Spending is down. The housing market is down. The economy is down. All of this is really getting people down. Is there an up side? Enterprising residential integrators say there absolutely is.
Consumers are super budget-conscious these days, but electronics still turn heads and open wallets. Home theater systems have not lost their appeal and, when packaged affordably, can help recession-proof your profits.
Buyers are busting the myth that home theaters have to be ultra high-end. Demand suggests that not everyone feels they need a top-of-the-line home theater; many homeowners are content with mid- or low-budget systems, as long as they’re basically reliable and come with a warrantee.
Rob Dzedzy, president and founder of Media Rooms Inc. in West Chester, Pa., has the experience to prove it. He’s been designing and installing audio/video systems since the mid 1970s. “Getting a nice theater system in our client’s home – that provides their family with hours of enjoyment – is the goal. Many clients aren’t concerned that the equipment is the most expensive or better than their neighbor’s. Their concern is that they have family time watching a movie and a great place to watch the game.”
Stepping down home theater systems in price can sometimes mean a slight step down in performance, Dzedzy concedes, but if it comes to installing a system or not installing one, Media Rooms does whatever it can to work with the customer. “We, as a business, have to be careful that we meet the client’s expectations and not feel the need to oversell.”
Sean Rawlings, general manager of Linx Integrated in Puyallup, Wash., sees much of the same. A systems integrator, Linx designs, installs and services electronic systems for residential and commercial construction projects. Rawlings believes homeowners still are very much in the market for home theaters but recognizes that cost is more of a factor than it used to be. “We might’ve pitched a higher end product before and now we’re more conscious of people’s budgets when we propose the packages,” he says.
Never Sacrifice Quality
“As long as customers’ expectations for entertainment are still met they’re happy to accept a less expensive product of a reasonable quality,” Rawlings adds. “We don’t step down in our product lines and sell more obscure brands that cost less to sacrifice quality. We’ll put together a package of speakers that’s lower end, but from a good manufacturer. We can still offer the customer value in their purchase over the long-term. It’s still just as important to maintain the overall quality and life expectancy of the product as it is to reduce costs.”
That is the approach Media Rooms takes regarding product selection. “We stay with our core brands because we have solid relationships with the reps and manufacturers,” Dzedzy points out. “If cost is what’s driving the sale, we step down to more basic models in order to meet the client’s price expectations. We never want to be in a position that we use sub-par components just to get the sale. By doing that, inevitably there will be problems and the client will lose confidence in the company.”
Media Rooms has traditionally done more high-end home theater projects and provides the interior elements such as columns, acoustical wall panels, seating, and architectural elements, as well as the components. But the economy is changing that market, and the average cost of its home theater projects varies a lot more these days.
How to Budget for Low-Budget Systems
To estimate the average price range for low-budget home theaters, Dzedzy advises, “You need to first define what a home theater system is. When the term home theater first came into use the definition was a video display with a diagonal picture size of no less than 32 inches and a surround-sound audio system. I generally define a home theater as a system with a 100-inch or larger front-projection video system, a 7.1 Dolby digital surround sound system, and an easy-to-use remote control. Our entry-level systems start at about $8,000.”
A big cost variable, Rawlings says, is the display itself. “If you take the display out of the equation, our jobs start around $6,000. That could double depending on the display a client wants. People think bigger is better with TVs so $5,000 can turn into $10,000 if someone has to have a 63-inch plasma on the wall.” That gives his company’s installations a wide range of prices, from $6,000 to $24,000.
Dzedzy – like Rawlings and so many integrators today trying to stay profitable – recognizes the challenges. “Profits have eroded dramatically on the component side and it becomes harder and harder to find ways to make a profit,” he says. “The industry, at this point, is in chaos. Some manufacturers of flat panel displays, for whatever reason, feel the need to keep lowering the cost of their products and, in turn, lower the profit for the dealer. This in effect is shooting the dealer in the foot. Manufacturers should rise to the challenge and develop relationships with the custom installation industry. This is not a time for business as usual.”
A marketing plan can help, Dzedzy believes, but to be effective it must be fluid. “You need to review the plan every six or even three months and make changes to it with respect to the economy, the growth and health of your company and how your marketing dollars are working for you,” he advises. “The key is knowing what money comes in and goes out. It’s a wonderful thing to plan to do X amount of business, but if you don’t have a handle on revenue and direct and indirect expenses, a marketing plan is of no use.”
Dzedzy doesn’t have a specific itinerary for either low- or high-budget home theater systems. “We first evaluate the client’s needs and wants, and then offer options.”
Even when new homeowners don’t opt for a home theater system, nine out of 10 will have the wiring installed for one, Rawlings relates. “Folks won’t sacrifice the installation entirely. They may eliminate some of the control equipment from the budget but they do want the wiring so they have the option later on. It’s a good re-sell if you installed the wiring initially.”
Containing Project Costs
The best way to minimize labor costs is repetitive design, Dzedzy believes. “Use the same equipment on each installation. You eliminate wasting time on the learning curve.”
Rawlings agrees. “We spend money to save money,” he says. Linx has a full-time drafter on staff that does a basic layout of all the systems for the field techs. It takes the guesswork out of it and things go more smoothly when it comes time to trim. “Everyone’s on the same page from beginning to end. It’s a unique business where you can sell someone thousands of dollars worth of stuff without putting anything in front of them. The blueprint and diagrams are of huge benefit to us and in making sure we’ve met the customer’s expectations. The design process helps us operate more efficiently.”
A lower-priced home theater has fewer components – projector, screen receiver, speakers – and takes less time to install, Dzedzy says. “A high-end theater will have a larger projector – so more manpower is needed to hang it – and a surround processor, separate amplifiers, touch screen remote control, a lighting control system and possibly other items such as a motorized screen with adjustable aspect ratio, a video processor, acoustical wall panels, etc. Also, on a high-end system we always do video and audio calibration.”
Don’t Give It Away
Some cost-cutting measures Dzedzy recommends are using less expensive components and installing the same systems repeatedly. Resist the tendency to rush the installation, as it will inevitably come back to haunt you, he claims. Making a profit is more difficult because as equipment prices drop so does the profit margin. But there is assuredly money to be made, he adds. “You have to monitor the project and make sure you don’t give away any labor.”
Rawlings also refuses to give away the work. Since the economic crisis hit, he’s seen many competitors undercutting each other just to get business. “Some guys are doing jobs at a loss just to have some cash flow coming in. I have a good indicator when people come in considerably lower than me they have to be cutting something out of the deal. They’re taking the profits out of jobs just to get the jobs, which does everyone a disservice.
“We’re going to do it for a certain price or we’re not going to do it. It’s counterproductive to reduce pricing; it has a negative effect on the entire industry. At the end of the day we provide a useful service and everyone should charge accordingly. If you’re not going to make money, why do it?”
As an installer in the residential market, you don’t have to sacrifice quality or profits to earn revenue from low-budget home theater systems. As consumers are scaling back their expenditures, prepare an offering that scales back with them – you’ll find that lower-budget home theater systems really do open wallets.
