If You Hate Getting Your Quotes Picked Apart, Do This
Most integrators complain, often intensely, about the impact of online pricing (see our real world camera markups survey results). This issue came up again in our recent discussion of Should Quotes Include Line Item Price Breakdowns?
For example, the integrator quotes $348 for a camera, they find it online for $307, they think the integrator is screwing them over, want to buy it from ebay or have the integrator match the online price, etc.
It's clearly a point of contention but a key problem is that the end user falsely assumes that he is getting the same thing from the online store as the integrator.
Here's what I think can or should be done:
- Offer the product at the same price as what can be found online, i.e., if a model being offered online from a legitimate retailer at $307, price it at $307.
- Then include separate fees for the additional services you provide beyond what the online retailer will do - e.g., shipping, validation testing, setup, one year service warranty etc. Charge the difference to your 'normal price'. Allow buyers to see and understand what else they are getting.
- Alternatively, if you are concerned about fees, just adjust your labor rates / hours upwards accordingly to get the projected overall margin while listing product pricing at the equivalent of online pricing.
Bottom line: if buyers are especially sensitive to the 'sticker' price of parts available on the Internet, why not restructure your proposals to show the additional value you provide or simply move it into a category that they are less offended by. Yes/no?
The time honored tradition of making money on product markup is not so easily discarded by integrators, and with good reason:
In the absence of price transparency, it's a simple and clean way of billing that integrators can use to insure they meet their profit targets without undue haggling. IMO consumers seem to argue far more about labor/man-hours issues than product pricing assuming they have only vague information about price.
Also, as has been already pointed out, if the integrator has a trusted relationship with the client then internet pricing is not a factor.
The tacit assumption with your proposal is that it requires the integrator either abandon markup as a general rule or predict what clients will price-shop. When you say:
... just adjust your labor rates / hours upwards accordingly to get the projected overall margin while listing product pricing at the equivalent of online pricing.
I'm assuming you mean before the first quote, because the reactionary 'I can match on price if you really want me to, but I will then be adjusting my rates and fees accordingly to come out the same' is a hard sell after the fact.
So I imagine a lot of contractors try sizing up their oppurtunities, vis a vis 'internet shopper' vs. 'just get it done' types, and quote accordingly and when they're wrong it has a negative impact on the bottom line.
On the other hand always quoting internet price and detailing labor/fees unecessarily weakens the contractors position, and ultimately his profit for those consumers who do not demand it.
That is the dilemma.
"IMO consumers seem to argue far more about labor/man-hours issues than product pricing assuming they have only vague information about price."
Except that's the core issue. Most buyers today have lots of information about product price, ergo why product price checks online have become such a serious point of contention.
"it's a simple and clean way of billing that integrators can use to insure they meet their profit targets without undue haggling"
Except people are haggling routinely about product price because of online information.
"always quoting internet price and detailing labor/fees unecessarily weakens the contractors position"
Why? My position is that it would better communicate the value that purchasers otherwise do not understand.
Of course you are right (and more right everyday), when you say "Most buyers today have lots of information about product price" and "people are haggling routinely".
But I'm sure you would admit that most integrators would rather avoid customers who "haggle routinely" if they had their druthers.
And that is the reason that for every time that you hear the 'Show'em everything, the lowest price, your time, your fees, let them see what you are providing and then they will gladly pay' mantra, you get the 'you need to upgrade you customer to a better class of customer, who knows you and trust your recommendations and is more focused on the 'what' than the 'how much', singsong.
No doubt most integrators have both types of customers, but my point is not to contradict you as much to say that the reason for the resistance is because you advocate pricing everything like every customer is a haggler as vs doing the opposite and trying to upscale their clientele and leave the chump change for the chumps.
If not what do you think the reason that everyone hasn't already taken your advice?
I'm sure most integrators have heard some variant of this advice before, no?
I have never seen this advice before in any publication nor in any conversation.
"But I'm sure you would admit that most integrators would rather avoid customers who "haggle routinely" if they had their druthers."
Except they do not have their druthers.
"Upgrading your customer" is wishful thinking because (1) lots of customers care about pricing details, (2) lots of competitors will still be happy to work with these companies and (3) most importantly, new customers cannot be certain whether a supplier is trusthworthy and accurate in the beginning.
"You advocate pricing everything like every customer is a haggler."
No, I advocate providing sufficient information so that buyers can understand the value an integrator is offering. Make it clear what is being provided so they appreciate the differential and then trust you rather than falsely think they are being scammed. Your alternative is to hide details, and hope the buyer is too lazy or stupid to ask. Yes/no?
I have never seen this advice before in any publication nor in any conversation.
[Gracious Request to IPVM Admin for inline survey, question: < Have you ever heard or read advice recommending integrators stop trying to make their money on product markup and instead concentrate on providing fees and services that truly reflect the value which they bring to the customer?> Note: this is an oversimplification of your position no doubt, John, change it as needed.]
