Subscriber Discussion

2x Markup And Barely Broke Even

Here's what I would like to know? How do you include in the price of the equipment and labor for the project the cost of:

  • marketing and advertising so you get the lead in the first place
  • time for the site visit and sales call
  • time for the proposal preparation
  • time for the design
  • time for the documentation/drawings
  • time for the purchasing and admin
  • time to go to site and line-out installation
  • time for job site meetings
  • time for training our techs on new products
  • time for calling tech support when the instructions are wrong or not clear
  • time for replacing a warranted product that failed in the first month
  • time for uploading new firmware to fix problems/bugs
  • time for training the customer
  • time to solve integration problems
  • time to stay abreast, test and investigate new products
  • etc...

Unless you are doing "cookie-cutter" where the true cost is more predictable, you must increase your mark-ups. Integrators are constantly dealing with integration issues such as compatibility between products (e.g. Onvif does not mean compatible!). It's the unknowns and support issues that go with technology products that can quickly absorb your time and profit. All this is very different business model from the Internet where it is Sell - Ship - Forget - Go home at 5:00. If my customer calls, we roll a truck - 24/7 - because they expect it!

Take Axis - I really love their product but as long as they continue to publish an MSRP of 15% markup above my dealer price (unless I buy $xxK a quarter worth of product), then I will look for equivalent product from different manufacturers that don't hi-jack my ability to make a decent profit.

Be careful what you define a gouge. I have markup up product 2x with reasonable hours for labor and barley broken even (I know you all get some of these customers). As an overall business, you have to be able to absorb the unknowns and true cost of doing business.

215% is the optimal markup. Products should always sell close to RRP. If a product has to discount a lot below RRP it is a poorly positioned or poorly designed product full stop.

Bohan, 215% You mean if you buy it for $200, you should sell it for $630? (i.e., $200 + $430 markup - 2.15 times the price you bought it). Also, what's RRP? Is that Australian for MSRP? :)

I have had experiences where we lost money even with 2x marked up products. The problem in those cases were that we hit unforeseen problems. To me, the solution was to add more hours.

Listen, even if you sell the products at cost, you can still sell at the same total price by a combination of charging for more hours or at a higher rate (e.g., lawyers, at least used, to get rich by billing huge hours at super high rates, not because they resold copy machines).

Professional services business, typically by design, include a markup on labor to cover the issues you mention in your list. For example, a field tech gets paid $18 per hour but you bill him out at $75. The difference, priced correctly and with reasonably accurate hours billed, cover overhead and the issues above. No?


In my experience, my customers mostly try to cut my billed hours (after the fact even if I charge less than a plumber ... I charge only $30/hour), not taking me seriously even though I'm quite zealous in doing a great job. They are willing to pay for the product, but expect me to only earn a small margin (luckily most of my clients do not search the net).

1. If you are a large integrator the discounts on product are enough to make a healthy margin on parts. If you are not a large integrator and don't have premier pricing then it is what it is.

2. Some of the items like bug fixes, integration problems can be solved by doing some bench testing up front or really asking the right questions to you tech partners. Sometimes even the manufacture partners are not aware of the technology integration problems and you must manage risk.

3. Marketing, proposal prep, site visit should not be billable,

4. PM and engineering need to be managed by the scope of work or the specifications of the deliverable. (1) PM meeting per week plus an additional site visit per week is a lot different than PM'ing a job from the office. Spots and dots on a drawing is is lot different than full wiring diagrams. Again, the complexity of the deliverable should drive the hourly cost.

5. Training is base upon the customer expectation. Do they have any knowledge at all of security software? Are they tech savvy and just need a quick run down? How many people and departments are involved. All these items effect the training hours required. Some go as far as preparing best practice documents to simplify surfing through 100 page manuals.

6. Testing new products should be done on ones own time. Over all the questions posed above are answered when the correct customer expectations are identified, so that proper tech, PM and engineering labor can be applied. As for parts, to get a better discount, sell more... Hope that helps

Undisclosed, thanks, I think that's a very frank assessment of the industry.

One point I wanted to comment on:

"As for parts, to get a better discount, sell more"

That's certainly true, but there's a negative underside. Unless you are really big, you cannot sell that much of any one product. The alternative then is to only sell one or two lines to increase volume and therefore maximize discount. At that point, you become less of an independent integrator and more of a re-seller, pushing your main brand to everyone.

John - Most of the items you listed were separate cost codes or line items in our estimate regardless of product markup.

Undisclosed - We included estimating time and proposal prep as a cost. The estimators and sales guys don't work for free.