Commercial Integrator January 2023 - 26

ANNUAL REPORT
much are we going to bill this month, this
month and this month? " LeBlanc underlines
the point, saying that, if integrators' backlogs
are bursting, " We think they should get
really smart about [back-of-house issues]
to make sure this is a positive for them. "
Fortunately, NSCA has a constellation of
tools and resources to help integrators in all
these areas.
Considering Margins
Of course, higher interest rates and global
inflation can cause gross-profit-margin
erosion, but so, too, can some integrators'
tendency to devalue themselves by racing
to the bottom on pricing. This tendency
manifests itself in our survey results, with
57.3% of respondents indicating that their
hardware margin on projects is 20% or less.
Stunningly, 8.8% report their hardware
margin is less than 5%. " Those companies
that report that are taking on bad projects, "
Wilson says candidly of that group. " They're
devaluing the important things that they're
doing. They're not providing their company
with the resources it needs to stay in
business. " He uses the phrase " working for
wages " to describe this approach, saying
that, unless an integrator's labor rates are
astronomical, incredibly low hardware
margins are inimical to building true equity
in your business.
The composition of respondents to
the NSCA and CI survey might explain, to
some extent, the alarmingly low margins
reported by many. A majority of them (54%)
represent integration companies of 50 or
fewer employees, and more than a third of
that group represent companies with fewer
than 10 team members. Concomitantly,
many survey respondents are also on the
lower side revenue-wise, with 44.5% of
participants reporting $5 million or less in
projected full-year 2022 revenue. Smaller
integrators might not have the purchasing
power to realize highly favorable margins,
and smaller teams might not have in-house
financial experts to optimize the profitability
posture of each project.
On this latter point, LeBlanc notes, " The
financial leaders of integration companies
are the ones who need to take a hard stance
to make sure they're only taking on projects
that have a chance to be profitable. " And
26
Industry Update
Recurring Services Sold or Executed in the Past 12 Months
47.8% Service Contract (e.g., break-fix, remote monitoring)
19.1% Managed Service
8.8%
15.4%
5.1%
3.7%
Security Monitoring/Video Storage
None
AV-as-a-Service/AV-as-a-Subscription
Other
Hardware Margin on Projects
8.1%
41%-50%
10.3%
31%-40%
0.7% 8.8%
50%+
Less than 5%
18.4%
5%-10%
23.5%
21%-30%
30.1
11%-20%
profitability starts with making sure that
hardware margins are healthy.
Selling Services
As integrators consider the need to ensure
healthy margins to protect project profitability,
they should also evaluate whether
now is the time to fully lean into selling
services - from something as simple as a
" break-fix " service contract to something
as ambitious as AV-as-a-Service (AVaaS).
Both CI and NSCA have been beating this
drum for years, but the pandemic was truly
the proof point. Simply put, integration
companies with strong recurring revenue
fared much better and maintained stronger
customer relationships.
Among our survey respondents, 57.6%
Commercial Integrator JANUARY 2023
%
indicate that they forecast 10% or less of
their 2023 revenues to derive from selling
services. " We'd like to see that tick up, "
LeBlanc says. " It seems like, in most cases,
integration companies are in a position to
try to provide service on an ongoing basis
and to make sure they're being compensated
for that. " He makes the point that some
integrators simply aren't ideally equipped
to adopt full-on AVaaS, but there are
manifold ways for integrators to pivot to a
service-minded approach.
Of course, if an integrator decides to dive
headlong into selling services, it's essential
that the initiative is a profit center, not a cost
center. Thus, LeBlanc says, it's imperative
that the integrator spend plenty of frontend
time with legal to make sure everything is
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Commercial Integrator January 2023

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