Beyond the Internet pricing factor, a lot of falling margin issues “result from low-value, low-overhead and inexperienced AV dealers who don’t know any other way to get business than to lower their costs on hardware,” says David Gormley, CEO of Sudbury, Mass.-based Adtech Systems.
“Sure, you can go the route of making up for it with higher labor charges, but those same dealers running hardware margins are also running with low labor prices; and if your customer is shopping, they will question your labor as much as they will question your hardware prices, so we prefer to maintain the margins we need to do an effective job and the labor rates needed to provide a superior product.”
It all comes back to that balancing act, Wilson says, encouraging integrators to call him and let him “work them right through the sliding scale by using our [“2013 Financial Analysis of the Industry Report],” he says. “What’s most important is to face the reality that margins are eroding. Once you face that, you can deal with it.”
Conversation about Sales Compensation
After several years of browbeating of integration firms by InfoComm, NSCA and, yes, CI, the industry still isn’t grasping the essential concept of selling service contracts. About one-third, 32 percent, of surveyed firms say that recurring revenue represents more than 10 percent of their business. That’s actually down from last year’s 36.5 percent.
The few companies that successfully sell service contracts seem to get creative when it comes to compensating sales staff for doing so.
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Lone Tree, Colo.-based Logic Integration has always had sales processes that prioritize service contracts since it launched in 2004. The central goal is to assure customers that Logic has processes for every stage of the project — system design, execution, wrap-up, training and long-term maintenance. Highlighting maintenance as a stage reinforces the understanding that it’s equally important as those other stages.
Perhaps even more importantly, Logic’s sales staff is “double incentivized for service and maintenance contracts outside of our standard compensation for the bulk of sales and equipment labor,” said VP of business development Bill Craig in a September 2013 CI Profile. Though it seems like common sense, it’s not necessarily common practice among integrators.
“If we don’t pay people a commission on service, it really shouldn’t be surprising to us that we have a lot of people pushing box sales and not a lot of people pushing service,” says InfoComm’s Labuskes.
Revisiting sales compensation is “both smart and important” for integration firms, according to Brock McGinnis, sales manager for Toronto-based Westbury National. “Salespeople will do exactly what we train them to do, and there’s no better training than to tie their pay checks to certain types of behaviors or outcomes. In other words, show them where the money grows and that’s where they’ll plant their seeds.”
Count Richmond, Va.-based Whitlock among those firms looking to incentivize sales staff to sell more service contracts. The $192 million integration firm, which recently reported having 50 percent of its revenue under contract, remains focused on that goal. “We’ve taken steps in this direction,” says executive VP Jack Steinhauer of sales incentives. “It is essential to have our compensation plans and our corporate goals tightly aligned.”
