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The Three Ways to Business Profitability

While there have been plenty of blogs written about improving and increasing your business, when you boil it down, there are really only three ways to increase any company’s profitability. Ultimately a business can sell more, charge more, or spend less. (Image via Blend Images - REB Images | Brand X Pictures.)

“Money, get away, you get a good job with good pay and you’re okay.
Money, it’s a gas, grab that cash with both hands and make a stash.” – Pink Floyd, “Money”

Between macroeconomic factors like the economy and the housing market and microeconomic factors like competition from Amazon and the natural tendency of electronics’ to continually decrease in price each year, staying in the custom installation business has become increasingly difficult.

Sure there is definitely still a need for the custom integrator. There will always be the clientele that can’t or won’t install his or her own equipment. There will be the people that want automation that requires integration and programming. There will be the need for theater installations that demand technical skill and construction expertise. But remaining in business has taken more savvy, acumen, and involvement than just sitting back and watching the customer —and money—roll in.

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While there have been plenty of blogs written about improving and increasing your business, when you boil it down, there are really only three ways to increase any company’s profitability. Ultimately a business can sell more, charge more, or spend less.

Sell More

When flat-panel TVs finally started hitting at prices that were considered mass-market, you could not only sell and install a ton of them, but you could do it and actually make money on the TV. (I know to some of the younger readers that is going to seem like the equivalent of saying that rainbow unicorns DO exist, but it’s true! Televisions used to be a profitable sale. And—you’re gonna want to sit down for this shocker—people didn’t want to buy them on the internet! I kid you not. They wanted to come in and buy from a trusted expert. But today, the market is virtually glutted with flat-panel TVs. Sure, people are upgrading in bedrooms and will slowly make the move to larger, higher resolution sets, but at this point it is unlikely that you will be able to grow your business solely by relying on the traditional items you’ve always dealt in.

Increasing sales volume will likely require branching out beyond your current comfort zone. And this will mean either expanding geographically, taking on new categories, or going after other jobs.

Expanding into new territories can be tough, especially because your company probably will have little, if any, name recognition there, and you’ll probably be facing local competition. Also, it carries its own costs and risks in the form of increased travel times and likely longer response times. Of course, if you live in an area where construction is back on the boom, then this can be a profitably and worthwhile move, and could even result in expanding your business by opening a satellite location to service these new markets.

Many installers have looked to other avenues that are close cousins to custom installation, such as light commercial, security, or central vac. These are often right in our technical wheelhouse, and—other than security, which often requires licensing or certification—takes almost no effort to get started. Chances are, your company already has a toehold with a lot of small businesses in the form of the doctors, dentists, lawyers, restaurant owners that you are already doing residential work with. A simple, “Have you ever thought of adding music to your office?” might open up a door to a new revenue stream for you.

I can remember having dinners at CEDIA where several companies boasted to me, “We don’t do any jobs under $X! We just tell them we’re not the right company for them.” I bet a lot of those people are out of business now. If you aren’t embracing the small, quick-turn around jobs, then you are missing out. Let Amazon or Best Buy sell them the TV and make $20 while you step in and sell them the mount, the cabling, the in-wall power kit, a simple smart remote, and all the labor. Get in and out in a couple of hours and move on to the next job. These types of jobs almost never require call backs and add a new customer to your roster.

Charge More
Admittedly, this is probably going to be the hardest of the three to implement and impact your bottom line. But if you aren’t selling more, you can charge more for them.

Most customers today are quite price conscious, especially when it comes to big ticket items like TVs, but you can charge more by focusing on more premium product offerings. I remember years ago I complained to one of my cable reps that his product only had a 50 percent margin while a competitor’s was like 75 percent. He pointed out that I made a $20 profit on each of his products, while only making $10 on the other item, and what did I take to the bank, dollars or percentage points?

Our company decided to embrace sound bars as one way to sell more, but we selected premium bars that offered better performance and that fit in line with our other product offerings. And a $1,000 soundbar sale definitely beats a $199 one. Instead of selling zero-margin, off-the-shelf networking gear, why not step up to higher performing more robust equipment from the likes of Pakedge or Luxul? Not only will it give the client a more reliable network, you can make money on the sale.

Labor is one area where you might be able to increase rates without much blowback. If you haven’t increased your labor charges in some time, you might be undercharging and actually costing yourself money literally every minute of the day. Further, are you “giving away” too much for free? Those quick little drop-by service calls and telephone tech support that you don’t charge for can really add up. Also, have you thought about implementing trip charges or higher first-hour charges? Call some local plumbers, electricians, or HVAC repairmen and find out what their house call rates are. You might be surprised to learn what other skilled trades in your area are charging.

Spend Less
If you can’t sell more or charge more, then the only other way to increase profitability is by spending less. Examine company expenses and see where you can trim costs or cut overhead. A couple of years ago we looked at how much we were spending on Yellow Pages advertising and how much revenue we felt this was bringing us and we made a drastic change. Vehicle maintenance, insurance and fuel costs really add up, and an old work horse might be costing you more than it is worth.

Make sure that you take advantage of any discounts and vendor programs that can help you to save money. Can you get a discount by buying frequently used items in bulk or stocking up if there is a special? Paying late and missing out on any early pay discounts is like throwing money away. Getting whacked with a late payment fee is even worse!

Try and bundle orders or work with distributors so you can avoid or minimize shipping charges. This is especially true on video sales where margins are already razor thin and a $75 shipping charge could actually push a sale into the red.
I wrote a previous blog, Money Matters: Six Tips for Managing Your Company’s Finances, which discusses this topic further.

John Sciacca is principal of Custom Theater and Audio in Myrtle Beach, SC.