Markups / Margins Tutorial

Author: John Honovich, Published on Apr 16, 2012

How much an integrator marks up a product when they sell it to a customer has a big impact on both the total end user cost and the profitability of the integrator. Equally importantly, markups have been going down significantly over the last decade - good news (sometimes) for end users and bad news (most of the time) for integrators. In this note, we explain the basic forces and issues in marking up products.

Calculating a Markup

Here's how to calculate a markup:

  • Integrator buys a product - typically from a manufacturer, distributor or reseller. For example, the integrator pays $1,000 for an indoor PTZ camera.
  • Integrator sells a product - typically to an end user. For example, the integrator sells that indoor PTZ camera for $1,500.
  • The total markup is the difference between price paid and price sold. In our example, it is a $500 markup (i.e., sold for $1,500, bought for $1,000).
  • Percentages are most often used to communicate markups. In our example, it is a 50% markup as the camera was sold for 50% more than it was bought.

Markups vs Gross Margins

Markups and Gross Margins should not be confused. While they track similar activities, the metrics are subtly different.

  • Markup Percentage = Price Sold - Price Paid / Price Paid
  • Gross Margin Percentage = Price Sold - Price Paid / Price Sold

Returning to our indoor PTZ example, the gross margin is 33% - $500 markup divided by $1500 price sold compared to a markup of 50% ($500 markup / $1000 price paid)

Neither metric is 'right' or 'wrong'. Typically, operational people will speak of markups while accountants will use gross margins. However, be sure you are consistent as confusing the two can create problems.

Factors Impacting Markups

A number of important factors impact markups:

  • Competitiveness of the Region: The more suppliers in a region, the lower the margins will typically be. With more suppliers, a customer can benefit from suppliers competing and aggressive suppliers offering lower cost. For instance, large metropolitan areas typically have lower margins than remote tropical islands as the former might have dozens of suppliers while the latter may only have a few.
  • Availability of the Product: In security, some products are hard to buy outside of limited, manufacturer sanctioned, channels (e.g. NICE, Verint). However, others can be bought anywhere (e.g., Axis). The Internet is an especially important force here. If a product can be price checked quickly online, it is much easier for a user to push down pricing (and therefore margins). This is why many integrators (for better or worse) prefer to recommend products with limited availability.
  • Purchasing Process: Typically, customers who use formal, public bidding processes will reduce integrator markups. The extreme of this is the reverse auction. By contrast, negotiated purchases will usually result in better markups for integrators and higher costs for end users.
  • Size of the Customer: The bigger the customer, the more markups will be squeezed. Wal-Mart is famous for buying security products direct from manufacturers and at tiny markups. While Wal-Mart may be the most extreme example, even mid size end users can use the lure of a few hundred thousand dollar order to reduce markups.

Included in Markup?

While end users might always prefer a lower markup, this often comes with hidden costs and problems. When examining the value of a price and the size of a markup, it is important to consider what the markup includes:

  • Support: A key question when buying products, is what level and amount of support is included. Often, suppliers offering super low prices included little to no support. Equally important, a manufacturer may deny technical support as well if the product was bought through a non authorized channel.
  • Maintenance: Typically, reliable integrators will include 1 year warranty for product and labor. If the product fails or needs to be repaired 6 months later, that will be done free or charge to the end user. However, this is not universal. Some suppliers with super low prices may charge additional fees or refuse to go on site to fix.
  • Shipping/Handling: Some integrators will not charge separately for shipping and handling of products, simply bundling that in to the price of the product.
  • Bench Testing: Often, if an integrator is also deploying the products, they will include the cost of bench testing equipment in the price of the product.

Whether a 20% vs a 40% markup is better or worse depends significantly on what associated services are included in that markup. Buyers need to carefully check these detailed points.

Actual Markups?

In the second half of this series, we examine actual real world markups based on our Spring 2012 survey results.

3 reports cite this report:

Access Control Markups 2016 on Nov 09, 2016
  Access control markups have remained solid, according to new IPVM integrator survey results. Response Breakdowns We asked...
Lenel vs Software House Markups Analyzed on Oct 14, 2016
This note breaks down and contrasts the markups between two big access brands: Lenel (OnGuard) versus Software House (C-Cure). Our analysis of...
Access Control Markups / Profits Revealed on Jul 23, 2014
How much profits do integrators typically make on access control projects? Is access one of the last havens for fat paydays, or are profits being...
Comments : PRO Members only. Login. or Join.

