Integrators Oppose Labor Only Sales (2015)

We do almost ALL our projects like this. New construction of entire buildings down to one door at an existing site. Not one of the integrators really have an issue with it after the first time. Sometimes we have the parts/pieces shipped directly to them or drop shipped to the job site where they can unpack it all themselves. Of course we have service contracts etc. with them so not quite the same as discussed above. Also we are not pulling some crap wire from Monoprice or using parts/pieces/hardware for the alarm and access control systems from Costco....

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John Honovich

In reply to Undisclosed End User #1

IPVM

1, thanks. Do you have any idea if they are charging more per hour or more hours to compensate for not selling you products?

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Undisclosed End User #1

In reply to John Honovich

They are not doing either. We have the hourly rate baked into the contracts and we normally (except for large projects/new construction) buy hours not jobs. "We need an install tech for X hours please." We then use them for that amount of time for whatever we need done. Most times if it is a six hour job we will get them for 8 hours so they can work on something else when they are done with the main job. Our staff also tends to help so that 6 hour job might actually only take 3 and then we have 5 hours to use on other projects.

There are also some projects where we can not get the equipment other than through the integrator, but since we know what the price is for EVERYTHING (the internet is a beautiful thing) they can't soak us that way either.

I agree with Armando. We are not the norm. When you have a dedicated contracts department that a day in and day out write and amend contracts like this we can basically get what we need/want. No integrator has ever turned us down yet either so that tells me they are screwing a ton of other people (that don't change contract terms or question rates) with super high margins on labor/equipment/service rates/etc.

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Armando Perez

Hoosier Security and Security Owners Group • IPVMU Certified

Many of those responses above noted exceptions. I think undisclosed 1 end user falls into that exception category. Any company willing to do a service agreement is already showing that they are not the same as the majority of labor only opportunities. The way you said it also implies you do this multiple times throughout the year, which means ongoing opportunity and a relationship to build. Thats another major difference between this case and the majority of labor only opportunities.

Something I forgot to mention is that we should all be considering the cost to acquire a customer and how that plays into the lifetime revenue of that customer. A one time wham bam thank you ma'am drop a few lines, mount a couple of devices and see you later, has a very different total value than an ongoing relationship with a service agreement and multiple sites.

Also, I can almost guarantee they are charging you a labor multiplier of some sort. If not in the actual hourly rate or the number of hours then they are doing it in the agreement. I'd bet lunch at St. Elmo's on it, actually.

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Thomas Marino

If I understand this correctly, the model Undisclosed End User 1 is using consists of buying most system components at the lowest price possible from resources other then the integrator (on the internet, through distribution, or direct from the manufacturer) and then pays the integrator by the hour, using contracted rates, to supply all of the labor necessary to install, maintain, and provide ongoing repair services of those products / system components.

To me this model would remove the risk of labor cost overruns (due to actual vs. estimated labor hours or product warranty repairs) from the integrator and place this variable cost risk on the end user.

If this model correctly describes what end user 1 is doing, then I assume the value realized from paying more for a product with a parts and labor warranty does not outweigh the value of paying the lowest possible price for a product, but assuming all associated labor risks to ensure that product is consistently operational.

As an integrator I seemingly disagree with most of my colleagues, as I would prefer this model as it would allow me to better control risk, therefore costs, hence profits, and it would be ultimately a little less complicated and stressful to manage my business.

However, I would continue to have to find new ways to provide value to my customers in order to offset the lost revenue.

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John Honovich

IPVM

"I would prefer this model as it would allow me to better control risk"

Thomas, that's an interesting point. Thanks for sharing!

What you are getting at is the difference between:

Firm fixed price for a project, if the time needed is more than estimated by the seller, the seller eats it / loses
Labor hours for a project, if the time needed is more than estimated by the seller, the buyer needs to pay more

In the survey results, I think most respondents assumed that the quote would be firm fixed price, either way, for selling both products and labor or just labor.

That said, I agree that if a buyer required only buying labor for an integrator but paid hourly only, that would notably reduce risk and allow for lower hourly pricing.

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Undisclosed End User #1

We only pay hourly on the new installs. EVERYTHING else is covered via the service contract and via warranty. So maintenance and ongoing repair there are no charges (other than the service contract fee). Even though we own all the parts/pieces the contract stipulates integrator responsible for keeping things working.

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Thomas Marino

Hi John, What I am getting at is there should be no expectation of the customer for the integrator to cover the labor cost to resolve any product "related issues" if they are providing the product. This understanding would reduce the risk exposure and therefore I am not adverse to this model. My labor price would be based on the perceived skills / expertise of the performer and what my business operating cost are I need to make a profit. Really I'm trying to determine if there is any perceived value to the end to provide parts and labor warranties initial warranties

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John Honovich

IPVM

"there should be no expectation of the customer for the integrator to cover the labor cost to resolve any product "related issues" if they are providing the product."

I think that's reasonable, however, as many integrators point, it often does not work out that way.

Here's an example. Customer says image is too dark at night and they cannot get clear details of people's face. Customer says product is fine, pushes integrator to fix / 'optimize' it. Integrator says that's all the product can do, refuses.

It's possible to deal with this, you might be very explicit up front or include labor money to test / validate before installing, etc. but these types of issues are often not trivial to resolve.

There's a parallel here to most integrator's aversion to using the customer's existing LAN given the risk of finger pointing and lack of control, Converged vs. Dedicated Networks For Surveillance

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Thomas Marino

I often wonder if an all inclusive service contact is a better value in terms of cost for the end user or the integrator? As an integrator I need to consider all costs foreseen and unforeseen in an all inclusive service contact. This requires me to predict how much labor and materials / equipment expeneses I will incur over the course of the contract. Is this prediction exposes me to risk, I like to make sure I factor ennough money to cover all foreseen and unforeseen expenses and still make a profit. This usually equates to a pretty high price. I have compared all inclusive service contacts that we have provided vs T&M service contacts and in all most all cases the T&M service contact was less expensive for the end user over the term of the contact.

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Armando Perez

Hoosier Security and Security Owners Group • IPVMU Certified

The value in an all-inclusive agreement is in the predictability of budgets, not so much in the hourly rates or cost attributable to this specific year. Its almost certain that a T&M agreement will be less expensive MOST of the time, until it isnt, then the guy who was responsible for that line item on the budget will likely have to defend his job. It is a different value proposition and is targeted to a specific client type. When the time comes to replace a $5k VMS and they have $0 additional cost, that cost value skyrockets. It makes more sense for them if they are going to keep the plan in place for longer than the expected lifespan of the most expensive component.

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Jack Sink

IPVMU Certified

One additional aspect of a service contract covering both labor and replacement/repair is the ability to lock in costs and to protect those amounts from budgetary challenge or task. In my past expereience as an end user, mid-year budget cuts in tough fiscal years would often reallocate unspent $ to other purposes to the detriment of security systems and programs. Locking in those costs by contract protects them from reallocation and allowed me to accurately forecast expenditures season to season.

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Ted Curtin