Commercial Integrator March 2022 - 16

AV AS A BUSINESS
Avoid the 'Race to the Bottom'
Too many integrators are competing in a 'race to the bottom.' That's a
losing scenario, with slim margins taking a toll on profi tability. By Tom LeBlanc
DURING THE COMMERCIAL INTEGRATOR
and NSCA 2022 State of the Industry Report
webinar, there was a consistent theme that
can be captured with a single word: " but " .
As in, the state of the integration market is
such that there are tremendous opportunities;
integrators' services are much-needed,
mission-critical and in high demand; there
are plenty of reasons for integration company
leaders to be optimistic...
› but the supply chain creates profi tability
challenges for projects.
› but product availability puts project timelines
and customer satisfaction at risk.
› but labor costs make healthy margins
more diffi cult to attain.
I was honored to be part of the State of the
Industry Report webinar, along with NSCA
board member Christina DeBono of ClearTech
Media and CI editor-in-chief Dan Ferrisi.
Leveraging data from our organizations' joint
research, we tried to paint an accurate and
optimistic picture of the opportunities for
integrators. But one element of that research
data, relating to typical margins that integrators
see on hardware, provides a sobering
reality check.
NSCA has long emphasized that
integrators must operate with higher profi t
margins. The State of the Industry Report
Hardware margin on products.
3.4% More than 50%
2% 41% to 50%
31% to 40%
9.4%
14.8%
5% to 10%
32.2%
21% to 30%
28.9%
11% to 20%
Less than 5%
9.4%
shows a " distressingly high number of survey
respondents, " as Ferrisi described it in the
January issue of CI, who report hardware
margins that " arguably indicate a failure to
cover overhead. "
Covering that overhead is likely to be
even more diffi cult this year. Supply-chain
challenges are well documented. Meanwhile,
integrators report that the job market has led
to escalating labor costs. There is even less
margin for error now, so profi ts are very much
at risk. Many integrators end up caught in this
web - oſt en called the " race to the bottom "
- but you can avoid it.
Emphasize Value Over Price
NSCA encourages integrators to reframe their
approach to competition. Don't be part of the
" race to the bottom " by competing to land
jobs based on razor-thin margins. Instead,
understand the true value of your expertise
and the skills you bring to customers - and
project that value.
During NSCA's Business & Leadership
Conference last month, there were several
sessions that challenged integration company
leaders to rethink the distinct value they off er
customers. Great examples are the sessions
led by Scott McKain, an expert on customer
experience and client retention. His closing
keynote, " The Collapse of Distinction, " and
his breakout session, " Culture Renovation:
Rebuild or Reinforce? " , guided integration
company leaders toward understanding what
makes their off erings distinct from those of
their competitors.
The fl ip side of this topic is avoiding the
unhealthy hardware margins refl ected in the
State of the Industry Report - an imperative
we discussed during the webinar. What
follows are some points we tried to convey:
› The margin challenge is great evidence
for why it's so important to project the value
of your off erings and never devalue what
integrators do.
› The companies in the survey indicating
that they earn less than 5% hardware margin
are at risk of not being around to take the
survey next year.
› Around 30% margin is the average that
NSCA members see anecdotally and independent
of the State of the Industry Report.
The majority of NSCA members have overhead
percentages in the high 20s. According
to very simple math, a typical project has very
few points of wiggle room.
› A few years back, many integrators found
themselves in the " race to the bottom. " They
saw opportunities for rebates on the back
end and took on more volume, leading to
trimmed profi t margins. This oſt en leads to
cashfl ow problems.
› It all comes back to how you value your
company and its services. If you're selling
equipment at 5% or 10%, then you're missing
the point of how important it is for end users
to have the level of technology your fi rm is
capable of providing.
This is not meant to oversimply the great
challenges that integration companies have
when they compete with companies that disregard
margins to win projects at all costs. But
the premise here is simple: You don't have to
" race to the bottom. " Sell value - not price.
A distressingly high number of survey respondents report hardware margins that,
arguably, indicate a failure to cover overhead.
16
Commercial Integrator MARCH 2022
Tom LeBlanc is executive
director of NSCA. To learn more
about your trade association,
visit NSCA.org.
commercialintegrator.com
http://www.NSCA.org http://www.commercialintegrator.com
Commercial Integrator March 2022

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