The Final Word On Shrinking Margins

I am having a visceral response to a recent blog post by Christopher Maione, a well-respected AV Industry professional and thought-leader for the Design segment. I don’t know Mr. Maione personally, but I respect his Industry work and therefore offer my reply in the interest of furthering this discussion – in which I respectfully disagree. If the value of your services can be calculated with a formula, it is time to rethink what it is you do for the customer.

The blog piece in question (“Where Did Our Margins Go?” AV Network Blog, March 2015) does a good job of outlining how margins have been fquoteorced down. It is true I believe, that competition from consulting firms that bundle multiple disciplines (security, IT, AV) cut into the market share of AV Design Consultants. I am confident that the estimating techniques these new competitors apply are conveniently formulaic. Likewise, low voltage Contractors clearly reduce expected margins on the installation side (I believe the word used was “lowball”)  to secure project work that might otherwise go to an AV Systems’ Integrator. I am also convinced that project outcome is often compromised when the client chooses to buy on price. However,  I disagree with the conclusion on who is to blame and therefore, what the solution is.

If your competition is playing by a set of rules that you feel devalues what you do, you have three choices. 1. Play their game and sacrifice more margin, 2. Redesign your model to be profitable in the new paradigm, or  3. Develop clients that you can help prosper through valuable interventions.

If you cannot provide a compelling reason to do otherwise, a customer will focus on price

The blog piece I feel places blame on the competition and thoughtless customers. In my opinion, the real blame lies firmly with the AV Design Consultant that somehow believes that they are worth a percentage of a project or the AV Systems’ Integrators who calculate their worth by addition: equipment plus labor plus margin. These methodologies for determining the value of a project are arbitrary and ancient.

How much does a plumber cost in an emergency?

Let me explain. When I first got involved in integration projects, video was very new – heck, personal computers were new. The demand for video projection in particular was skyrocketing and customers happily paid whatever was asked. Why? Because they had valuable problems and therefore we as an Industry could deliver profitable solutions. During the oil boom (pick one) a geophysical services company could be more efficient and demand higher fees if they worked quickly. Likewise, if they wanted to monitor and maintain a client’s well sites, they needed infrastructure to do that. The Command and Control Center was born. Convincing potential drilling clients that you were the right company to partner with was easy when you could walk them through your “room with all the big screens”. The customer paid what we told them it cost. If they were patient they might have asked more than one company and chose the one that could finish soonest.

Very. Valuable. Problem.

Clients still have valuable problems, but procuring AV equipment and getting someone to connect it is not one of them. Somewhere along the way we as an industry decided that what we do is more important than what the client can do with it.

I know Mr. Maione’s “Dear Client” letter was tongue-in-cheek (I hope everyone else knows that too). Telling your prospective client you hire better people, take more care, and act more professionally is a non-starter. Suggesting that your competitor does not do these things just further degrades your argument about professionalism. Shouldn’t your fee be based on what your ideas, advice, best practices, and intellectual property add to the clients’ worth?

Do something that is valuable for the customer. Connect that outcome to their needs.

Tom Stimson, MBA, CTS, is president of Stimson Group LLC, a Dallas-based management consulting firm specializing in strategy, process improvement, and market research for the Audiovisual Industry. Tom is a Past-President of InfoComm International and a current member of InfoComm’s Adjunct Faculty. 

3 thoughts on “The Final Word On Shrinking Margins

  1. Tom, I think you’re absolutely correct. The Great Recession caused us to completely re-think our internal processes. And we had to re-tool our message to the marketplace. As a result, we’re tighter, faster, and better than we were going in, and we thought we were pretty good back then! We didn’t know #$@^%$!
    I’m happy to report that our margins are nearly back to pre-recession levels and we can see the day when they will meet or exceed. Right now it looks like 2015 will be our best year ever – and our 20th in business.

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