What Is The Average Security Integrator Net Profit?

This may have been covered before but what are the smaller integrators making in terms of net profit excluding owners salary.

For example we seem to be hitting 40% gross and 20% net for the past couple of years but should this be higher or are we doing OK?


When you say net, are you excluding the owner's salary / compensation? Your first sentence implies that you are not. However, net, by general acceptance, factors in all costs including the owner's salary.

For example, if an integrator did $1 million, and after deducting all costs plus a reasonable owner salary (let's say $150,000), if what was left was $50,000 than net margin would be 5%

As a point of reference, good profitable manufacturers average 10 to 20% net income. From what I have seen the equivalent for integrators is typically less than that.

Thanks John sorry for the confusion.

I mean for smaller integrators where the net profit is the owners salary:-)

Ok!

In that case, I would be less concerned about the percentage than the cash, you as the owner, are generating.

Net margins (and growth rates) become more important for outside investors who are putting up money and looking for returns on that stake.

So if you are making a good living, and you are not killing yourself, then that's what counts.

So if you are making a good living, and you are not killing yourself, then that's what counts.

And the #1 best place to do that is in Hawaii apparently. I bet John doesn't hire anybody local for that new job listing.

When welfare pays better than work.

Btw, to cross reference on the very large end, here are Tyco IS (integrator) financials: key point - net profit margins 10%

Thanks John, really what Im trying to get at is two fold:

1. What is a good gross percentage i.e. if we turnover $500,000 what is a good gross percentage (40% seems to be where were at)

2. After a 40% gross profit what would a profitable integrator take home out of that i.e. 10% or 20% of turnover? (we seem to be around the 20% mark)

Thanks

$500,000 is too low to focus on traditional corporate profitability metrics.

The key questions are:

  • How much do you, as the owner, take home? How does that compare to what you could do being employed by someone else?
  • How long and well would the business survive if you were not around?
  • How hard is it to get new customers? How tied down are you to a few customers?
  • How much are you growing? $500,000 is roughly 1 owner and a few helpers. Getting to a few million can help solidify it as an ongoing company.

Well what if you are a small company in the 500k range but trying to grow?

we currently have 2 installers, a part time office manager, part time marketing manager and about to hire a new service tech. The goal is to close more projects so that we can add more installers. Trying to see where we should be at margin wise to be competitive but still contain enough margin to fund growth.

if you have employee techs 20% is fan-freaking-tastic. If youre using contractors its about right.

If youre going to grow aggressively, be prepared for that to go down. Do yourself a favor, put yourself on a W2 with a reasonable salary and measure your net numbers AFTER your salary. Separate your job from your ownership role if youre going to try to build the beast. You can add it back in when youre trying to sell it in 10 years.

Operating margins normally move up and down as you go between and reach certain revenue / size plateaus. 20% net operating margin is good— but are we talking a more rmr focused integrator or someone just chasing one and done whale projects? In my experience from viewing financials from deals most well run integrators hover betweeen 15-22% net operating margin. I have seen lots of integrators between 1-5mm hitting anywhere from -5-10% margin though. There’s probably more operational up-side on a small integrator but their success is entirely sales talent driven. Which is a risk that probably negates the better efficiency upside.

RIght now we basically install and are done. They aren't even close to whale projects. Usually 7 to 10 days per project install time. We also are working on ways to increase RMR. We added intrusion alarms, and are looking for other ways to add RMR. Not many people want to pay any ongoing fees on surveillance systems. We are looking at cloud video but just can not see the justification or reason.

The big thing that concerns me is estimates and labor. On most of our projects, we do a lot of conduit, trenching and various other challenging cable runs. We do not do a lot of drop ceilings. But our margin is high enough that if a project runs over, it isn't a big deal. Guess we need to tighten up on that.

I think I will post my calculations when done. See what everyone thinks.

Does anyone else look forward to 3 and 4 day weekends just so they can catch up on work and long overdue tasks on your to-do list?

It's important to figure out what your true burdened labor cost is. I'm sure you realize this, but not enough people do, when a company employs someone at $20 an hour to perform service work that is billed out at $80 an hour, is not $60 a hour profit. Not when you factor in taxes, all the different insurances (health, workers comp, liability), benefits, vehicle cost, and all other overhead.

I am familiar with the term service burden and I know a $ 20hour installer costs us more.

I guess that is where the math gets tricky.

