If your commercial electronics integration firm is still doing things the same way it always has, chances are you’re seeing waning returns on your investment — or possibly fighting off creditors in an effort to stay in business.

While there’s plenty of disagreement about what exactly will become “the new normal” once the dust settles from the Great Recession, one thing is for sure: doing things like you always have is a recipe for failure.

These days, integrators are realizing it’s not enough to install the system. That means a shift from a product-centered model to a service-based approach for many CI firms.

“There are no profit margins left in hardware,” says Tom Stimson, a consultant to the A/V industry for about 30 years. “When you’re selling intellectual expertise, it’s a little harder to quantify, so it’s more about the magic.”

Products And Service
Many A/V companies are approaching or already at a 50-50 split between products and service billings, Stimson says. That’s a pronounced shift from only a few years ago, when it was closer to 70 percent products and about 30 percent service.

Commercial integrators, he says, are still at about that 3-1 split, with their work representing more of a transactional sale than a long-term agreement between the sides. Design consultants, on the other hand, are all service, Stimson says, and there’s definitely room for deals like that in the commercial integration world. “Right now, integrators are recognizing that’s the business and the solution that’s available, so they’re moving in that direction,” he says.

Related: State of the CI Job Market

A recent report from IMS Research predicts security systems integrators will aim to increase service and maintenance revenues in coming years by obtaining up to half their total revenues from recurring monthly revenues (RMRs). IMS Research predicts the RMR model for service and maintenance contracts will be increasingly adopted throughout the integration market. Margins for services can often be higher than 30 percent compared with the margins for equipment, which can often be lower than 20 percent, says report author Ewan Lamont.

Making the Transition
Bradford Caron, president of Norwell, Mass.-based Signet Electronic Systems, says the company created a new department dedicated to promoting nothing but agreements, leaving the systems sales reps to focus on their strengths. The dedicated service agreement sales force has its own pricing tools, marketing collateral, sales management, and sales commission tracking, Caron says.

At Verrex Corporation in Mountainside, N.J., a global integration firm that offers a full suite of other services, firm leaders had to come to the realization that “it requires a different kind of selling” to hawk products and service agreements, says Bill Sharer, director of global sales.

“Some [salespeople] aren’t going to make the transition [from selling products to selling service] and that’s OK,” says Sharer, who was an A/V industry consultant for about three decades before taking his current position. At Verrex, like at Signet, that meant hiring salespeople who are comfortable selling service agreements to augment those who aren’t.

Cisco’s 2009 acquisition of Tandberg is just one of the driving forces behind the impetus for CI firms to add a service component, Sharer says. There are many other new players in the industry these days, “and that’s changing the composition and the competitive landscape of the market,” he says.

“Most integrators are seeing not only a need but the opportunity to offer more services,” Sharer says. “Having Cisco in the A/V world is inclining a lot of integrators to partner with network providers, telecommunications companies and the like. The IT influence on this industry is much greater than it was a year or two ago.”

There are a variety of ways to get your CI firm’s foot in the door on recurring revenue, Sharer says. Some companies offer maintenance contracts, while others focus on managing end points, or on-site staffing. In the case of the latter, those agreements can last one to four years and involve as many as 20 employees, Sharer says.

“We love the idea,” he says. “There are all those opportunities, higher margins and when you have people on the inside, they can identify new opportunities.”

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About the author

D. Craig MacCormack

Craig MacCormack is a veteran journalist with more than 15 years experience covering local and national news and sports as well as architecture and engineering. He joined Commercial Integrator in January 2011. Follow him on Twitter: @CraigMacCormack.

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