Except they do not have their druthers.
Do you believe that all integrators are created equal? Do you imagine that there is no segment out there consisting of price-insensitive high-end consumers who are willing to buy off a quote that only contains marked-up product?
Your alternative is to hide details, and hope the buyer is too lazy or stupid to ask. Yes/no?
Come again? Regardless of the truth of what I've said so far, I absolutely have not advocated ANY "alternative" position regarding what integrators should do. I have only offered the reasons why I feel they are slow to adopt what YOU advocate. You are "taking the moral high-ground" against a straw man.
After you stated that you feel that your suggestions are novel, I can only sumrise that you believe they haven't been adopted yet because they haven't read your article yet.
The funny thing is I don't think your suggestions are misguided, in fact they are commendable and virtuous. But to get there we need honestly look at the undertow that impedes it.
C
"Do you imagine that there is no segment out there consisting of price-insensitive high-end consumers who are willing to buy off a quote that only contains marked-up product?"
I believe there are not enough price insensitive customers out there to build a large integration business. An integrator who continuously rejects customers who price check them will not be able to grow their business very fast or very large. It's one thing to do with house accounts where one has existing track record and relationships over years but winning new business with the mindset you outlined puts one at a severe competitive disadvantage.
As for your inline survey request, no. You asked me a question, I answered it directly. This is getting off topic. if you have an alternative position of what integartors should do here, please share.
Have you ever heard or read advice recommending integrators stop trying to make their money on product markup and instead concentrate on providing fees and services that truly reflect the value which they bring to the customer?
Yes, I've been saying this to anyone who will listen, ever since I moved from being an integrator to being a reseller, possibly the same one whose website is showing the customer the lower price.
Being upfront and showing the customer the cost of equipment and the cost of installation, system design, support, training, et cetera on the very first quote is much better than trying to build your margin into the equipment cost. Look, all but the least sane customers understand that you're running a business, not a charity, and that installation costs money, which is why no one gets mad at Jiffy Lube for charging more than the price of a container of 5W-30 for an oil change. But imagine how ticked off you would be if you asked Jiffy Lube for an itemized bill and you saw "Engine Oil, $35, Installation $35, Taxes and fees, $5", you'd storm out never to return.
Honesty is the best policy. The customers you'll lose by being honest are the customers that will lose you money in the long run.
Yes, I've been saying this to anyone who will listen, ever since I moved from being an integrator to being a reseller, possibly the same one whose website is showing the customer the lower price.
Did your occupational transition precipitate your conversational conversion, or vice-versa?
What was your philosophy when you were an integrator?
What do you think of a modified John approach where one would break-out fees/services and show rock-bottom price info AND show a reasonable mark-up on product? Or is that what you are proposing?
P.S. I wonder how many would "storm out" if there was an additional line item of "Marketing/Branding, $40"? Full disclosure style.
I wonder how many would "storm out" if there was an additional line item of "Marketing/Branding, $40"? Full disclosure style.
Are you just trolling now? The point about the disclosure is to help inform the customer of what value you are providing to them, not how you are using the money.
Are you just trolling now?
Ouch, that hurts!
Not in the least.
...what value you are providing to them, not how you are using the money.
Really now, you don't see any connection between the two?
I recently got a 'mailer' that came Fed-Ex Priority Overnight from some NY Jewler that I never have done business with let alone contacted, it contained at least 50 pages of photographic quality close-ups of sundry product. A smudgeable apparently hand-written personal note telling me about how i value 'value'...
Conservative cost of the mailer $50. Average Item cost $1000. Estimated time from opening until hitting the bottom of trash can: 45 secs.
Oh, and this is the third one this year... Even if I needed the jewels I would have a hard time buying from them... Why? If I buy a jewel from them I also just paid for the ridiculous marketing expense!
So I'll let you go to Jiffy Lube and let you pay for their annoying commercials. You might tell yourself that their commercials enable them to reach sales volumes where compelling economies of scale come into play. Whatever.
Which leads me to a more important point:
Everyone in this thread, myself included, have been handicapped by assuming the customer(meaning end-users not in the biz) can actually recognize 'true' value!
News flash: They can't, not really.! Blashphemy you say?
Now, take off the integrator/blogger/friend of the working man hat of yours and think like a consumer...
Can you say what a new car should cost? I can't... Break it down, try to find its 'value'. Did you know buying all the parts of a ($50,000) car seperatetly will set you back well over a million dollars(assembly not included)? Could you get a real handle on it? Maybe, but the time and expense would be enormous...
After you do cars, move on to value Central A/C units, Home Automation, Copper re-piping options, Baby Strollers, Planars/Jointers, Surfboards, Saxaphones, Radar Detectors, Medical Schools, Universities or whatever your looking to consume...