Do we include everything into the burden rate such as overhead, office manager, rent, or do we just include directly related costs for that installer, such as tools, vehicle, insurance etc? I think using just the costs involved with the installer is correct, because as you add more installers, certain overhead is not going to increase. We are not going to pay more rent, electric, internet, and costs like office manager are going to stay fixed for a certain amount of field techs.

Good question and I don't claim to know what the best answer is. But from our own experience, I can say one of the biggest growing pains we've had but is important to lay the ground work for now, because it can be a big problem later when your bigger and don't know it, is knowing and tracking where your costs truly are. What does a customer cost to service, and where are your operational costs. That's how you know where your money is being spent, or most importantly, lost. Because making profit is for naught if your costs eat it all up, and they'll eat it up quick if you don't know where your costs truly are. This is where maybe an experienced business consultant, or at least a very good CPA, might come into play.

Been there.

Had a really good Cpa tell me that most dont know there bankrupt untill upto a year , due to not counting all the cost

I have had many Jobs which i could not count the loss in time due to extras that we did not get paid for or trip , travel , associated expenses not paid for.

When I review appinions on this site, i see general views of what can happen

but when your really detailing the cost you see a different picture.

Project: Bid, Extras, Final Price

Cost: Estimating, Job Walks, Pre-bid, Conference s , Labor, Materials, Trips, Travel, per diam cost, unforeseen programming , return trips to fix mistakes, unforeseen clearance time, unforeseen badging issues, unforeseen , Maint. issues, trucks, tools , not having what is needed when you arrive because of bad planning or unforeseen weather conditions, Lack of proper planning, preparation, prevention for a better word

had a trip about 4 hours to and from each way , when started it was clear , had 2 roads to travel , both same distance , one landslides , road closures, other rain driven problems ( actual 12 hour trip each way , plus expenses .

the other : snow , ice , weather related problems

actual trip cost was tripled due to these related cost

how do you estimate this ?

I have been working on Projects where breaks, Lunch, waiting on other's problem's actually drove the cost out of reach .

how do you estimate this ?

You actually create figures for this and if all is well it is profit or bonus's

sometimes the bottom line is not a figure or number

Dollar value, or percentage , or a perk

Hard to say as the benefits outweigh the profit

assets

purks-boats,cars,trips, tools,training etc

if you count all the extra's the company own's but i get to use it's high

if you count only what is in my bank account then it's low

but I bring what most would call mid income - low income

the company however brings in a great income

so it is how you look at profit.

The company pays all expense's, overhead, trips, vacations, cost associated with the working of the business

sometimes it s better not to make great bank account profits

let the business make all the profit

after being in business for many moons , you learn not to keep the gold in the house, better to have all the rights and use as you see fit , not say its your s , and live like a king on a poppers profit.

some else pays all the bills , i just work for the company store and use all the toys and play like a boy

Gotta love big brother.

That's one way you can tell if you are a successful, above average profitable company. It's when you switch your goals of having 50% net to trying to get that down to 5% when big brother comes knocking.

It's a double edged sword for sure. Because there is no feelings of success when you make all that hard earned money and then forced to hand it over to a bunch of crooks who lie, swindle and steal for a living.

does it pay for commissary as well?

Pretty sure writing off boats and vacations as business expenses is fraud.

The other potential issue you may have is if you try to sell the business, and you are not showing a profit, the business has no value. Kind of hard to start pulling all the perks out and telling potential buyers the business pays for my boat and vacations.

Not fraud if you follow the rules. But unfortunately if you get audited it's the auditor who makes that decision. Which would fall under my "swindle" column.

Most of Christopher's post was from an employees perspective, but did kinda change to the owner at the end. Bet either way, it could possibly lower your sellout price. All depends on the buyer. It's worth whatever somebody is willing to pay. If Christopher's neighbor wants to buy him out, not gonna matter much. But a Fortune 500 company probably gonna pass on that deal.

wrong again , I have owned the company for over 25 years

many years of taxation and many bad accountants, cpa's and incompatant irs people .

Know the code, know the rule , know how to apply

letter of the law.

fyi , i have been on both sides of the fence

depends who owns it , and how the company use's it.

process of use and ownership is key , purpose of asset

The other potential issue you may have is if you try to sell the business, and you are not showing a profit, the business has no value. Kind of hard to start pulling all the perks out and telling potential buyers the business pays for my boat and vacations.

