies. That is lower than in any other year since CE Pro has conducted this annual study. Last year, for example, 96.2 percent of custom integrators predicted increased or flat revenues.
One rosy outlook for 2016 is the number of projects integrators expect to complete. The median for 2015 was 30 and CE pros anticipate doing 40 jobs this year, in other words a 33 percent increase.
New Construction Comeback
The percentage of projects that are derived from new construction versus existing homes continues to rise. For 2015, dealers report a near 50/50 split, with 48.2 percent of jobs being new construction. That is an increase of 4 percentage points over 2014 and a 7 percent increase from 2009 during the recession. It is a clear signal that housing has returned strongly. Indeed, statistics from the U.S. Census Bureau/HUD show new home sales for 2015 are tracking to 15 percent higher than last year, while the National Association of Home Builders (NAHB) reports single-family housing starts are running 12.8 percent higher at 782,000 units.
CE pros report that 68.3 percent of their revenues come from residential projects. That is an increase of 2 percent and represents the highest percentage of income from residential since before the recession hit and dealers diversified into light commercial.
Single-family custom-built homes continue to be the bread-and-butter source of income, with nearly eight out of every 10 custom integration companies working in that space. About four out of 10 integrators also work with production builders, and just over one-third (36.6 percent) work on multi-dwelling units (MDUs). Nearly half of integrators (46.8 percent) continue to work in commercial markets.
Typical Projects, RMR Grow
In a very positive signal for the industry, the typical project size grew in 2015, as did the median number of projects. Dealers report an average residential project of $25,446 on a median of 30 installations. That is, on average, five more projects per company compared to 2014. Also, the dollars are well up from past years in which the average price of a typical job was falling as less-expensive products made their way into the market. But those products still exist, so how can average prices be rising? One answer could be that integrators are finally increasing their labor rates.
According to the CE Pro Labor Rates Study published in May 2015, the typical custom integration company charges $85.16 per hour. That represented about a 15 percent increase in labor rates compared to a similar study conducted several years earlier (prerecession). It also means that integrators are not “giving away” their time as frequently and charging more hours per project. Indeed, according to the 2015 CE Pro Annual Readership, dealers now report earning 14.5 percent of their income from recurring monthly revenue (RMR) sources such as service contracts or alarm monitoring. That is up from 13.7 percent last year, but way up from around 8 percent several years ago. More than one-third of integrators (36.4 percent) think their RMR is going to rise again in 2016. Most dealers anticipate holding steady in terms of RMR next year (59.8 percent).
But from where is the RMR coming? Among integrators who report earning RMR, the percentage of integrators that earn more than half of their total revenues from RMR breaks down by security monitoring (17.6 percent), followed by service contracts (10.8 percent), then cloud video storage (3.8 percent). Clearly, these are companies either rooted in the security alarm business or in the IT managed services business. The percentage of integrators who earn $0 in RMR continues to fall. For 2015, it was about one-in-five (21.2 percent) that derive no income from RMR. That is down more than 7 percent from 2014. On the flipside, 8.3 percent of integrators report they earn more than half of their total income from RMR … those are likely security-based integration companies.
Hot Product Categories
Integrators have to juggle so many different product categories and make them seamlessly connect (that’s why you are called an “integrator”), but there are clearly some areas that are “hotter” than others. For the first time ever, a security product category tops the bill with integrators indicating that surveillance cameras are the hottest products selling right now. IT/home networking and 4K/Ultra HD TVs were next most popular.
In some verbatim comments from respondents, it is interesting to note that high resolution — both in video distribution and in CCTV/video surveillance distribution — is particularly of interest. In addition to the top eight categories presented in the chart above, dealers cited areas like cellphone signal boosters, aging-in-place technology, and new surround-sound technologies like Dolby Atmos or Auro-3D.
In addition to these hot categories and in-line with the growth reported, the amount of money integrators are spending in various products categories is on the rise across the board. For the first time ever, CE pros report spending more on Home Automation/Control products than they spend on Audio or Video/Home Theater. Integrator-level spending on Home Automation/Control equipment rose 12.4 percent in 2015 versus 2014, from an average per company of $90,553 to $101,825. Dealer-level expenditures in Security equipment were also up, from $61,308 to $68,863 — that is an increase of 12.3 percent. Audio equipment spending also climbed by 6 percent, perhaps a signal that high-performance audio is gaining steam. Lastly, wholesale spending in Video/Home Theater equipment grew from $96,763 to $99,591 per company, a 3 percent rise.
Channel Buying, Influence
One other bit of data collected from the study revealed growing influence among homeowners/end users in the product decision-making. In the past, integrators were by far the primary influencers on product decisions. Previous studies showed dealers were the primary decision-makers as much as 60 percent of the time.
Boy, has that changed. In this most recent study, CE pros identify themselves as the primary product decision influencer just 38.9 percent of the time. That means that cumulatively all the other trades and the homeowners have more say than the custom installer does. That sort of scenario could be scary, especially since the integrator is the sole person tasked with making products communicate with one another.
Another interesting trend is the rise of consultants. According to the study, outside consultants/specifiers now are the No.1 influencers on 10 percent of jobs. That is up significantly from previous years. More than one-fourth of the time (28.1 percent), integrators indicate that the homeowner/end user has the greatest say in selecting products. In order, they are followed by consultants/specifiers, interior designers, builders and finally architects as those with the most influence.
Meanwhile, there has been little change in how dealers buy products. Factory-direct from manufacturers remains the top method, with 39.8 percent of products purchased in that manner. For integrators, that is the preferred way to buy because it offers them the lowest cost. Purchasing from distributors is a close second, with 37 percent of products bought this way, with 23 percent bought at retail.
Electronic purchasing portals continue to be the preferred method of ordering products, with 37.8 percent of products bought in this manner. That is an increase of 4 percent versus 2014.