So what do consumers really do? They use shortcuts. One shortcut is to say I can buy X from A for $1 and X from B for $2 so A is a better value. Great until B says, yeah but I'm not selling X, I got Y, which you can see is much better!
The most common shortcut though is to try to get a sense of how much the person your getting the 'thing' from is profiting from it. To the extent that we feel that its not 'too much' we feel we are getting value! This is how most consumers determine value. Please state if you do not agree with this.
Customers are not directly trying to determine value by using internet pricing so much as trying to make sure that your not making too much... Internet pricing let customers make a much closer estimate of what that number is...
Consider this: Before the internet,the mfr. might price a line to distribution who would then provide inventory to integrators as several price points depending upon the integrators tier. This method allows for some price flexibility. However the integrator because of his proximity to the end-users situation, had by far the most 'flexibility' with price. Depending on the customer situation, he could charge wildly varying amounts. Now because of internet pricing he has lost that flexibility...
So yes, I agree with both you, Ari and the others that integrity is the way to go. But I am also trying to point out the 'real' drivers of the situation. To wit, your entry of 'validation testing' seems solid at first. But when I ask you are you doing the work or self or subbing and then proceed to ask what you are paying the sub, I assume you would comply, right? After all, is their an ethical difference between product cost and service cost? And if(when) the internet has shoppable 'service costs' you will be asked that question too. Because they're really trying to figure out what your making.
And no John I don't have an 'alternative', I wish I did, but for now the only 'value' I can add is my perspective on why we are where we are.
"Can you say what a new car should cost? I can't... Break it down, try to find its 'value'. Did you know buying all the parts of a ($50,000) car separately will set you back well over a million dollars(assembly not included)? Could you get a real handle on it? Maybe, but the time and expense would be enormous..."
The car analogy is a perfect example. The buyer doesn't care what it 'costs'. The buyer cares what the price is. So if a different type of rims or bumper or radio or a sunroof costs A, B, C and D, knowing that let's them make an informed decision (e.g., "the sunroof is worth it to me, the rims are way too expensive, i can get the special radio from a third party, etc.").
What many security integrators want to do is say, "Here's a car with 19" rims, a sports bumper, a Bose radio, and a sunroof for $35,289.... What, you want me to itemize what those components sell for individually? How dare you!"
Nobody buys individual options on cars anymore (unless they want to get bent over for dealer-installed ones) they all come with package options from the factory.
The simple solution to not getting picked apart is "bottom line pricing" like Saturn did, and many car dealers are doing now. The price on the window is the price you pay. No haggling, no bickering...
The buyer doesn't care what it 'costs'. The buyer cares what the price is.
Maybe in the Ivory Tower that's how it works but down here the hoi polloi are unimpressed.
You think people don't care about the cost of a car as opposed to its price?
Are you not aware of the ubiquitous ads from almost every dealership like:
$100 Over Factory Invoice!
We'll show you the Invoice!
Below Dealer Cost!
We've replaced our price stickers with invoice stickers!
Of course their replacing one scam with another, (no need to expound on the numerous reasons why any 'dealer invoice' that is shown to you is unlikely to help you).
The point is that dealerships find that people respond to these types of ads for a reason and whether its logical or not, thats the way it is.
Yes, because that relates to the price they are going to pay.
How many people but you care about something like this? "Did you know buying all the parts of a ($50,000) car separately will set you back well over a million dollars(assembly not included)?"
Yes, because that relates to the price they are going to pay.
Well said. Bravo!
And people will feel that they 'must' be getting a good deal if the integrator is not making much.
Here's the thing John: You say to integrators 'Open your Kimono!' and everything will be ok.
But you are not suggesting that integrators will need take a financial hit by taking your advice, are you?
I'm asserting that its naive of you to say that they won't, because although on the one hand buyers will feel more empowered by seeing the details, they will now have a much better idea of the profit the integrator will make and if they think its too much they will try to drive it down. Its really just basic economics, and I did not mean to bog down your noble ideas with what I thought was self-evident, but evidently was not.
What for me is a starting point is for you a sticking point.
As for your rhetorical "ad honinem attack"
How many people but you care about...
Only one way to find out: inline survey says?
No way I know. I guess I'm just jealous of Matt who asked for a survey, went to get a beer, whammo survey! Anyway 50 bucks says you repeat it within one year, honor system, just tack it on (or off) my sub.
Sorry about the hijack, i won't post on this thread again.
Did your occupational transition precipitate your conversational conversion, or vice-versa?
Before I got hired at my current job, I was completely unaware of just how much integrators were marking up their equipment prices. And, yeah, I get it, the profit margin was being folded into the equipment, and charging the customer 200% on the camera so your installation line or customer training line item should be lower isn't the most sleazy tactic in the world. But it only works when the customer doesn't have access to true pricing information. If the customer can google for pricing on an Axis part number, and see the 200% margin, or even a 60% margin (the days of the 200% margin is long gone), they will feel ripped off, but if you put that margin on the "service" or "installation" line, then it looks perfectly reasonable.
