Good Tunes for Dealers
For an increasing number of security dealers, the home audio business is playing the engaging music of a new revenue source, one with better installation profits than alarms. At the business level, alarm systems and home audio systems have synergies that can produce operational efficiencies. At the market level, there is sizable demand for dealers that can bring reliable low-voltage services â€“ among them, security â€“ to builders.
â€œThe reliability with which you deliver alarm services is not easily attainable within the niche market the audio-video people are in. They can do it on a small scale, but they have a lot of trouble doing it with any kind of volume. Thatâ€™s why I think some of us are going into this area,â€ says Rick Brokaw, general manager of Vintage Security Systems, Columbia, Md.
Other security dealers are singing the same tune about selling audio systems.
â€œItâ€™s a good business, because thereâ€™s still some good margin there and people are willing to spend money on it,â€ says Jamie Orvis, chief operating officer, Security Solutions Inc., Norwalk, Conn. Orvisâ€™ family has been in the security business since 1969, serving Connecticut and Westchester County, N.Y. But it wasnâ€™t until about five years ago that an opportunity in the home audio market came to Security Solutions, and Orvis acted on it.
â€œIt started with a couple pairs of speakers and some volume controls and it went up from there,â€ Orvis says. â€œWe started with the very simple, then we added remote IR control; then we moved into doing integrated control systems with keypads.â€
â€œWe are not your full-blown home theater company, but if you would like to have a nice TV with 7.1 sound, we can do it. We can create great sound, but weâ€™re not the whole thing,â€ Orvis says. â€œThereâ€™s a lot of schooling involved with doing that really right. Weâ€™re not geared for it. Weâ€™re much more geared for doing smaller scale home theaters.â€
Not only do high-end home theaters require a very advanced level of training and knowledge, but also an extensive time commitment, security dealers say.
â€œThe phrase that is used a lot when somebody gives you a couple-hundred grand to do a home theater is â€˜they own you,â€™ and thereâ€™s endless tweaking and fine tuning and itâ€™s a never-ending project,â€ Orvis says.
Home audio is a sensible adjunct to the core business of security for many dealers. It harmonizes well with alarm dealersâ€™ customer-focused skills â€“ including attention to detail â€“ and provides yet another service that builders can rely on from a single contractor.
â€œWe started the company two years ago with a team of industry-experienced veterans who wanted to start a business that would service the customers much like the business was focused years ago, where every customer was considered a lifelong customer who we could form a relationship with and not just obtain a sale,â€ says Barry Piner, regional director of sales, Custom Home/Carriage Division at United Security.
â€œWe started selling whole-house audio systems about a year ago,â€ Piner recounts. â€œThat business segment, we realized, was far less saturated than the traditional residential and commercial markets. Many of the builders that we contacted during the early stages told us that they were interested in working with a provider that could be a one-stop shop and one-call resolution to all their low-voltage requirements.â€
Of course, being a provider of multiple home systems allows dealers to cross-sell, and often the sales process involves a similar approach.
â€œThey are both truly consultative sales approaches,â€ Piner says. â€œThe audio business is a natural tie-in to our security business. Many of our clients who are investing in audio systems also want personal protection for their family.â€
And having â€œsecurity roots give you attention to detail that people have trouble finding from audio people at higher volumes,â€ Vintage Securityâ€™s Brokaw says. Vintage Securityâ€™s audio business accounts for about 20 to 25 percent of the companyâ€™s total installation revenue. â€œWe do 75 different projects at a time. Weâ€™re after houses [valued at] $600,000 and above,â€ he notes.
At the market level targeted by Vintage Security, better profit margins are achieved through audio systems and structured wiring, while â€œalarms are no longer the primary installation value. We are obviously after the long-term revenue stream, but what weâ€™re really trying to do is solve the buildersâ€™ needs,â€ Brokaw says.
Vintage Security doesnâ€™t sell maintenance contracts on its home audio systems because the final product is used in such a different way than a security system. â€œThis is a lifestyle product. Iâ€™m not sure if I want my guys on call worrying about it. You never know when youâ€™re going to get called because Aretha Franklin doesnâ€™t sound as good as she could,â€ Brokaw says, adding, â€œWe downplay it. In my case there will always be a security focus because we pay much more for a salesperson to sell security.â€
Looking at revenue overall, not just from the installation, United Securityâ€™s Piner stresses the importance of the long-term profitability of the monitored alarm. Further, dealers must be strong financially if they are to be involved in the audio market, Piner cautions, because they will likely be involved in multiple projects at one time â€œwhere there are sometimes months between pre-wiring and trim out with final payment,â€ Piner notes.