Related Reports

ISC East 2018 Mini-Show Final Report on Nov 16, 2018
This is our second (updated) and final show report from ISC East. ISC East, by its own admission, is not a national or international show, billed...
Magos Radar Company Profile on Nov 12, 2018
Magos America General Manager Yaron Zussman admits when he first came across Magos, he asked himself: "What's innovative about radar?" Be that as...
Video Surveillance Hard Drive Size Statistics 2018 on Nov 08, 2018
What is the most common hard drive size for video surveillance? 150+ integrators answered: What size hard drive do you most commonly use? What...
Favorite Video Surveillance Hard Drive Manufacturer 2018 on Nov 06, 2018
Who is the favorite hard drive for video surveillance use? 150+ integrators answered: What is your preferred brand/model of hard drive for...
Worst Products on Nov 03, 2018
Security integrators periodically report on their favorite and worst products to IPVM. These are known integrators who IPVM pays to answer surveys....
Video Surveillance Hard Drive Failure Statistics 2018 on Nov 02, 2018
Hard drive failures can be significant service problems but how common of an issue are they in video surveillance? How long do drives last when...
Building Occupancy Codes and Access Control Tutorial on Nov 01, 2018
A building or room's classification can greatly impact which building codes must be followed. In terms of access control, these 'occupancy codes'...
Cloud Video Storage Usage 2018 on Oct 31, 2018
Storing email and documents in the cloud have long been common, with on-site email or file servers increasingly eliminated. However, what about...
ADT Acquires Red Hawk, Becomes Billion Dollar Commercial Business on Oct 25, 2018
With its ~7th commercial acquisition in the past year, ADT is transforming itself from a residential provider to a commercial player with now more...
Exacq Co-Founders Return, Start Qumulex on Oct 24, 2018
Exacq co-founders Dan Rittman, Tom Buckley, and David Underwood are back, starting up Qumulex. In 2000, they sold Integral to Andover...

Most Recent Industry Reports

'Sticker' Surveillance Camera Developed (CSEM Witness) on Nov 16, 2018
The Swiss Center for Electronics and Microtechnology (CSEM) has announced what it calls the: world’s first fully autonomous camera that can be...
ISC East 2018 Mini-Show Final Report on Nov 16, 2018
This is our second (updated) and final show report from ISC East. ISC East, by its own admission, is not a national or international show, billed...
Facial Detection Tested on Nov 16, 2018
Facial detection and recognition are increasingly offered by video surveillance manufacturers. Facial detection detects faces in an image/video...
Throughtek P2P/Cloud Solution Profile on Nov 15, 2018
Many IoT manufacturers either do not have the capabilities or the interest to develop their own cloud management software for their devices....
ASIS Offering Custom Research For Manufacturers on Nov 15, 2018
Manufacturers often want to know what industry people think about trends and, in particular, the segments and product they offer.  ASIS and its...
Hikvision Silent on "Bad Architectural Practices" Cybersecurity Report on Nov 14, 2018
A 'significant vulnerability was found in Hikvision cameras' by VDOO, a startup cybersecurity specialist. Hikvision has fixed the specific...
French Government Threatens School with $1.7M Fine For “Excessive Video Surveillance” on Nov 14, 2018
The French government has notified a high-profile Paris coding academy that it risks a fine of up to 1.5 million euros (about $1.7m) if it...
Integrator Credit Card Alternative Divvy on Nov 13, 2018
Most security integrators are small businesses but large enough that they have various employees that need to be able to expense various charges as...
Directory of Video Intercoms on Nov 13, 2018
Video Intercoms, also known as Video Door-Phones or Video Entry Systems, have been growing in the past decade as more and more IP camera...
Beware Amazon Go Store Hype (Tested) on Nov 13, 2018
IPVM's trip to and testing of Amazon Go's San Francisco store shows a number of significant operational and economic issues that undermine the...

The world's leading video surveillance information source, IPVM provides the best reporting, testing and training for 10,000+ members globally. Dedicated to independent and objective information, we uniquely refuse any and all advertisements, sponsorship and consulting from manufacturers.

About | FAQ | Contact