What was your philosophy when you were an integrator?
Oh, my philosophy was "mark up equipment costs and charge less for installation, it isn't like the customer knows what this stuff costs after all and I'm not including any part numbers on this quote, either, let the other guy do his own legwork". Which worked before you could google up nearly any surveillance product. It isn't like it's a bad idea, it's just not the world we live in anymore. I stopped being an integrator in 2007, although my dad and brother are both still integrators and I understand exactly what they struggle with.
If you quote an item for $360 and the customer finds it for $300 on some website, the customer will have a hard time trusting anything you say ever again. And it's too easy to find out what the true margin is of anything. Honesty is the best policy. Tell them what you're charging for and why. Every customer will try and haggle, but the reasonable ones will accept that you need to make a buck, too, and the ones that don't understand this are the customers who will eventually drive your business into the ground- better that they self identify before it's too late.
At $75 a pop, I want to sell you some oil changes... :-P
If customers are shopping line item pricing and beating integrators about the head with this, then it is pretty clear that the problem lies in the end-users understanding (or better; perception) of value.
The scenario John is describing is really the only way to help these end-users understand the value that integrators bring to the mix.
NOTE: If even this doesn't do the trick, I would suggest moving on and letting some other integrator waste their time and money.
That's right. A customer who is going to demand and check up on individual prices and heavily haggle you to meet his Internet or eBay prices are sometimes best to walk away from. You go and adjust your other prices or create add-ons to compensate, especially if it's after the first quote that had your markups, they'll treat you like the online retailer (who you can't compete against because of their volume) and buy only parts from you and then they'll look for someone cheaper to install it.
Sometimes best to leave your card and tell them "after you have that system installed and it doesn't work right and the service sucks, call us to come and fix it". That way you look like a hero coming in to fix it right, rather looking like a villian because you gave them the cheap price and service they asked for, even if that is what they asked for and it's not your fault.
Think from a customer's perspective. Just because someone price checks does not mean they are out to screw the supplier.
As an end user, it's very hard to understand the fairness of labor quotes because of the complexity involved. But product pricing is easy to check.
The point is that a customer, who is not a domain expert, can use product pricing as a proxy for determining whether a quote is fair. i.e., "Hey I checked the product pricing and it's comparable to what I can get online, I bet he's not taking advantage of me."
The average customer does not know who are the 'good' or 'bad' integrators are, so why should you expect them to trust you or become 'better customers' because it makes your life easier?
It's too much to ask for you to take steps to convince them. You have to make a show of it and say, "after you have that system installed and it doesn't work right and the service sucks, call us to come and fix it" ?
This is not my domain, so my comments are based on personal experience in other fields.
When we purchased a house, many times we made purchase decisions based on comparison of installed builder costs vs uninstalled on-the-shelf retail costs of equipment, with a 2x "notional" equivalent installed cost. In reality, after the initial construction, installation costs are often substantially greater than 2x.
So, are we the bad customer? Perhaps. But a customer needs some basis to support decisions for value-added, on-the-margin purchases. The comparison enabled recognizing that new construction procurement provided unparallelled affordability, which helped us make go/no-go decisions on particular installations prior to construction. It also helped us recognize some very _bad_ values, which often can exists in abundance.
Once a customer has satisfied their absolute go/no-go requirements, is there an opportunity for further expansion, considering that this is the moment when you are on site and have a deep understanding of their particulars? In our case, scope expansion was based upon realization that in some cases we would never again match the affordability the builder was offering (based upon our comparisons with retail equipment costs marked up 2x) and that if we ever intended to implement a particular feature, now was the time. In part, this was unique because of the open framing issues which substantially lowered installation costs compared to any subsequent effort.
The prior discussions have addressed product mark-ups as if they were all alike, but I feel that they are not. In the fundamental issue of customer trust, mark-ups of 25-50%, or even 100%, probably will not degrade customer trust. Most customers should understand that a vendor cannot be in business providing professional services unless they can make a reasonable profit.
I would try to tease apart "reasonable" mark-ups, on the margin, from > 2x mark-ups over visible consumer pricing. In specialty fields where vendors have relationships with particular manufacturers, customers might reasonably expect that vendors already have priviledged pricing over advertised consumer price of new equipment (LOL this is NOT related in any way to Ebay price). When mark-ups have the appearance of being excessive, the customer may begin to wonder what else might be excessive.