United Security is currently occupied with about 50 jobs per month just in Raleigh. A typical audio system the company would install consists of one room of surround sound and at least three other rooms of distributed audio, which would include volume controls with basic components, Piner says, with an approximate value of about $4,500. Asked to describe their smallest and largest home audio jobs, Piner presented a range of between about $800, for basic speakers for a surround-sound application with no components, and about $35,000 for a large installation in a multi-million-dollar residence.
Risks & ResourcesBrokaw admits that that the actual sale of a home audio system is easier, â€œbecause itâ€™s a lot more fun to talk about it than security. [But it can be dangerous because] your reps gravitate towards it. Weâ€™re security people first, and the lives and property are more important than the sound system. They will forget about the details that go with that,â€ he says. â€œHopefully you can profit from putting more things in one house, but itâ€™s also dangerous, because the security focus is disrupted and you run the risk of being all things to all people. You have to try to limit your offering or structure it very carefully. Itâ€™s not easy.â€
What Brokaw means is that customer expectations can easily get distorted unless they are distinctly spelled out.
â€œIf you sell the speakers, you have to be careful that people donâ€™t think youâ€™re also going to hook up their stereo. If you sell the structured wiring, you have to be careful people donâ€™t think youâ€™re going to hook up their computers and install their network. Itâ€™s a tricky situation to live up to the expectations of your client,â€ he says. To protect themselves, Vintage Security does a lot of training of both salespeople and technicians, and makes specific declarations in writing so customers will understand which services are included and which are not.
Key to starting and maintaining a reputable, successful home audio business is having a skilled staff. In Security Solutionsâ€™ case, they hired a technician who had previously operated his own home audio company. The business evolved from there and now the company provides cross-training because that part of its business is growing so rapidly. Orvis says audio systems comprise about 10 percent of Security Solutionsâ€™ total gross revenue, and he expects the revenue from audio systems to be 100 percent better in 2004 than 2003â€™s audio revenue.
One of the greatest challenges of keeping technicians up to date on training, Orvis notes, is that the audio technology advances so quickly. â€œThe run cycles on this equipment is not long. The better mousetrap is out reasonably soon. Thatâ€™s what the marketplace is demanding.â€
In addition to counting on his distributors and manufacturersâ€™ reps for technology training, Orvis gets engineering help from his local distributor branch. He is also a member of the Custom Electronic Design & Installation Association (CEDIA), which places heavy emphasis on education.
â€œItâ€™s mandatory that you have the right person designing the audio, installing the audio in order to exceed the customersâ€™ expectations. We have been fortunate in aligning ourselves with excellent vendors who have supplied to our sales and installation teams factory training,â€ Piner says.
A New ToySecurity dealers in the home audio market seem to really enjoy the systems they are designing and installing, and some even seem awed by the ease with which their customers will invest major dollars in their homes.
â€œAudio is really moving fast,â€ Brokaw says. â€œI have 10 salespeople and we were talking about that a couple of months ago. When you tell people they can have music on the back porch, music in the kitchen, music in the office, a lot of them are buying these systems.
â€œYou donâ€™t have to have a home theater in a room in the basement. You can take the family room and turn it into a 5.1 surround sound package and get more regular enjoyment watching the ball game. Itâ€™s more mainstream now and its price has come down. People can get a package with five speakers and a subwoofer for a more reasonable price of about $1,500. For a whole-house audio system, itâ€™s in the $4,000 range for the homeowner after the builder does his markup.â€
Orvis likens the strong consumer demand to the feeling of getting a new toy as a child.
â€œItâ€™s easy to make [clients] happy for the most part,â€ he says. â€œItâ€™s such a great buzz and whistle. I install an alarm in your house and youâ€™re not calling your neighbor to say, â€˜check out the new alarm.â€™ But you might put in a $20,000 stereo and say, â€˜check out my new system.â€™ People love it.â€
Sidebar 1Being in the right place at the right time is priceless. A business that is located in a geographic area thatâ€™s experiencing accelerated new residential construction can help foster the success of dealers covering the home audio market.
Hot Housing Areas Can Fuel Dealersâ€™ Successes in Audio Market
The home audio business may be an opportunity to
consider, especially if your company operates in one of the
20 hottest growth markets ranked by the number of new construction permits, according to the National Association of Home Builders.
2003 Permits (Thousands)
UNITED STATES 1,444
1. Atlanta, Ga. 53.75
2. Phoenix-Mesa, Ariz. 46.59
Bernardino, Calif. 35.73
4. Houston, Texas 33.97
5. Washington D.C. 30.76
6. Chicago, Ill. 30.73
7. Las Vegas, Nev. 30.28
8. Dallas, Texas 26.91
9. