9.5.24 – SSI – D. Craig MacCormack –DALLAS
PSA TEC panelists discuss emerging security and AV trends, recurring revenue and getting paid your worth in the second part of our recap.
In part one of our recap of the PSA TEC session that explored how companies navigate the crossroads of security and AV, three integrators discussed the synergies between the technologies, the benefits of bringing them together, the challenges they’ve encountered and more.
Now, Travis Deatherage, president of Linx Multimedia; Todd Hutchins, CTO of USIS AudioVisual Systems; and Dawna Payne, executive vice president of Texadia Systems, share more insights they’ve learned from bringing security and AV systems integration under one roof.
How do you plan to adapt to some of the emerging trends that you foresee as security and AV continue to converge?
Payne: I’m going attack this from an HR, financial and a marketing standpoint, mostly. As you guys know, everything has kind of come together but AV is completely different than security and security is completely different from fire.
Everything has its own set of challenges that they’re trying to do so trying to bring all of those merging technologies together, you really have to look at the financial side of it.
You have to look at the budget, and how is it going to affect your budget, you’re going to have to look at the amount of people that you have and the resources that you have and can those resources be cross-trained and be able to do multiple jobs?
You need to be able to look at how long it’s going to take for that business to ramp up and does it complement your core values and what you are trying to do from a company standpoint and what your company goals are? How does that complement what your client’s needs are and how can you bring yourself in closer to the client?
From that sales standpoint, we all know that resources are really hard to come by and there’s a big difference between a security technician and an AV technician. One of the things that I’ve really learned and come to really respect about the security industry is the accuracy behind what it is that they do.
What they do is life-changing. They affect lives every day. If a cable is not done exactly right, or a termination is not done right, or something is not completely controlled properly, there’s a life at stake. There’s not a life at stake when you have a conference room that maybe doesn’t turn on for the day.
But in the same respect, it has an importance to the company that is very important to their day to day living. So they’re two totally different things but yet they both have to have specialties.
From an HR standpoint, you’re going to have to decide how do you want those to go through and then you’ve got the marketing side of it. One of the things that Texadia has struggled with in the beginning was a lot of people were like, “Oh, they’re they’re a residential integrator. They’re not a commercial integrator,” which is completely false.
We absolutely have more commercial business than we do residential business. You really have to understand from a marketing standpoint: how are you going to tell the world about what it is that you’re bringing on as a second entity to your business? What is that added value? What does that bring to you?
How are you going to turn your SEO into a different direction to be able to drive some of that business but not take away from your original core competencies that you’re doing? There are financial metrics that are completely different.
The margins on the security side are completely different than the margins on the AV side. Security margins are actually higher and the security side of the world has done a much better job at not allowing the bid world to completely squash your margins in a lot of cases. So, there’s a big difference financially as well.
What are considered good margins in security and AV?
Deatherage: Normally, we can get a higher margin on labor than material for sharing in the AV channel. The other way to look at that would be your margin per labor hour, that lead that takes late margin dollars from equipment and labor, puts it all into one margin total and then divide by your number of hours. And how much profit are you making per person including material?
You can look at it a couple of different ways to see what’s the most effective business.
Hutchins: It’s the same for us. Security is higher, not by a lot, but it’s I would say it averages somewhere around 35-36 and the AV is somewhere around 28-29.
Payne: There’s the bid world and then there’s relationships. In tech, and I think that it’s different across the U.S. In the bid world, Texas is growing so fast that there are companies everywhere bidding on these jobs trying to get in. So you could have bids anywhere between, you know, 12, and 18%.
On a bid job, and just feel like you’re giving it away, but then you have relationship jobs that you can get between 25 and 30% that you feel like you’re completely fine on depending on the relationship and where you’re at.
But on the security side of it, and on other verticals or other products and solutions that we have, we have our products are upwards of 30 to 40% margin on just product. So we feel like those are some areas that we’re doing much better.
Our access control on the commercial side to us is 30 to 40% margin, and we are really thriving in that area on the commercial side. Nobody wants to have those low margins so they really try not to go that low. That has been a positive for us to be able to say what AV does have value. I think that we devalued ourselves from an AV standpoint, because we weren’t life-saving.
But life saving and security, it has a value and people should pay for that value. And we have to be able to do a better job of explaining that to our customers so that they don’t slash our margins and so that we can have our people have great wages and be able to have profitable companies and be able to give training and do the things that we want to do.
I think the mix is different to right the mix of labor versus material on the higher percentage of labor on security versus material compared to AV, where we might have a higher percentage of material at a low margin.
Photo credit: Veien Productions
How do you balance getting your worth when you do a job and ensuring you continue to have consistent work?
Hutchins: I think the thing that’s helped us stay level, if you will, and keeping the bills paid is we’ve really invested pretty heavily in the design department. By growing that group to eight or nine individuals and each one focused in either structured cable, security or AV and developing relationships with not just the architectural community, but also with owners, reps and end users, that has created an even flow of business for us.
