Why Are Large Integrators Charging Me More For Products Than Small Ones?

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 where is my volume discount pricing they claim to be giving me due to their size the volume the do each year........

NOTICE: This comment was moved from an existing discussion: If You Hate Getting Your Quotes Picked Apart, Do This

It's possible the smaller integrator is giving you better pricing simply to get your business, while the larger one isn't so worried about whether or not you go with them so they're looking to squeeze every penny out of you they can, knowing you'll only be buying a small amount from them anyway.

It's also possible the smaller supplier has a shorter supply chain and thus fewer levels of markup. Case in point: we get our Dahua-made cameras from a US reseller who gets them straight from the factory. A local supplier of ours also brought in some Dahua cameras, but they get them from a different US reseller who gets them from some other source who then buys from Dahua... and if we want to get them from this local vendor, they naturally want to charge more because it costs THEM more, after everyone along the way has added their own little markup.

My experience has been that the larger national companies have a higher overhead and that this offsets any volume discounts on products that the bigger company may receive. Larger companies also tend to be more bureaucratic and the people at the local office level may have less flexibility in lowering prices to win a job.

I suspect larger integrators have fairly large overheads and this forces them to do higher markups. Security integrator is not a business that really benefits from economies of scale (i.e., cost structure declines with greater size). It's inherently labor intensive and it's hard/expensive to organize / coordinate such organizations.

A small outfit with a tiny shop and just a few employees may be able to profit with lower markups than a larger one, even if the larger one is getting 5 or 10 more points discount.

The smaller integrator may also simply drop-ship some products rather than carrying an inventory, which saves them a lot of overhead.

Why expirence has been its the over head. I had a guy who was a friend of mine and one time I asked him the price a monitor for me. Just a simple Security CCTV monitor in the old days of tube monitors. I gave him the brand and model. I asked him to act like he did not know me. I said I do not want the I know you price. I wanted no special price. however I said price it like this. I cold called you and you never met me before, give me that price plus add 25% to that price before you provided the me the price. At first he refused and stated DAmon, I could not do that to you. Then I insisted and stated he would not insult me on the price if he did just what I had been asking him for. So he gave me a price. He was still $300.00 cheeper than the larger integrator. I called him and wanted to make sure he had provided me what I asked for mand was not trying to give me what his gut was telling him to give me because he knew me. He insisted that he could sell me the monitor much cheaper ten quoted and if I wanted a new quote he would be happy to send over a knew one but the original one was what I had asked him to send over.

I purchased the monitor from him at the hire price, and still saved $300 over what I would have paid if I had not shopped around for a monitor. As far as the larger ones keeping an in house inventory. This was the cae in the old days, however many have not done this in some time. Especially on new installs. However they will keep certain parts on hand when you sign a maintenance agreement with them. However this is only on certain parts. Not everything they have sold you. This is only on parts they will use in a 30 day period at all of the their clients. They dont stock unique do to the application specific parts.

In my experience it c omes down the overhead. They want to see profit on everything, not just parts, or just labour. Inventory is really a non issue, as Damon stated only the most basic (cheapest), and most used parts are kept for minimal stock. Cameras, Recorders, Monitors and all the big ticket items are ordered when needed.

As we all agree it's overhead, this is a good explanation of why you do not see great roll-ups or a few huge companies dominating the security integrator space - unlike many industries, getting bigger in security does not provide all that many huge advantages and comes with some significant negatives.

What I'm hearing from John (and others) is this:

1. The large integrators have higher overhead and therfore higher prices.

2. The large integrators have generally lower quality people.

3. The large integrators don't carry large inventories.

Can anyone explain how/why they ever got so big?

One-stop shopping? Exclusive lines? Marketing Moxy? SLA's? Payola?

...(companies doing a few million a year in revenue) and larger ones (doing hundreds of millions in revenue)...

That's a factor of ~100. Surely the purchasing power advantage is akin to the local Ace guy vs Home Depot?

What's the typical revenue mix look like for product/services at the different size integrators?