Moving to a different side of the discussion, in business we have been surprised to learn that a vendor's competence simply cannot be assumed. I was gratified to see John's #3 argument above to be, "(3) most importantly, new customers cannot be certain whether a supplier is trusthworthy and accurate in the beginning." THIS IS CRITICAL. I am sure that most business managers already have discovered how surprising it can be, how many people represent themselves as domain experts yet know less than the managers themselves about a domain that is outside the manager's expertise. If you live long enough, now and again you say "I don't know everything. Let's give this guy a shot" and you spend substantial bucks to re-learn that you cannot assume vendors will deliver on THEIR OWN fundamental promises: you DID know more than they knew, within THEIR domains! There's a lot of buffoons out there, and they'll take you for a ride if you are not sufficiently critical. You need to understand enough about their domain to know how to pre-qualify potential subcontractors before you engage them, because honestly you cannot assume that you have connected with the highly professional cadre which exists within any field.
While price is not irrelevant, money is not even the primary issue: vendor credibility is. Can they do what they say they will do? Will they complete or will they walk away when they've burned through most of whatever down payment they've convinced you to make? We've learned to appreciate and value that highly competent and professional cadre, but how does the customer get to the point of understanding that they are engaging that particular entity? Everyone tries to represent themselves as the vendor you want. What are the customer's tools to differentiate?
One tool becomes, comparison of price norms with proposal pricing. One can look only at the bottom line, but today one can also easily ascertain commercial pricing. If someone is spending hours picking your proposal apart with a fine toothed comb, they probably do not value their own time. On the other hand, if a 20 minute check exposes very substantial pricing discrepancies, is this likely to affect your credibility?
If you come into your relationship with strong recommendations from trusted sources, these issues are not likley to be relevant. Customers have already established some degree of trust and can feel more comfortable making a go/no-go decision based upon the perceived value of the solution vs the bottom line. Lacking such recommendations, how will the customer try to validate your credibility? In those cases, the recommended approach may have considerable merit.
One flip-side of this discussion is the fact that, once you have discovered these jewels in some essential domain, you never want to lose them. Suddenly the customer becomes very cognizant of the importance of nurturing and protecting these relationships which may have been difficult and costly (through misstep) to discover. Perhaps this point is more appropriate to the ongoing discussion on the merits of becoming a subcontractor. Those who deliver more than is due, and who ensure customers receive solutions rather than excuses, are seldom in want of work. Equally, long term customers recognize that on the margin, a moderate price premium is simply reasonable compensation for expected value and for peace of mind which otherwise simply cannot be assumed.
I have a feeling "after you have that system installedand it doesn't work right and the service sucks, call us to come and fix it" was tongue in cheek John.
I would definitely never say that to a customer and probably never deal with someone who did again - although there may be exceptions to that last one - but it's certainly something a lot of experienced specialists must think to themselves when dealing with certain types of customers.
[It's too much to ask for you to take steps to convince them. You have to make a show of it and say, "after you have that system installed and it doesn't work right and the service sucks, call us to come and fix it" ?]
My suggested comment was for after you've gone through the trouble of trying to convince them, but it's quite apparent the customer does not want to see "value" and is simply just trying to low ball you. Not all are like that, but everyone runs into them from time to time.
And I only meant it partially said "in cheek". :) I've never said it directly in that way, no, but what I may have said is, "Well, we would like your business, but if you do decide to go another route and need any assistance with problems afterward, here is our number and we would be happy to assist."
The message is usually clear, and a few times I have gotten a phone call a few months to a year later, "Yeah, you were right, would you help us fix these problems we are having." Mostly it was not the owner who called back, and I suspect when things go wrong as you predicted that kind of customer most likely will call someone else to fix the problems because no matter how nice you were, they don’t want to lose face to you by admitting they made the wrong choice.
"Well, we would like your business, but if you do decide to go another route and need any assistance with problems afterward, here is our number and we would be happy to assist."
Put that way, I would have no problem giving someone a second look and a test drive. I'd probably be calling you with my toughest problem, if that were the case. ;-)
"treat you like the online retailer (who you can't compete against because of their volume) and buy only parts from you and then they'll look for someone cheaper to install it."
You're not obliged to sell them just the parts. Include it as a term in the quote. The point of these additional line items/fees is to make it clear the additional value you are delivering as an integrator.
Or don't do that and let them assume that somehow you are profiteering off them.
Security integrators are always on the lookout for good products. Cheap and good preferably. Something new. Something that will give them a perceived edge in the market for 5 minutes. Nothing wrong in that really.
This problem however, goes a lot deeper than 307 $ v 347 of the same.
The problem in general is that most integrators are not focusing enough attention to the question on how they themselves provide value to their customers.
A skillful security integrator will ensure, right from the start of a project, that the focus is on obtaining security functionality that overlaps the business functionality of his client. Eg. getting to the root cause of the problem whilst focusing on building a full understanding of the clients business, needs and economic drivers.
