Integrators, Disclose Your Exact Product Markups To End Users?

Every so often, I hear about integrators disclosing their exact product markups to end users. Basically, they show that they bought Camera X for $212.48 and will sell it to the end user for $247.63 (or whatever the number might be).

Typically when I have heard it, it is for large customers that have significant pricing power and can demand such transparency / accountability. However, there is also some though that this is a fairer way to do business.

Recently, we have been talking about the flaws of two common approaches:

  • Low bid RFPs forcing end users into sacrificing quality and exposing risk to change order games
  • Vague integrator proposals that might be screwing the end users with massive markups

Disclosing exact product markups offers an alternative to those two.

That said, I am sure overwhelmingly this response will be negative to this idea. So good idea, shoot me down, please!

Nope, that's a fantastic idea! Of course, I think I might be on the other side of the fence than the majority of subscribers to this site. Even if they disagree John, feel free to provide your insider knowledge to this area as well.

Mark, good to hear! We have quite of number of end users but until the last few months, we did not have that many really speaking up in the discussions. I am glad to see that is changing.

Asking for this depends on size - a customer buying a $2,000 or even $20,000 system is unlikely to get a positive response. But once the size gets close to or over $100,000 I bet a number of integrators would consider this. If your purchasing is around or higher than those levels, I'd start by asking.

If you demand something specific, like no product can be marked up over 10%, expect quite a number to refuse to do business with you (unless you are buying millions of dollars worth of equipment and at that point, you should be negotiating directly with the manufacturer, even if the local integrator is filling the order and installing it).

I don't see why the integrator cost would matter so much since it's the final price that would matter the most to an end user. If a camera costs me $500 and I sell it for $580, and it costs a competitor $520 and he sells it for $590, is that customer really going to pay more for the camera buying it from my comptetitor because they're making a smaller margin on it? No, they'll buy it from me because it's cheaper overall.

But for a contract that involves ongoing purchases for a year or more time period, yeah the end user (mostly large enterprize and government) will want some sort of fixed prices, so it'll be a bid request for so much percentage off MSRP for large items and no more than so much percentage markup on small items. That way the end user gets the lowest fixed cost and it's less risk for dealer against rising prices.

But if someone wants to buy a $20,000 (with installation and warranty) and wants to know our cost, yeah we'll tell them to find their nearest trunk slammer, because that person will probably end up going to Costco or eBay anyway and pay Bubba down the road or their janitor to put it in (I have seen it happen!) and that's not the business we're in.

Its definitely rare, but we have customers who we have worked with us for many years, that have stopped bidding out their work (just purchasing directly from us); who we have talked about the numbers to. They haven't seen the spreadsheets with hard numbers, but they know our standard discount rates, we give them the MSRP price lists... they can figure out the rest. They understand on larger projects we get higher discount rates, and will pass part of those onto them.

They understand we need to make certain levels of margin to be successful, and as long as we always treat them well, they want us to be successful as much as we want them to continue to buy from us.

That's sounds like the goal to me- finding that balance for a mutually beneficial symbiotic relationship versus a parasitic one.

When I was an integrator, I used to study bid results with great detail. Just as a way to learn about the competition, more than anything. Over time, you learn all sort of things : like who won a job because they forgot to include stuff, or who is friends with whom, etc...

If everyone discloses cost to end users, competitors have the chance to review it. If I see my arch-enemies get better pricing than me from the same distributors/manufacturers I work with, you'd better believe my RSM or inside salesperson is getting lit.

Brian, interesting point. There's certainly a risk that it will be shared but there's a difference between bid results and negotiated deals. Bid results often must be legally disclosed, regardless of whether the end user likes an integrator. By contrast, with negotiated deals, the end user can simply refuse to share such details with rival integrators.

I had to do this in the past with municipal clients where we had a blanket fixed markup and labor rate agreement in place with them. They wanted to see the actual receipts or invoices for verification. Aside from instances like that, it was unheard of to do such a thing.

In my very first ever CCTV job, I was willing to do the job for free. I told the client here is what it is costing me, here is what I am going to do - how much do you want me to take you decide. He gave me 25% mark up. It is funny, but I still have a strong relationship with this client, and now I quote normally without disclosing my cost, but he doesnt care - he knows I charge reasonably.

The worker is worth his wages. Integrators have worked long and hard with manufacturers to develop partnerships that are mutually beneficial. Putting margin on hardware is not a crime.

Forcing integrators to disclose hardware margin only commoditizes the solution. End-users should be encouraged to buy on value, not strictly on price. Camera system one is $10k for 20 cameras. Camera system two is $30k for 30 cameras. Does system two give three times the value or more? If so, than buy it. Does integrator one have a reputation of low bid then change order to death? If so, slash their tires in the parking lot.

If you, as an integrator, have not figured out how to promote your value over someone trying to buy business, you probably won't survive.

Certainly integrators should deliver value and be paid to reflect their value but should that price/premium come from the product or labor side?