I can’t tell you how many times I’ve heard someone say that the AV industry is a mom-and-pop industry. Comments like “these folks just like the gear” or “they don’t understand business” are common expressions among industry insiders and outsiders.
While these comments may come with a certain amount of truth, this industry has built some terrific companies. And if I were a betting man, I would say that this industry still has many more great companies to come.
But what sets companies apart? Why does one company expand, grow, and innovate while another gets flustered, contract, and stagnate? Are there one or two factors that make a difference?
It would be difficult to point out a single factor that sends one company soaring while another one sinks, but there is one thing I have consistently seen from good companies that I don’t see in their less successful counterparts: benchmarking.
The concept of benchmarking probably started in some MBA strategy or finance class, and then made its way into the largest corporate enterprises before finding its way into our “mom-and-pop” industry. But if we set the lingo aside and focus on the purpose behind benchmarking, we would immediately see how important it is.
As integrators, benchmarking needs to be done for the obvious metrics such as revenue quality and project profitability. Additionally, benchmarking needs to be done to uncover less obvious trends, such as customer attrition and employee satisfaction. By benchmarking, not only will you have the chance to set your business on the right course, but you will have the insights required to make better business decisions.
Benchmarking Revenue Quality and Project Profitability
Revenue Quality: Hardware revenue in the AV industry is seeing a decline, but how closely have you analyzed this trend? Most companies may look at gross margin on hardware, or even break their revenues into a few categories to analyze profit for a subset of products (digital signage, videoconferencing, etc.). But does the story end there?
From the time an order is placed until the time it is delivered, there are a number of opportunities for lost margin. Once general profitability is understood, savvy businesses look at where they can add back margin. Everything from payment terms to delivery methods can and should be explored. Companies that take advantage of payment terms and optimize shipping can see 3% to 5% improvement in gross product margin.
For a company spending a few million dollars per year on hardware, that can mean a six-figure swing in profitability. By benchmarking not only general margin, but also exploring the entire cost of delivering a sale, companies can perform better and create new cash flow that can be reinvested in growth.
Project Profitability: It’s surprising to see how many companies don’t have a full picture of project profitability. While there have been software solutions designed to help, many organizations still struggle with what it takes to deliver a project. With large projects, there is little room to guess. Being wrong can be more than just a bummer … it can be deadly.
What’s more chilling is the fact that some businesses repeatedly get it wrong. By some stroke of luck, they survive over and over, but continually under-price projects and take an unnecessary bath.
Benchmarking here is an important way to compare your budget profit on a project to your actual results. In short, answering the question: “How did we do?” Second, you can take that data and do better next time.
By benchmarking projects that turn significant profit, we can better plan for other projects and look to create similar results.
Other Areas to Benchmark
The practice of benchmarking spans into other areas like customer satisfaction and attrition. Did you know that a 2% increase in attrition can yield a 10% increase in profit? While this seems farfetched, it is entirely possible.
Many integrators have no idea what their customer churn looks like, or whether or not their customers are happy (at least not in any sort of organized fashion). Just imagine what could be done if this was better understood, and the effects of profit were examined vs. customer attrition?
Benchmarking Big and Small
The idea of benchmarking may be overwhelming, but the key is to take small steps and not miss out on the opportunities it provides.
For companies already doing some analysis, the big question is: How do you take it one step further? For companies not doing anything with benchmarking yet, it comes down to getting started.
If we step away from the “buzzwordiness” of benchmarking and refocus on it as a profit creator, we would all be willing to spend just a little more time on it. And I assure you that spending that little bit of time can mean a better bottom line. Who doesn’t want that? If you need help getting started, check out NSCA’s industry research. Updated Electronic Systems Outlook reports, Labor Installation Standards, Compensation & Benefits reports, and Financial Analysis of the Industry reports can help you get started with benchmarking the metrics that matter. -Daniel Newman, BroadSuite Consulting