How Field Services Companies Protect Labor Margins

Blog, IT Services, Project and Job Costing

Last updated Jan 6, 2020 at 10:59AM | Published on Dec 11, 2012 | Blog, IT Services, Project and Job Costing

Integrators are seeking out product categories that offer high markup potential as product categories increasingly become commodities. But what are those categories and how much profit do integrators typically earn?

An article on CE Pro’s website answers those questions based on the results of a recent CEDIA Benchmarking Study that surveyed 88 integrators.

According to the study, “dealers report earning an average 32.8 percent gross margin on their equipment, and 31.3 percent gross margin on their labor.”

Here’s how the process typically works. Equipment gets ordered and suppliers hopefully deliver on time. This is usually a pretty simple model. When you’re selling equipment, you order from the supplier, you deliver and they pay the bill.

The equipment does not do much until it is installed and working. Protecting the 30 percent labor margin effectively requires tracking costs and staying within margin. Having the right tools in place to track that margin is the key.

So, what product categories generally earn integrators the highest profit? LED lighting, cables, central vacuum cleaning systems, furniture/seating, acoustical treatments, racks and cables are all categories that still retain a strong profit margin, according to the CE Pro article.

The survey also showed that custom integration firms with six employees averaged revenues of $799,000 and a median profit of about $20,800, or 2.6 percent. On average, a company owner pays himself a salary of around $79,000, or 9.9 percent. That means discretionary profit totaled just less than $100,000, or 12.5 percent.

The percentages vary between small companies and larger ones. Small firms, defined as those with less than five employees and net revenues not exceeding $301,000, have a median operating profit of 4.1 percent ($12,300) and a median discretionary profit of 19.6 percent ($59,000).

Firms with at least six employees averaged net revenues of about $887,000. They had a 2.4 percent median operating profit ($21,300) plus a median discretionary profit of 11.8 percent ($104,700).

Source: CE Pro, November 2012