Product vs Labor Sales BreakdownBy: Brian Rhodes, Published on Jan 07, 2014
IPVM survey results reveal that 50% to 75% of the price of a surveillance project goes to product sales, with the remainder for labor. In this note, we share respondent's commentary and explain the key factors impacting this breakdown.
The most common aspects affecting how costs split include:
- Project Size Matters: Smaller projects generally constitute higher labor percentages. While cheaper equipment is appealing, it often warrants more troubleshooting and configuration labor to install.
- Complex Configuration: Several responses noted that complex integrations and configuring servers, software, or analytics add disproportionate amounts of labor compared to simple installation projects
- Exact Split Varies: Our survey takers made it clear that the breakdown between parts and labor changes by job. Nearly all responses indicated the final percentages change between projects.
Here are some excerpts from the collected responses:
- "2/3 Equipment, 1/3 Labor"
- "Usually 65 - 35 parts/labor but it changes every job"
- "Typically 75% product, 25% labor."
- "I'd say the average job is somewhere near 50/50, probably with a slight skew to materials"
- "Server and storage intensive projects may shift the cost to 75% equipment, 25% labor"
- "Simple projects are about 50-50, but complex software integration can go to 80% labor easily."
- "We find that on the small 4-8 camera installations labour can be as much as 35-40% as lower cost/quality hardware is normally required to be competitive."
- "75/25 Product/Labor Factors that would increase labor cost: External cameras, mounted on poles, high on buildings, difficult access Long cable runs, intermediate signal boosters Fiber Trenching/conduit Limited access to premises, eg schools, prisons,"
- "For critical infrastructure project (port, railway, airports, or other Government Projects) it varies on project to project basis. In general it is 50% products and 50%> for labor."
- "The labor and resource allocations can vary greatly depending upon the installation environment. Rarely have I found that job size will affect any economy of scale. There is always some pick ups, such as travel expenses and such but the product and labor to install/configure is relatively consistent."
- "What some might think is a simple installation in for example, a hospital, can also be expensive because of local rules including infectious controls processes, after hours work, etc."
- "Name brand plenum Cat-6 and premium 5MP cameras is going to have a much higher material cost than will generic Cat-5e and budget 1MP cameras."
- "It will depend on the job`s size, on larger ones i.e over 100 cameras + servers+VMS, etc, labor could be around 20% to 30% of total, whereas in smaller but technically complicated endeavors (i.e very fine tuning) that figure could be 50% or more"
- "The main factor that causes it to vary is the type of project and how much construction related installation is needed."
- "If we sub labor that will reduce labor cost."
- "If there are many PTZ's or other expensive equip that will increase material"
- "Labour varies depending on what is asked for as an outcome. Installing a camera on a wall is simple. Configuring virtual servers, network switches, enterprise software and then complete integration takes time."
Revenues, Not Margins
This breakdown does not illustrate how profitable each portion is. As we noted in our Security Integrator Hourly Rates update, the actual cost of labor is likely much smaller compared to the billed amount compared to the actual product cost.
In general, labor is a smaller piece of the billed project, but it generates more contribution margin. However, labor is often riskier than product sales as labor generally entails having full-time employees or managing subcontractors while products can be re-sold on demand, without inventory risk.
The high percentage of overall revenue going to products but the steep decline in markups over the last decade shows a serious problem for integrators. While products still bring in a lot to the 'top line', their contribution to profits has shrank dramatically, forcing integrators to be far more careful on making profits from labor.
Here's a series of recommendations on increasing integrator profitability.