Randy Stearns highlights profit pitfalls in recent article
I'm going to lean on an industry veteran for this week's post. Recognizing that many reading this are neither D-Tools companies nor involved in the commercial space, it's possible you missed this article in Commercial Integrator which is a summary of an interview with Randy Stearns (CEO of D-Tools).
Titled "9 Roadblocks to System Integrator Profitability (and How to Eliminate Them)", Randy's information is spot on and worthy of passing along.
A note of reassurance to those of you using the BlueDog design team for proposal generation…we're not only aware of these "profit killers", but have addressed them in various ways utilizing functionality w/in the D-Tools design software we use and internal "best practices". I'll touch on these in my notes appended to those from the article.
So let's dive in! To follow are excerpts from the article that I found to be the most impactful…you can access the article in its entirety: +++++++++++++++++++++++++++++++++++++++++++++++++++++++
9 Roadblocks to System Integrator Profitability (and How to Eliminate Them)
System integrators’ business models should avoid these pitfalls to profitability at all costs during any given project.
Solid AV project planning and execution are ultimately what make integrator firms profitable. Randy Stearns, founder of one of the nation’s largest systems integration firms and current CEO of D-Tools, spent 20 years as systems integrator, always looking for ways that business wasn’t doing as well as it could.
In his webinar titled “Profit Pitfalls and How to Avoid Them,” Stearns shared several keys to improving AV integrator profitability.
1 – Incomplete, inaccurate, or poorly documented scope of work
“Clients will exploit anything not nailed-down in a scope of work document. Internal teams often end up giving things away or doing things incorrectly,” explains Stearns.
He likened it to a golf analogy:
“Sometimes, I come to a hole where there’s something in the way and I can’t see the pin. I don’t know what club to use and end up hitting in a general direction. Projects are often similar if there’s a poorly-documented scope of work.”
How to solve it:
o Create an accurate, comprehensive scope of work
· [CH Note]: This doesn't have to be a unique and well-crafted essay for every project (i.e. a sales or marketing style approach). Creating a template of common "bullet point" descriptions of functionality that can be used to simply copy/paste into a the project scope document can easily do the job. For example:
Family Room:
· Display Devices:
· 65” flat screen HDTV on tilt wall-mount bracket.
· Surround Sound:
· 5.1 Surround-Sound in-ceiling speaker system with floor-standing powered subwoofer.
· Audio/Video Distribution:
· Playback capability of house-wide music and video sources through surround-sound AV system.
· Automation and Control:
· Wireless touch screen with control of house-wide integrated systems.
· Lighting Control:
· All loads controlled, in accordance with electrical plan.
o Whatever time spent documenting will pay for itself in the end – the loss of time in back end will be at least 10x if not documented properly upfront
· [CH Note]: Amen!
o Important to go even as far as system functionality, performance expectations, etc. – these are sometimes hard to quantify, but an effort should be made
o Exact equipment placement, style, color, any information is good information
o In addition to what’s included, state whatever is excluded in this project
· [CH Note]: THIS is gold!
2 – Underestimating labor
“For some reason, labor isn’t valued as much as equipment in this industry. Actually, labor is where profit is either made or lost on a project. It’s easier to charge for labor because clients don’t understand it as well as price of equipment.”
· [CH Note]: With ever diminishing equipment margins, this is even more true now than in the past. Don't be embarrassed about charging for your time and get comfortable selling it!
How to solve it:
o Include engineering time, project management, programming, warranty, etc. – you can charge for all of this
o Ask about site conditions with site visits, what’s going on there which may impact the project’s timeframe
o Parking? shuttle to job site? these costs need to be included
· [CH Note]: Here in South Florida, with drawbridges, limited parking for oceanside condos & construction elevators, we could only rely on getting 4-5 hours of actual install time for our MDU projects…that HAS to be factored into the project cost!
o Meeting requirements – are all subcontractors expected to be at hours-long meetings every week? this should be charged for
o Projects often have additional documentation requirements and that time needs to be charged for
· [CH Note]: all of the other trades charge for the professional documentation (drawings) necessary to support their craft - you should too! You won't earn your seat at the table for the best projects, otherwise. If you don't have this capability already, reach out to us to GET IT!
o Scour the plans for “gotchas” – things which impact wire path, routing, etc.
3 – Failing to understand “other” costs –
"Are there any travel or “other” responsibilities involved?"
How to solve it:
o Consider freight charges, scaffolding, storage, travel, rental equipment, etc.
o These are highly legitimate and common costs, so it is rare that a complaint will be launched against them
o With freight, set a percentage of equipment total like 3%; others are line items
· [CH Note]: We recommend a "Miscellaneous Costs" allowance to include not only freight, but other associated costs of doing business. These may include vehicle (cost, gas, maintenance), insurances, etc. that accrue annually. Identify these costs, determine the cost (%) they represent against annual sales, and then add that % to every proposal. Also, develop a succinct, well-crafted message that addresses this line item in the proposal and have your sales people MEMORIZE it!
4 – Design oversight and omissions
"Many projects include change orders you cannot charge for, such as staff errors."
How to solve it:
o If you’re estimating and need a bill of materials without taking time to document design with schematics, you’re going to miss things
· [CH Note]: This is simple truth…until a project has been "engineered" (that is, has appropriate documentation to support all included systems), there will be omissions. These likely include equipment, material and labor. We encourage adopting a "Scope and Budget" selling process which includes collection of a design retainer, allowing proper time and attention to be allotted for development of an accurate proposal (which includes a budget for necessary construction documentation). Upon approval of the proposal, the formal drawings set should be produced to iron out remaining wrinkles. This provides a solid foundation for project execution and ensures that subsequent change orders are CLIENT driven - not the result of internal errors - and thus can be CHARGED to the client!
o Take the time upfront to document the system fully and make sure everything is included
· [CH Note]: See my note above!
o Utilize any tools in your AV business software to auto-attach accessories
· [CH Note]: these tools are life savers - if your design software doesn't provide for them, I'd recommend evaluating other software options! +++++++++++++++++++++++++++++++++++++++++++++++++++++++
Randy goes on to identify several more of these "profit killers" but in the interest of space and time I'll leave it here. If you've found these helpful then I encourage you to check out the rest of the article.
As I've noted in previous commentary, consistent success requires process. There are a vast number of variables associated with completing an integration project and I have been involved in creating incredibly detailed MS Project based programs in an attempt to develop a process to capture all of them.
What I began to realize, though, is that the integration business is in essence an assembly line - that just happens to be located in your client's home or office.
Fundamentally, once you have a signed proposal – which, by the way, concludes your sales (or pre-contract) process – every project can be boiled down to these six steps: engineer, order, stage, deliver, install, invoice… Repeat.
These are what I call the Six Steps. Granted, there are potentially dozens of sub-steps for each of these, but every job - big or small - boils down to those six top level steps. Create a process that is defined and documented - and by documented I mean written down - and you will begin to create the consistency and efficiency in your business that will lead to improved bottom line profit.
Simply put, as I POUND into my kid's heads, always remember your "P's": Prior Proper Planning Prevents Poor Performance. Mic, dropped. Until next time, good luck out there!
Didja know…??? Is a series of "information bits" by Curt Hayes, BlueDog Group co-founder and managing partner, and architect of the BlueDog Database.