The TLM Pricing Formula

In the Top-Line Management System™ (TLM for short – the basics of which you can learn in the QB for Integrators course), there are three basic revenue categories:

Equipment is all the major, job-specific components around which you design a system solution. Displays, electronics, speakers, control devices, related gear and accessories – just about any of the items typically purchased on a per-job basis – are all considered Equipment in TLM. These items make up about 95% of the wholesale product cost of a typical system.

Parts are all the “infrastructure” items typically found on the truck and used in almost all jobs (wire, cables, plates, boxes, connectors, etc). These items have a low per-unit cost, but there can be many of them (pages- and pages-worth on a detailed proposal) in a typical project. Still, Parts represent only about 5% of the wholesale product cost of the project.

Labor is the professional services and expertise that an integrator gets to charge for. As such, it does not have a product-cost component.

Total project revenue is a “mix” of all three categories. Optimized gross margin relies, a lot, on the mix ratio your company can realize.

1)     Add up all the Equipment costs, divide total by 65%. This will get you a 35% GM on your equipment price (divide by 60% for a 40% GM).

2)     Multiply the Equipment price by 50%. This gets you your 30% Labor allowance.

3)     Divide the Labor allowance by 3. This is your 10% Parts allowance.

Works every time? Not always perfect, but a quick and reliable way to get “in the ballpark”.

Two weeks ago, I completed a four-month speaking odyssey that took me from Atlanta to Seattle to Boston to Orange County. My presentation was entitled Key Management Practices. Hundreds of company owners heard me talk about systematic practices for counting the money and measuring performance and marketing for referrals.

But while reading the most recent issue of Residential Systems, I realized that the key practice that seems to be making the most difference right now, is one I didn’t address in my seminar.

Selling.

I mention this as making the most difference because it is companies with good selling abilities that are currently doing well. Not just a little well. Real well.

(I will report on my mid-year findings on August 31. But trust me, there are integration companies out there making sales and making money.)

This is happening at the same time that other integration companies continue to battle declining margins, invasive technologies, and customers who are pressing their “buyer’s market” advantage.

How does a company sell its way out of such a market? Here are my thoughts…

Remember what customers buy

Customers acquire cars and TVs and clothes. But that’s not what they’re buying.

Dave Donald of Speakercraft says customers buy “the way they think they will feel” after making the purchase. The successful purchase is going to provide an emotional experience that is both desirable and valuable.

But integrators tend to sell equipment and time. That’s what they know, that’s what they like to talk about.

Unfortunately, equipment and time – presented absent any emotional value and/or experiential outcome - are simple commodities. There will always be someone out there willing to sell them for less.

Customers know that. That’s why they shop your prices on equipment and time.

Successful companies sell the incredible value of the experiences their products and services will provide. That’s what Bose has always done. For many years, that’s what powered Sony. And it is the essence of what makes Apple today’s most successful CE company.

Restructure your presentations and proposals accordingly

Line-item proposals are the epitome of commodity selling. I don’t care if they are D-Tools or Bid Magic or SRS. Line item proposals suck.

Discussions of technology options and product preferences demand that the customer go where the integrator is comfortable, not where the customer is comfortable.

(For a good discussion of this, see Dave Chace’s article on page 18 in the July issue of Residential Systems magazine.)

Years ago, I asked one of my clients to make a list of “cool things” their company could make happen for its customers. I was referring to the magical outcomes and experiences their systems could provide. If you could build your proposals and presentations around these “cool things”, I suspect you would be able to sell at higher prices, with less competition.

Learn fundamental selling skills

Understanding emotional selling, vs equipment selling, is a major step. But you still need to know the best ways to build rapport, qualify, listen, probe, and close.

If you are a former retailer, you might have experienced some “sales training” in your past. But I see darn little of this being done for integrators, most of whom have a technical background, rather than sales.

Big problem.

Back when business was booming, you didn’t need selling skills to close job after job. That was then.

Your mission now is to make certain you have selling skills in your company.

I’ll be on a mission to identify selling resources to share with you in future issues of my newsletter, ACCELERATE.