Hello to the MI world. This is my first appearance in this magazine, although I have been writing for its sister Testa Communications publication, Sound & Communications, for 17 years.
Briefly: I have 40 some-odd years of experience working in the music and sound industry, and have done, at one time or another, mostly every type of job in this industry (even acting in a Billy Joel music video, “The Night is Still Young”). This includes almost a 20-year relationship with Sam Ash Music that started in the late ‘70s and into the ‘90s, where at one point I spent close to three years as the chief engineer and a short period as head of Sam Ash Sound & Lighting. Through store referrals (from 18 locations at the time, if I remember), we designed, installed and serviced audio systems (video and control were not prevalent yet).
Why Commercial Installations?
At this year’s Breakfast of Champions during The NAMM Show, the trade group placed significant emphasis on the possibility of commercial installations as a way for MI retailers to pad the bottom line. Although my space is limited for this topic, I wanted to bring up some of the main details and issues you need to know if you are planning to go the commercial installation route.
First, let’s start with the basics. Companies that work in this industry are called audiovisual integrators. There are two “spaces,” commercial and residential, that are serviced by audiovisual integrators. This article will focus only on the commercial space. Note: These are the five main aspects of an audiovisual project: sales, design and engineering, installation, service and recurring revenue. In the commercial space, there are what we call vertical markets; some of them include corporate, government, religious, K-12 education, higher education, broadcast, hospitality and performance spaces.
Most integrators have their “favorites” and usually do not take work in other vertical markets. This is because, from the head-end where you design the system to the back-end where the audiovisual system is installed and completed (to the customers satisfaction, I may add), there are many nuances of the systems associated within each market that are absolutely critical. These aspects mean more than just making the system work “good enough” to get paid, but to do such a good job that the client can’t stop talking about how great you were and that they would hire you again, so they’ll provide you with a great reference to help you secure other work.
Not to digress here, but please, if you are going to cross over into the commercial installation market, do it right! There are more than enough integrators in this industry already that are more focused on themselves than the customer. One of the golden rules I preach all the time is “Do It Right the First Time!” There is no greater return on your investment (ROI) than having one of your satisfied customers recommend you to others and/or hire you again!
What You Must Do
Before we start, there are a few things you need to do first. While this is a recommendation, and what others and I have done, check with your attorney and insurance agent before you commit to any changes in your business. You need to set up an entity (corporation, LLC, etc.) that is legally separated from your current business. This is not just for accounting reasons, but for liability. When you are in someone else’s space, you are responsible if something falls of the wall, out of the ceiling, etc., and injures someone — not to mention unintentional damage to their space!
In fact, and in addition to having liability insurance, you need to add a specialty insurance rider called “completed operations coverage.” Ten years down the road, if something falls and injures someone at the venue where you completed an install, you may be sued. Completed operations coverage can cover you for this. Again, make sure to check with your insurance agent and/or lawyer before you get started.
For example, there are many steps to hanging loudspeakers safely and correctly (not just so that they sound good and provide good coverage), including bringing in a licensed structural, professional engineer to inspect, review and ultimately sign off on your means and methods of the installation by stamping your drawing(s) with his or her seal. While this may alleviate you from the liability of the structure failing, you are still liable for the installation (following the stamped and approved installation drawings).
OK, back at it. Let’s start with sales, the first of the five main aspects of a project. There are two types of sales approaches: design-build and bid-build. Design-build is where the customer has selected you to provide them with a proposal, which they will compare with other proposals from other integrators, and then select whom they want to do business with. Bid-build is typical of government work (local, federal, etc.), although some smarter customers will opt to hire a consultant first, and then send out a bid package to known integrators before choosing whom they want to award the contract. Many clients have been burned in the past, and there is most definitely an opportunity to earn business from those looking for a new audiovisual integrator.
I am not trying to make this complicated, but it is. In design-build work, each integrator will meet with the customer and design the system around their favorite equipment and/or the brands they sell (which, by the way, is not always what the client needs). For design build projects, you have an advantage if you already have a relationship with a customer. Even if you are more expensive than other integrators who submit proposals, the client can still choose you. The downside is that, unless you have the ability to compare the other proposals to yours, you’ll be working with a customer who is not comparing apples to apples. Your design/proposal and the other design(s)/proposal(s) will likely include completely different solutions and completely different systems. This often leads to many issues, including the customer not getting their money’s worth or the functionality they need.