It processes through the design group, and then right into the installation. We may be working on some things in Sydney right now or in Europe, where we may not be actually doing the physical installation of that we’re partnering with groups that are actually doing the installation and that’s kind of kept us busy. That actually keeps the flow coming.
Payne: It’s funny, when you have multiple different things going on across security and AV, you’re definitely sharing resources and kind going back and forth. But, really, it’s about, you know, educating the customer on the value.
We have a lot of cross-training and a lot of cross-sharing of resources and our salespeople do all the disciplines and we’ve grown at a rate that we know growing pains are real. We’ve felt them over the last couple of years, which we’re extremely thankful for, but we’re now trying to decide do we need to have some separation in those divisions and not try to put so much on one resource and how we do those things?
It’s really about where you’re at, what your revenue is, how many employees you have, how you separate your different services and solutions and where you put that, but there’s no right answer. It’s really about geographic or union versus non-union.
You really have to look at what’s right in front of you, and what does that look like for you? And do you have people that already feel comfortable doing that?
Deatherage: All of our businesses, as much as we want to be driven by services, we still have a lot of projects in variants of timing of projects. And that ebbs and flows, we often say, construction has two speeds too fast and too slow, and you rarely cross in the perfect spot in the middle, where everything’s just working out great, where you have the right amount of people.
Of course, when we interview for a job, we always tell the customer, “we’ve got the right amount of people, that’s perfect timing for their job.” We would never tell them that we’re too fast or too slow. But the the reality is you’re dealing with ebbs and flows of staff and construction and timing and things change.
We do forecast out the timing of all of our projects, both in backlog and pipeline and then we can look at that in terms of revenue and labor needs, and and see what our ebbs and flows are going to be. It’s very nice to have multiple disciplines, because if we’re slow in one division, we can float people over to another.
Even though our technicians live in a particular discipline and that’s their expertise, if AV is slow, they might help. Our structured cabling team does pull all the wire for our security division. So there are ways to shift and share resources. And that does help with that, that management of cash flow and ebbs and flows of work.
What kind of recurring revenue do you have on the security and AV sides?
Deatherage: We have monitoring and we have maintenance agreements for both sides. So we’ve really kind of enjoyed that. It’s about 10 to 12% of our business. We really take advantage of that, because our service teams are kind of tagged with the renewals and our sales teams are tagged with not having a proposal that doesn’t have a maintenance agreement or monitoring on a different security.
It’s definitely something that you have to have. It’s a great margin; it really helps your bottom line, so if you’re not doing it, I would say definitely do it.
Our security division actually doesn’t have a ton of recurring revenue. They’ve been slower, kind of traditional maintenance contracts and things like that. But on the AV side, we revamped all of our service offerings a couple years ago, and and we are attaching different levels of service agreements that have monitoring and management and remote support to each contract.
At the higher end, we’ve developed a live support service, so if somebody’s in a conference room, they can scan a QR code and talk to one of our people in real time to help them operate the room and then we can package that up with a seven-year warranty on the whole system.
The ultimate level that we’re trying to get to is get people to look at systems as a service. We have not had a lot of success selling systems as a service and getting our AV clients to buy that way but I think there’s actually a bigger opportunity on our security team to leverage some of these same platforms we’ve been investing in and, and I think there’s more opportunity there than then they’re tapping right now.
Hutchins: I would say it’s pretty much the same thing for us. We tried to get involved in proactive monitoring and managed services, they think they’re doing more right now in the security side than we are in the AV side. We talk about it quite a bit.
The actuality is we haven’t really rolled it out to too many clients but that’s a way of getting recurring revenue. Service contracts, though, I will say that that’s something that’s been very good for us, either a monthly or quarterly service contract.
Then we offer many of our clients a proactive, 24-hour support contract. With one call, we’ll be out there in the field within 24 hours, regardless of where the site may be. That’s been pretty effective.
Payne: We had one I didn’t mention. It was on-site dedicated support that embedded technicians that are on site, we have that with some major large enterprise clients across the country. On the residential side of the business, we can do monitored support all day long.
We have 24/7 service. It’s much different on the residential side of the business, but on the commercial side of the business, we have the maintenance. A lot of times on the corporate side, they really don’t want us in their systems and they really don’t want us to be managing it that way.
They want to be able to know how can they manage it themselves somewhat, but have us as tech support and be able to do the service calls and those types of things, being able to do a phone call or a video call and being able to help troubleshoot as well as on-site support.
It’s funny how it’s completely different on those sides because we do 100% managed service on the high-end residential side. You have a multimillion-dollar home, they want to know that everything is working 24/7, so we have to be available to do that 24/7.
Those remind me of one other place where our technologies are coming together. And that’s the network. We all live on the network so that is an opportunity where our engineers on security and AV can work together with their IT team to talk about how all these systems live on the network in a safe and secure way and in a managed way.
About the Author
D. Craig MacCormack, Digital Editor
Craig MacCormack is a veteran journalist who joined Security Sales & Integration in June 2023 as digital editor. He covered AV, IT and security with SSI’s sister publication, Commercial Integrator, from January 2011 to June 2021.