If this is done properly, the result should be an improvement his clients business functions. If a little more effort is put in, actual numbers of savings and risk reduction will ensure a good continued dialogue.
There are no tricks to becoming a clients preferred security provider. Just lots of hard graft getting to understand their bussiness before moving onto a solution that can add real value. Every client has unique threats and risks that can impact the business. As our job is to find the balance of a solution that can help our client grow, we must also fully understand his level of risk acceptance. If we then do our job properly, the value that we provide will hopefully be an incentive to increase this investment.
Again, focus on the the client. Focus on his business. Not our product. Small or big businesses. It does not matter. The name of the game is the same.
If this is done correctly, the customer will never argue individual line items. And if they against all experience still do.....ask them which internet provider will take responsibity of the security function during their 48 hour repair/return time.!? If there is still a discussion, then walk away, just like Marty said. You have met a client without a security problem.
Sadly, this subject goes deeper stilll.
As only 10-20% of a true solution is about product, how does this subject really keep being an issue? It does, because our industry is still nowhere near a stage of being mature. Many customers still see their local security contractors as the "electrical contractor", installing kit only and not really being a partner in times of need. More often than not they are right in doing so.
Look at the facts and figures. How big are our clients losses in all segments worldwide due to security related issues (banking, transport, retail etc). How big is our industry. It is so small in fact, that it is embarassing in comparisson to our clients yearly losses. Why does it not grow more rapidly then, when there is a definite wish to increase bottom line and improve flow? Because - our industry does not provide enought value.....Because our model of business is not built around the business of our clients in the way that, say the IT industry is. We still want to install kit when others are taking responsibility for the flow of the entire enterprise. Come on Gents!
The precense of "price/product" integrators are sadly part in preventing our business from maturing and gaining a higher stature. (If you want to be the electrical sub contractor, please, no offense, we need you too.)
Bottom line? It is time for security integrators around the world to step up to the plate, take more responsibility in their involvement and in their solutions.
If you provide real value, build trust, 24/7 service and demonstrate your integrity by taking a holistic solution approach, the discussion of profit margins will fade. Stop worrying about the manufacturing industry's need for volume driven solutions. Be the turnkey provider that takes responsibility from inside your clients domain!
You will never be more profitable.- together with your client!
So, next time a client asks you: - Why should I pay you more money? , it really is time to look yourself in the in the mirror. It will tell you that you are in this for the wrong reasons and that you have been found wanting in the one area that your customer really cares about. His business and how to improve it. Security is a win-win game. Now go make some money!
"As only 10-20% of a true solution is about product, how does this subject really keep being an issue?"
What do you mean by solution here? On the average project we see, over 50% of the cost of the job is for products. This is a reason why product pricing is so important to most integrators, because how much they make on products is a big factor in profitability.
Even for projects where products account for less than half the total job price, this is generally because the installation is complex. Unfortunately, what typically happens is 80%+ of the cost is for commodities (either product resales or light construction work, like hanging cameras or pulling cable). Hard to push value when so much of the deal are such things. Yes / no?
"As only 10-20% of a true solution is about product, how does this subject really keep being an issue?"
Hi John. I was talking about the overall cost from the clients perspective and one which includes the total security function. The function itself being defined as mangement, planning, policy, procedures, practices, staffing etc and.... technology. If the intention is to add true value in the interaction with the client, then this total picture must be included and if not, atleast as a minimum - understood. If I understand you correctly, the "security" integrators that you are mentioning are more or less box movers? Part of the overall technology chain that can be traced back to the major producers asbsolute requiement for constantly higher volumes?
Is this subject then perhaps made easier if we label the integrators differently?
1. Those few that provide value to the clients business by providing an overall security function that fits like a glove around their clients business functions and
2. those who are only installling kit. E.g. (simplified) has the knowledge to position camera A in the left side of the room where backlight problems will be less of an issue + get the best of the surrounding infrastructure to provide an acceptable image in a control room. Etc, etc,
For the latter there is no way that they will ever make money on the equipment, except for short bursts of time when they are "first-in" and can close quickly. They are trapped in the same negative price spiral for electronic equipment as the manufacturers are themselves (your article on Panasonic spings to mind) so why, when so closely related to the spiral should their woes be any different. What is their true value to the client really? We can quickly agree that it is difficult to be unique in your value offerings when your focal point of attack is kit. But please, dear integrator, stop the whining on profits and start understanding your position in the thick of things. You might just fund that this is a position that suits and compells you. Although you are now competing with everyone and their dogs for the titbits.
My point is merely, that if you really want to make money as an integrator, start looking closely at how you can provide real value and thus move up the food chain. If this is not possible, the only other option would be to look more closely at the methods and cost of installing kit, seeing that this is where the expertise lies anyway. Perfecting by experience, so to speak. Not much mileage in this though unless you can do it very large scale. And even here the winds blow.