Now, in the bid-build world, everyone is bidding on an identical system, and the client, of course, almost always chooses the lowest bidder. Bids (proposals) are submitted by a date and time. If you are even 10 minutes late to the deadline for bid submission, it will disqualify you, even if you just spent 80 hours putting together a multi-million-dollar bid. To start out, I recommend looking for design-build work, likely generated from a combination of your existing clients and new clients outside of your regular customers. Typically, existing customers will be of the worship or performance-space type, like a church, synagogue, nightclub, etc. They come into your store looking for more than a purchase — they want the equipment installed. You may or may not already have folks that go check it out for them, and even do installation work on the side. These sales folks may be your entry into this business. We call them account managers.
I can distinctly remember my first 10 leads at Sam Ash Sound & Lighting that came in through their stores. I closed eight of them, one was a rental, and one did not hire us and decided to go with a brand that was wrong for them (nine months later, they called us back and admitted that they were wrong!). I cannot guarantee that you will have an 80-percent closure ratio of qualified leads from your store(s), but it will be higher than your success rate from leads that are not existing customers.
Should You Take the Step?
Let’s start with staffing. At a minimum, you will need someone whose priority is generating leads for installations. They need to be able to leave the store for hours and not have to rush back to meet someone who wants a guitar. They need to be familiar with the systems they will be selling, and they need to be able to create a proposal and other documents related to the installation. Think of them as a dedicated account manager for your installation division (or whatever you would like to classify it as).
In addition, you will need someone to install and service the audiovisual systems. Typically, this is not the same person as your account manager, since installations can take many days, and you cannot sell more systems if you are busy installing them. This is where it becomes a little more complicated. Back in the day, you would pull your loudspeaker wire, microphone and signal cable, and you’d be done. Not anymore.
Many states now require systems integrators to be licensed. Yes, just like an electrician needs a high-voltage license to work on a building, audiovisual integrators are classified as low-voltage contractors (a classification that also includes the security and telecomm industries). You will have two choices here: Either have a dedicated individual on staff take certification classes and pass the low-voltage exam, or use an already-licensed subcontractor to do your installs. (Yes, if you choose to train someone in-house, you will also need to provide a van and tools for them at your expense).
Another tip: Many companies have a caveat in their employment contract that if you cover the costs for them to receive a license and/ or certification, unless they remain with the company for a year or two, they have to pay you back for the cost of the training. Since the license is in their name (not your company’s) when they leave you will have to train someone else, again, at your expense, unless you hire a new installer with an existing license.
And here’s one more tip concerning bid-build work: One of the reasons I suggest not starting with bid-build work is that it is rarely as profitable as design-build work. Typical markups for bid-build work are as low as eight percent to maybe 16 percent. Many companies intertwine bid-build projects with design build projects to keep their staff busy during slowdowns and to increase the volume of equipment they sell, to keep their equipment cost at the best pricing tier. However, for beginners, your best bet is to focus on design-build projects.
And now … drumroll … the GOOD news! Installations, when done right, are profitable. It is not uncommon, when you combine the overall cost of equipment and your installation labor, for you to sell the job at a 40-percent to 50-percent markup. Of course, this depends on your account manager and their level of sales expertise. Note: You do not want an account manager who sells systems by lowering the price; you want someone who sells the service and the value of doing business with you.
Now, for a programming note: We plan on following up on this subject in future issues and making this a multi-part feature. We will go into more depth on each of the five aspects of a project on its own, and then wrap up with a summary. Meanwhile, you can go to the Sound & Communications website (soundandcommunications.com), and look under the Resources tab, where you will find “Doug’s Docs.” These are document templates I have created over the years, arranged by category and available for you to download and use free of charge; they are accompanied by links to corresponding articles that explain their usage.
In the event you want to “Do It Right the First Time” (and do not want to wait for the series to unfold), feel free to contact me and we can discuss your thoughts on this subject and the role I may be able to play.
To read more columns from the Music & Sound Retailer, click here.