[EDITOR’S NOTE: A longer version of this article appears in the Residential Lighting Best Practices Guide, which is available here.]
There are several ways for custom installation businesses to add lighting capabilities to their product and service roster. Here are the strategies in the market that have proven to be the most successful — ones that avoid pain while providing as much upside as possible.
Retrofit
- Huge potential market
- Low design requirement
- Innovative and easy to install
- Low risk
- Lots of competition and DIY
- Not a massive differentiator
- Unforeseen complexity
Retrofit is one of the market strategies that is easy to enter and there is a massive addressable market of all existing homes. You have the ability to leverage your existing customer base. It is a simple market to enter with many innovative products that are easy to install and require very little lighting design expertise.
The challenges you face in this market include a huge list of competitors from Amazon to home stores to handymen and DIY. Retrofit lighting is also not a big differentiator, and with any retrofit project, there will be unforeseen complexity in a certain percentage of projects.
Accent & Landscape
- Easy to install with few variables
- Big WOW factor
- Large potential market
- Established competitors
- Customer education
- Considered luxury spend
It might seem odd at first to think about landscape, accent lighting, or tape lighting as a separate business model. It can be a very lucrative first step into selling the idea of better lighting to a client. These systems can be relatively easy to install, hard to screw up, and provide a WOW factor beyond the cost.
While the potential market is also large, there will be great competition, including the standard of “what good looks like.” Some level of client education is required to overcome the fact that this category is considered a luxury to some.
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Upgrade
- Higher dollar projects
- Trusted advisor status
- Luxury project outcomes
- Design requirement
- Potentially fragile relationships
- Higher risk
The business model of upgrading lighting in a new-construction environment is where things get a little more complex. Upgrades refer to a market model of upgrading fixtures on a custom home project, where you educate and offer better fixtures in place of what was specified, without a full redesign. These can be very high-dollar projects that allow you to become a trusted advisor and deepen partner relationships.
This is where you need to have some lighting design expertise in-house or outsourced and carefully navigate the relationship between designer, client, builder, and electrician. Get these things right and this can be a very nice entry into full design-build projects. Get them wrong and you can make enemies quickly with other trades who also have a reputation and profit interest.
Design/Build
- Greatest risk/reward
- Early introduction
- Less competition
- Skilled project management
- Continuing education
- Long sales/project cycles
Full design-build projects are where your company creates the lighting plan for the project and executes on selling the fixtures, and possibly more. These projects have the greatest risk and most potential reward, one of those being that you get introduced much earlier to these projects. Assuming you become very skilled and develop a solid reputation, your company will have less competition. A requirement for that reputation is managing projects well and staying on top of trends.
On the challenging side, the long sales and project cycles can present cash flow and personnel challenges you may not be used to. Also, to maintain your expertise and market share, you will need to invest heavily in ongoing education and the right staff to design and complete these top-level projects with the highest of standards.
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Keys to Growth
While each of these models has different success factors and pitfalls, here are some foundational ideas to consider as you move into or grow your lighting business.
- Diversify offerings: Diversifying what you offer could include choosing to eventually implement all the market strategies discussed, along with various fixture types, controls, etc. Become an expert at each stage before adding something new. Diversification does not mean cherry-picking brands. Become an expert and go deep with the brands you support and who support you. There is a direct profit incentive and an efficiency and education incentive.
- Upsell to better stuff: Just like the AV and controls world, lighting fixtures come in various ranges of quality. Sell better stuff at a higher margin; it’s a win-win for you and the client.
- Add project management, design, and maintenance services: Adding services is key to profitability and differentiation. Outdoor lighting maintenance services are low-hanging fruit. Design and project management services are key to winning and delivering a great outcome. You will find that great lighting systems require deep integration with the project team from start to finish, often with many more design and project management hours than anticipated. A move toward “retainer”-based services should be considered versus fixed-pricing.
- Go deeper with brands: Going deeper with the brands you carry allows for the best pricing and drives higher margins, not to mention reciprocation of support from those brands.
- Right light, right spot: Put the right lights in the right spots…do you need fully tunable lighting in the laundry rooms? Don’t always shoot for the home run on every project.
- Mindful of metrics: With any new category, it’s important to be mindful of your metrics to determine what is working and what is not. You need to know the profitability of this category on your P&L and carefully track inventory. You also need to know the number of incoming leads, close ratio, job size, and all your sales metrics. This is key to determining where to focus for the highest leverage.
For information on the services VITAL provides, visit http://growwithVITAL.com.
