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.
| 01/06/14 03:50pm
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.
| 01/06/14 05:17pm
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
01/05/14 06:34pm
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.
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?"
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?
01/06/14 03:12pm
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.
| 01/13/14 04:57pm
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...;)
| 01/13/14 07:55pm
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.
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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