Also makes it much harder to get credit from banks when you need capital to fund growth.

FYI

Fraud is intentional deception

outright benefits for company employees and company parties , company related is not fraud

letter of the law

seen too many business's large give vacations, with all the perks as write offs for themselves

what tax bracket

how its used

why it is in use

You cannot keep a boat, yaught in your backyard and claim a tax write off , or go to mexico on a regular basis and call that business when your not doing business

Where is the common sense

Follow the tax rules , and get someone who has common sense and knows how to do coorporate taxes. not personnel

not the same

I know from a bad cpa who did not understand the difference and cost me greatly .

YOU have to follow letter of the law

if it says 20% , 2% of the time you have to follow , and great documentation is key

Document everything with detail and trails to support trip, purpose, place , Why.

You cannot keep a boat, yaught in your backyard and claim a tax write off , or go to mexico on a regular basis and call that business when your not doing business

Well that is a little different than the first post where you said

assets

purks-boats,cars,trips, tools,training etc

if you count all the extra's the company own's but i get to use it's high

To me, that implied that the business paid for everything.

I think we are in agreement to an extent. I have a car that I use 90% for business, site surveys, getting to meetings etc. I happen to use it on the weekend sometimes. It is fully lettered so I could also say I was driving around advertising.

Sometimes, I go to Starbucks and do "Market Research" on the surveillance system there, and have to buy a drink to blend in....

So you are correct, if there is justification for the asset as a business expense, then you would be good.

The other potential issue could be penetrating the corporate veil and/or losing all those assets if the business is sued.

letter of law , if i own one , the company owns one , I drive the company car 99% of time , then that is a perk

If You work for me and you drive to job , that s your expense out of what I paid you, your car, insurance, gas, maintenance,expenses, food

I get a hotel , eat 1st class , drink 1st class for the company

If I drive , I drive the company vehicle everywhere, as the law states , letter of tax law.

If I go out of town , I talk to anyone , give a business card , tell them about my company , perspecitve ( asis ) that is a vacation , planned event , use all the extra time to do what I want , the co. paid all expenses , I write off 100%

If you go on vacation , 100% out of your own pocket

that s the different

the Las Vegas trip is tax exempt because I planned it , used the right timing , brought family , had a business trip , education siminar, great Hotel

That's a perk

If you go to Las Vegas , You pay 100% , that s the difference , planning purpose, perspective on company values

I know too many business's who own condo's, house's, house boats, yaughts , vacation suites that they use for business and tell me that is not a perk , benefit or value

If you live like an employee , your whole life you think like one.

If you live like an owner, you will think like one

YOU are the company you keep

and think just like that company

good or bad

I grew up with lots of elderly hard working people and learned to be a good employee

once i owned my 1st business , that s what changed my perspective

made me grow up, learn what , why, how, who to associate with .

YOU are the company you keep...

Even if you sell it?

I am trying to create a spreadsheet and the biggest challenge I have is working variable expenses in, especially COGS. I know rent and utilities are xx per month. Techs get paid xx/hour, so many hours per month, workers comp is XX per $100, etc.

But how do you figure COGS per month? I am taking our COGS for 2017, and dividing it by 52 to give me an average COGS per week. Does that seem about right?

Do you use any specific accounting software? I ask because those packages typically have a way to generate a report that shows that (generally on a monthly or quarterly basis). I'd recommend you use accounting software rather than a spreadsheet since such software has logic built in to handle those issues.

Related, do you have an accountant? It's the type of thing they should easily be able to do and provide to you.

Yes, I have QuickBooks and I did run a P/L statement to get our 2017 costs.

What I am trying to do is forecast and try to determine what percentage of markup do I need for labor and materials, to make XX to cover overhead and make xx profit.

Labor is easy. 40 hours per week per installer. COGS, not so much as it depends on what the client buys. I can do a 30 camera job using all Dahua, or the same job using Milestone and Axis. Labor will be almost the same but COGS will be completely different

I may need 60% markup on Dahua but only 20% on Milestone/Axis to reach the same dollar amount.

QuickBooks is not going to do that.

My accountant may be able to help but I suspect we are about to enter his busy season.

NOTICE: This comment has been moved to its own discussion: Forecast And Try To Determine What Percentage Of Markup Do I Need For Labor And Materials, To Make XX To Cover Overhead And Make Xx Profit