I appreciate that this is very much a technical forum John and we do love the value that you add, but I cannot help but feel that there is sometimes a lack of understanding in the various forums for what components (and I dont mean just technical) that shape a total security solution.
Those integrators who want more gold needs to understand better what ultimately drives their customers and this is only achieved by improving their knowledge of their customers core businesses together with a broader understanding of security.
Otherwise they need to understand their position in the market and make the best of it. There was a time when selling private alarm systems was a gold mine. That foodchain has changed and so will every other similar technology vertical. They need to start planning ahead because it will not get any easier. We need them to be profitable and stay healthy, but we do not need them to lable themselves as "security" providers. Internet competition should be a minorl part of this problem.
My hope is that we all get a bit more focused on the subject of security rather than technology. If we manage that, innovation will follow more rapidly and our customers will finally come to respect our industry as an equal team player in their own efforts to move ahead.
The recent perimeter incidents around three large US airports with full-blown, massively expensive, state-of-the-art technical solutions in play, clearly demonstrates what happens when technology is sold under the pretext that it will solve all the clients problems - - as if total security is something you can merely buy your way into, - if you have enough cash.
That said, we all enjoy a bit of kit talk from time to time. Keep it up John! and sorry for the long rant. Passion comes at a price I'm afraid.
I undertsand you have to provide a sense of value and stand behind it when proposing something to the customer, please don't think that I do not. I guess it's a matter of perceptions. The basis of my comments came from original posting where it was conveyed the customer wanted line item pricing to a fine level. I'm not opposed to breaking down costs to an extent, it just makes me suspicious whenever a customer wants a very fine breaking down and wants parts or SKU numbers.
As an end user, (purchaser), my issue is not that I can find products online cheaper. I already understand the issues that come with an online purchase versus an actual integrator selling, installing and servicing the product for me. The issue I have is knowing that the integrator I've chosen to do work with tells me I am getting volume discount pricing because of their size, and I know if I went with a smaller local integrator that i can get the same product much cheaper.
I know this to be true because I have over the years done cost comparison shopping. Sent RFP's to two or more separate integrators, one large with offices in my companies various cities and in other parts of the nation, and the others local small shops and only in one or two cities my company has officers and the local small shops who can't possible buy the same number of the products each year the other guy does and the price has always been cheaper with the little guy.
So were is my volume discount pricing they claim to be giving me due to their size the volume the do each year........
NOTICE: This comment has been moved to its own discussion: Why Are Large Integrators Charging Me More For Products Than Small Ones?
I came across this link earlier today... it was via Twitter (and LinkedIn) and covers how to answer those stupid questions hiring managers ask potential candidates during an interview. Since initial customer contacts (RFPs, scope of work conversations, etc) are a kind of employment interview, I found these words to be germane to this string:
"No one is going to overvalue your services, but plenty of people will undervalue them. You have to value them first, and valuing yourself includes knowing when to say "I'm not comfortable with that request." (then explain why) <---my addition
When you find your voice, your muscles grow. When you cave and cower and pretend that going along with any off-the-wall request or demand is the safe -- and therefore best -- option, your flame will shrink.
You will take less and less appealing and lucrative projects because you won't know where your own bottom line is. That is the opposite of empowerment. You will be a pawn in somebody's else game until the day you say "No." You will find your line in the sand, that day."
"Im not comfortable with that request" referring to customers who ask integrators to match internet line item pricing. Explain this statement using content from any of the wise comments above in this string.
I'm in Dubai and to tired to Elaborate but the industry has changed and those competing on price alone are going to either continue to struggle or die struggling.
Professor, much smarter than me, said on one sales conference that if you are competing with the same type of products, don´t sell the same product. Meaning, as John said at the start, figure out how your product differs from the other, for example warranty, service and add-on features. Now if you and your competitor are selling the same product, you have added some extra value on your product. And in the end, you have a different product and now it is the customers choice to make.
One thing that HVAC, electric and security installation companies do here in Northern Europe is that they give price to the installation using their own products and if the customer have bought some other products, the installation price is different (much higher). And this is ok for all and customers understand it.
If it comes to this, then the sales people haven't done their job properly. The expertise, design and support should be accepted as part of the price of the unit. Educate you clients, let them know that getting things wrong could result in a failure of capturing an incident. Explain that you're selling a solution and not a product.
If they trust you, they will pay for piece of mind.
Wow! Interesting string and it seems there's no shortage of opinions/positions on the subject. I can tell you, as someone new to this industry, but in sales for over 33 years, I've itemized at the Customer's request only a handful of times (early in my career); and in every instance, it's only opened the opportunity up to even more scrutiny. Why so many hours; your competitor is saying they can do it in ony 16 hours, why are you saying 24? What IS your labor rate anyway, this seems like a high number for this many hours? What's this overhead number?...and why is it so high? On and on; I don't do it anymore. I watch others in my office do it upon the Customer's request, and the results are always the same, hours and countless emails justifying every line item, every component, comparing your itemization to your competitors. I see all the hours wasted that could be better served going out and finding a Customer who gets it, and treats you like a professional.
