Integrators Oppose Labor Only SalesBy: John Honovich, Published on Dec 04, 2015
100+ integrators told IPVM their views on selling labor only, with the end user buying products direct.
"As an integrator, if an end user wanted to buy the products themselves direct and only labor from you, would you do it?" and
"Why did you choose what you did? Any conditions or factors come into play?"
The clear response was negative, with even the minority of those definitely willing to do it consistently citing limitations and penalties for doing so.
These results provide clear insight into the dynamics of the integrator / manufacturer / end user relationship, especially important as more and more products are sold online / direct.
The themes revealed were:
- Most integrators make their 'money' / profits from selling products.
- If they do not sell products with labor, they will raise their prices for labor significantly.
- Even if they do charge more for labor, many / most are still concerned about problems coming from products being bought separately.
- The biggest problems cited were lack of control on the quality and suitability of products that would lead to no warranties on products and risks of conflict over who was at fault for problems (e.g., was it the installation or the products at fault).
- Outside of charging significantly higher labor rates, the other most common justification for selling labor only would be if the integrator was slow or had down time.
For end users who hope to save money on buying products direct, these results show that trying to do so comes with significant risks and likely higher costs on the labor side.
Money Made From Products
Underlying integrator concerns was that their businesses typically require re-selling products to turn a profit:
- "Profits come from material and services, not from labor."
- "Labor is not a reliable means to making a profit."
- "Take any security integrator's company and strip out the margins on product and the financials will fall on their face"
- "We make our standard margins on product. Labor margins are subject to fluctuation based on unexpected circumstances which the product margins can sometimes help off set."
- "Each hour sold carries with it an expected amount of materials sales over the whole of the business. Our budgets are based on that math, so selling labor only really screws with profitability of the entire company and is done with certain caveats. The labor rate is higher to help compensate for the missing parts revenue"
- "We make more money off equipment than labour in most cases. Labour-only would not be sustainable for us as a business - you can never even bill 8 hours a day because of travel time, lunch breaks etc that nobody wants to pay for."
Because money from products is so crucial to most integrators, the most commonly cited tactic in dealing with end users who want to buy products themselves was to charge much higher labor prices:
- "Our margin on labor would be much higher"
- "We charge higher on labour and charge to support the equipment (tech support calls)"
- "Our hourly rate for subcontract work is higher than our hourly rate we charge our customers."
- "The labor rate would have to be high as we make most of our overhead and profit from the sale of equipment."
- "Labour would be quoted at time and material rates an substantially higher than our standard rates."
- "would be a good a percentage higher than a full turn key job."
- "The customer will have to deal with any warranty issues themselves, which takes that off of our plate, or pay us to deal with it."
- "It would have to be at a much higher labor rate than if we were selling the parts as well."
- "You have to charge a premium because this isn't something that can be profitable for a company that has to support a workforce, insurance, vehicles, comp., etc."
- "If there was some strategic value to performing the work I would do so, but only if I can provide the labor at a much, much, higher margin."
Related: Manufacturer Markups
We believe these findings underscore the importance of markups integrators can achieve from different manufacturers. Consider our Axis, Avigilon and Hikvision markups report, there is a clear relationship between integrator loyalty and the amount of markup a manufacturer enables an integrator to achieve.
Even for those willing to sell at higher labor prices, the next most consistent theme was that no warranty would be provided, unlike that which is common when the integrator is selling products:
- "We would not warranty any owner supplied product nor be responsible for design or operation."
- "It would have different strings attached as what's is covered service wise as warranty"
- "The agreement would have to very specific on lost time due to DOA's, improper design, product selection. Would need a release on design, warranty, liability, etc."
- "Also there is no warranty on anything except if there was some issue with the physical installation."
- "What about warranty? If a devise goes down who pays for the revisit, consider the finger pointing."
- "Disclaim any responsibility for the product selection or warranty, which can be tricky, but it's eminently doable."
- "If they buy the products themselves, they're on their own after that. If something goes wrong, we won't support it without further labor costs to the customer."
- "I have in the past, but found that when cameras die or are broken the customer will blame the tech"
Indeed, many integrators emphasized that a customer even asking for this is likely to be a bad customer:
- "For quite small commercial or most residential customers, buying products direct is driven by price savings alone. Because of that lowest total cost sensitivity our services and expertise are going to cost well above their budget. They need a local trunkslammer for such installations."
- "If the customer is that crazy about saving a few dollars then they probably don't see the overall value that we bring to the table. This would be a red flag as to their overall mindset."
- "If someone is unwilling to purchase from you, than theres a pretty good chance they wont pay for service calls either."
- "Most likely, if someone wants to save money by buying the products themselves, they won't want to pay the price of a quality installation either."
Related, many integrators noted that the outcomes of such projects are problematic for both sides:
- "You end up wasting time a) repairing an issue that is not your responsibility or B) wasting time explaining to the customer that it is not your issue to deal with."
- "We typically get stuck answering technical support questions for a product we don't sell and installing equipment that is subpar, and using low quality cable/connectors that cause more problems than they're worth"
- "When things go wrong with equipment customers experience cognitive dissonance - Everything is your fault and you need to deal with it, not the equipment they purchase or the manufacturer that made it."
- "This creates division between the customer, the integrator (me) and the material supplier. In the scenario of a DOA device who is responsible for getting the device covered under warranty, the labor to return/exchange it and who pays for the extra labor involved. It increases both the customer's potential for headaches and mine."
- "I would still own the job I would be responsible for diagnosing if it a problem stems from the installation or the hardware and it would be expected for free and immediately."
A few noted that they might consider it to see if that could lead to bigger, more profitable business in the future:
- "Are there opportunities for service, maintenance and support agreements as well?"
- "If its a new relationship that could lead to more opportunities"
Last Resort / Slow
A number did note that, while they do not like labor only sales, that they would do it rather than have their techs without work, noting:
- "Keeps my guys working during the slow season."
- "Maybe, but only if we we're slow on projects and needed the work to keep busy. Otherwise, there just isn't any money in it."
- "It is great for filling the gaps between our own installations within our organization."
- "Keeps the employees in work. Helps fill the gaps in work flow."
- "Obviously we'd like our techs to stay busy"
Only a few integrators were confidently and definitively supportive of selling labor only, notably:
- "When will the Security Industry realize the smarts we apply to our clients are worth far more than the industry typically charges?"
- "You've got to be a f***ing idiot if you won't sell labor-only jobs."