I also see everyone easily explaining why Damon has had this experience, but few validations of actually seeing it first hand (from either side of the transaction).

@Damon, is your experience with this one large integrator or have there been others?


Chris, I started a new discussion: Why Buy From Large Integrators?

The answer is simply bigger overheads and marketing budgets for the big boys. The little guy can't afford to Spend much in marketing or having a sales team, therefore, they rely more on word of mouth and quality of word to get them more Budiness.

Damon, what makes an integrator an integrator in your eyes? Is it the companies technical competency? The number of employees the company has? The safety certifications which they carry (huge cost in business today!)? The type and size of the companies insurance policy? The number of manufacture certifications which the employees have? The degrees which the employees have? The number of service vehicles on the road to take care of you? The years of experiance? All of these and many more items make up the components of what a true Integrator carries for cost which need to be part of a products markup. I would believe that none of these exist in an online world and hence the price difference.

The small guy today hasn't got there and may never. He usually is setup to take care of one customer at a time and your troubles will be dealt with but usually when he gets to them. The small worker (I can't call them integrators) has a place however the RISK is higher unless all you want is the cheapest price for the part and then maybe you too are the small guy?

Curtus, the comparison I believe Damon is making is between smaller integrators (companies doing a few million a year in revenue) and larger ones (doing hundreds of millions in revenue). While I understand your point about cheap online sales, Damon was not presenting an example of buying online vs a large integrator but going to a smaller integrator.

As a side note, I've dealt with many integrators over the years and the smartest, most dedicated ones are rarely from huge integrators.

John, thanks for the clarifaction and sorry if I misunderstood the comparison.

I too believe most large integrators do not meet the needs of the more educated clients as they generally are not current with technology and system optimization. The large integrators (measued by millions in revenue) are typically doing someting other than security to obtain the millions in revenue and that focus is what management leads them to work at. This said I do believe as the IT sector further integrates into the security space (pushing the thermostat, fire alarm and sprinkler guys out) we will will see better deployment of technology and support systems. (we may now be drifting from Damon's original topic)

OK, Back Im back in.

In any business, growth is either organic or inorganic. (Google this for definitions) Alot of the biggest guys in our industry got that way almost exclusively through inorganic growth. One company buys another, who in turn buys another, who in turn sells the Security division off to another, etc etc. It has been my career experience that this is generally not good for the long term interests for the end users. I have no data to support that, Im just saying, my CAREER EXPERIENCE, which is vast, consistently follows that trend.

In larger organizations, there are more layers (read: people). These layers cost money. LOTS of money. And using the premise that businesses are in business to make a profit, these larger organizations have a much higher threshold for break-even than a smaller company. Smaller companies have fewer layers, thus lower costs, and thus a lower break-even threshold to stay profitable.

I want to state unequivocally, and I'm completely prepared to debate this point ad-nauseam, that doing business with these much larger companies does not consistently result in a better end-user experience. Smaller companies react quicker to their customers needs, there are less approval layers in accomplishing objectives, smaller companies empower their employers far more than bigger companies, smaller companies can adjust to trends faster, and smaller companies listen. I don't want any vendor of mine making decisions or trying to accomplish what I need done at a glacial pace. And neither do my customers. Time is money.

Thus, smaller companies are more nimble. They react to trends and new technologies far faster than the big ones and I truly believe (and I agree with Mr. Honovich) that the most talented and dedicated people this industry has to offer can (often) be found working for the smaller integrators.

Getting back to costs, always remember that data and metrics can always be manipulated to achieve a desired result. If you start bending the data and the metrics towards things like "Cost per employee" or "Cost per man-hour worked" or "Average cost per this and/or average cost per that when blended with the other thing" sooner or later, you are going to get the answer that you want or the answer that you are looking for. And when you do, just remember one thing......

It still might not be the truth.

Larger Companies have larger overheads and thus have to charge more. But you dont always get what you pay for.

You are really resurrecting some old threads from the dead here...