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

Avigilon Favorability Results 2019 on Jan 15, 2019
Since IPVM's 2017 Avigilon favorability results, the company was acquired by Motorola and has shifted from being an aggressive startup to a more...
Pelco Favorability Results 2019 on Jan 11, 2019
Pelco had a significant favorability problem amongst integrators in our previous study (see 2016 Pelco results). Now, in the first edition of our...
Wavelynx Access Control Manufacturer Profile on Jan 10, 2019
Denver-based WaveLynx is not well known as an access reader manufacturer, but OEMs for big industry brands including Amag, Isonas (Allegion),...
H.265 / HEVC Codec Tutorial on Jan 08, 2019
H.265 support improved significantly in 2018, with H.265 camera/VMS compatibility increased compared to only a year ago, and most manufacturers...
The Battle For The VSaaS Market Begins 2019 - Alarm.com, Arcules, Eagle Eye, OpenEye, Qumulex, Verkada, More on Jan 02, 2019
2019 will be the year that VSaaS finally becomes a real factor for professional video surveillance. While Video Surveillance as a Service (VSaaS)...
US Gov China Ban Rules Process, SIA Lobbies Against 'Blacklisting', For 'Risk-Based Protocol' on Dec 27, 2018
Details have emerged about when the rules implementing the federal ban on Hikvision, Dahua, Huawei and others will be made public for official...
Top 2019 Trend - AI Video Analytics on Dec 10, 2018
160+ Integrators answered: What do you think the top industry trend will be in 2019? Why? AI / video analytics was the run-away winner with...
ADT Wins Fire Death Suit But Faces Appeal on Dec 05, 2018
ADT/Protection 1 has won a wrongful death court case in which it was sued by the estate of a deceased customer. However, the attorney for the...
ADT Promotes DIFY - "Do It For You" on Nov 30, 2018
"Do It Yourself" (DIY) is a popular expression and has become such a common word that it has even made the Cambridge English dictionary. But why...
Strong Outlook For 2019 on Nov 29, 2018
Integrators are bullish for 2019, with nearly 80% showing a positive outlook in our integrator results from 160+ respondents: This is almost...

Most Recent Industry Reports

The IP Camera Lock-In Trend: Meraki and Verkada on Jan 18, 2019
Open systems and interoperability have not only been big buzzwords over the past decade, but they have also become core features of video...
NYPD Refutes False SCMP Hikvision Story on Jan 18, 2019
The NYPD has refuted the SCMP Hikvision story, the Voice of America has reported. On January 11, 2018, the SCMP alleged that the NYPD was using...
Mobile Surveillance Trailers Guide on Jan 17, 2019
Putting cameras in a place for temporary surveillance where power and communications are not readily available can be complicated and expensive....
Exacq Favorability Results 2019 on Jan 17, 2019
Exacq favorability amongst integrators has declined sharply, in new IPVM statistics, compared to 2017 IPVM statistics for Exacq. Now, over 5 since...
Testing Bandwidth Vs. Low Light on Jan 16, 2019
Nighttime bandwidth spikes are a major concern in video surveillance. Many calculate bandwidth as a single 24/7 number, but bit rates vary...
Access Control Records Maintenance Guide on Jan 16, 2019
Weeding out old entries, turning off unused credentials, and updating who carries which credentials is as important as to maintaining security as...
UK Fines Security Firms For Illegal Direct Marketing on Jan 16, 2019
Two UK security firms have paid over $200,000 in fines for illegally making hundreds of thousands of calls to people registered on a government...
Access Control Cabling Tutorial on Jan 15, 2019
Access Control is only as reliable as its cables. While this aspect lacks the sexiness of other components, it remains a vital part of every...
Avigilon Favorability Results 2019 on Jan 15, 2019
Since IPVM's 2017 Avigilon favorability results, the company was acquired by Motorola and has shifted from being an aggressive startup to a more...
Gorilla Technology AI Provider, Raises $15 Million, Profiled on Jan 15, 2019
Gorilla Technology is a Taiwanese video analytics manufacturer that recently announced a $15 million investment from SBI Group, saying this...

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