I've always taken the approach that what the Customer really wants is to know they're getting a price that's not taking advantage of them and giving them the best value (monetarily and post sale support) for their investment. My approach has always been to produce a solution that won't leave a stain on my Customer's perception with their Corporate upstream, by suffering the slings and arrows of the inevitable disappointment that cheapest price does not necessarily reside with best post sale results in equipment performance and/or service support.
Bottom line? Well that's it isn't it; bottom line? You've provided a scope of work and I've provided my company's price to provide what we consider the best equipment (based on decades of experience in this field) to provide the solution you're looking for and keep you in favor with those above you by making sure it fits the scope perfectly and by supporting you in the event something unexpected should crop up. To make you look like the genius in the room for selecting my offering and if you think you can acquire that level of support on the internet, get your credit card out and get busy...oh and here's the number to our service department should you find it helpful.
Well, it used to take a lot of time and effort to scrutinize quotes, and only the biggest penny-pinching jerks did it. But googling part numbers? It takes seconds to do, and the payoff is huge.
I see a lot of people in here trying to convince themselves that the value they bring to the table is self-evident, and that most customers won't even comparison shop due to the strength of the personal relationship they have with the customer. And while that is probably true in some cases, I can't think of a lot of customers that won't do at least a bit of googling upon receiving a quote.
I can't think of a lot of customers that won't do at least a bit of googling upon receiving a quote.
Ari, as a consumer I know I do, mainly as a reality check and way to keep the dealer honest. Nine out of ten times I won't say anything to him even if the price is marked-up 50%. Why? I know how expensive it is to run a business and frankly I am often shocked at how little they make! For me I find it better to know what the 'pad' is rather than to play some 'inflate all the other numbers' and/or add 'new parts/labor' that's not necessary just to make his goal...
As I said before its easy to talk about showing the customer value, but the customer is normally clueless about whether its worth $50 extra bucks for the Axis camera with WDR or $100 for the Sony with better color in low-light... Just as I am when I was replacing a carbonater on my post-mix soda machine. The dealer quoted me two different parts w/desc but no numbers. By googling I could see that the dealer was basically setting his margin to be $25 no matter which one I chose!
Though I must admit I have a tendency to google so as to question design assumptions or challenge part selection. I'm sure alot of dealers hated me for it but the real experts enjoy it of course.
Unfortunately I can sometimes take it too far, like the time my wife was in the delivery room about to get an epidural and I just nonchalantly asked the doc 'Are there different kinds if epudurals?' and 'What kind are you doing?' and then returning moments later iPad behind my back saying "i've heard some studies show procedure Y to be more effective than X (the one he was performing), what do you think?", just as he was plunging the needle into my now mortified wife's spinal column... Needless to say I'm much more reticent now...;)
We had to go to a specialist for my wife's last pregnancy. During the initial consultation, not only was the specialist totally cool with me googling as he spoke, but he paused to give me time to read and even spelled stuff for me. Of course, that guy was supremely confident in his ability and his reputation, being a world class expert in the particular condition under discussion.
And that's the thing. A well prepared expert doesn't fear Google, he or she embraces it. A well prepared expert knows that the average consumer has instantaneous access to information that a few years ago would have been limited to a few experts, and doesn't care, because they are being straight with the consumer.
No consumer cares about a moderate markup, but a huge markup makes you look like a thief, and a huge markup that's easily discovered by two minutes on Google makes you look like a stupid thief.
"A well prepared expert doesn't fear Google, he or she embraces it. A well prepared expert knows that the average consumer has instantaneous access to information that a few years ago would have been limited to a few experts, and doesn't care, because they are being straight with the consumer."
Let me play devil's advocate here. What many integrators are saying here is that the average consumer does not know how to make sense of that information and that it risks the consumer making a worse decision.
On the other hand, security integrators are far more subject to price pressure from Internet research than are doctors.
I am with Undisclosed D on this. Don't give line-item pricing. If you want me to hand over a complete material list so you can verify I am providing all the same stuff, that is understandable. When I provide line item pricing I am then subject to being lowest bidder on a per line item basis instead of the project as a whole. If I was charging 20% less than all the other bidders for a particular line item, will the customer notify me and let me raise my price? I doubt it.
Line item pricing makes sense when it is Home Depot vs. Lowes (or ADI vs. Anixter). The cost to purchase, stock and sell wood studs, shingles, drywall, etc. is fairly predictable. Remodeling a home is far less so. Does anybody ask their builder to give them a line item breakdown and then haggle them over the projected cost per stud? No.
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