BLOG:  Where Did Our Margins Go?

Are we working harder for lower margins these days? You bet we are. What happened to the days of earning fair fees for our craft?  Why have we let our AV industry become a commodity?

Let’s look at how the AV market has financially decayed our wallets in the last 20 years.

Consultants:

During the “good times,” consultants commanded fees based on the amount of time (hours) that went into a project. We were paid for our expertise and impartial position working with the client, developing drawings with the architect, designing systems, facilitating bids and managing the AV process through to completion.  Consultants bill for their time, and the more time they put in on a project, the less they make.  One rule of thumb when the project was complete, a “profitable” fee for a consultant was supposed to be approximately 15 percent of the AV systems cost. As the market declined, we saw that decrease to 10 percent.  Today, it is even less.

AV Systems Integrators:

AVSI make their money on equipment and labor costs. During good times, equipment markups ranged 15 percent to 25 percent. Labor was priced right for the project and provided enough man hours to properly manage, fabricate, install and test the AV systems.

So, where did our margins go?

Well, in the consultant market, we see a trend with owners’ reps trying to package acoustical, AV, IT and security consulting packages into multi-discipline consultant RFP’s and “buying” these services as a commodity based on a fee per square foot. Ridiculous. How can a consulting firm understand the scope of project adequately enough to put a fee on professional services based on raw square footage? Some consultants play into these RFP’s and provide proposals with no basis or substantiation for the scope of services they will provide. Complex projects that should command adequate fees are being awarded at absurd dollar per square foot pricing. Fees that were upward of $1 per square foot are now half that, or less.

Some consultants have decided to de-scope their services and provide limited project involvement, less drawing issues and very little, if any construction administration support. We all know these consultants – they are the ones that after the bid is awarded say, “call me when it’s done,” and disappear from the project, possibly showing up for their last bit of billable fees for checkout. Shame on them.

In the AV system integrator market, low bidding by contractors has been the contributing factor in lowering margins. “Low ball” bidding has turned our craft into nearly a commodity.  Equipment margins have dropped to 6 percent and labor costs barely cover what it takes to complete a project properly.

We did this to ourselves. AV system integrators that want to play this game will low-bid themselves out of business.

So, guess who loses? Our clients do. There is just no way that consultants or AV system integrators can provide the level of service required in this market of underpriced bare-bones fees. You get what you pay for.  Quality workmanship and proper support require enough fees in the project for us to earn our livings.  None of us can survive if we give away our products and services.

So, with the hope of salvaging our soon-to-be-a-commodity industry, let’s try this letter:

Dear Client,

Thank you for the opportunity to submit our proposal for this project. It is likely we are not the lowest bid, and in our opinion, that’s one of the reasons you should select us for this project.

I am sure the other firms are equally “qualified” to complete this project, but we would like you to know that our quality of work, caliber and staffing of our team, and the responsiveness and level of service we will provide will be more focused on your project than our competitors because we have adequate fees in our proposal to do the job right.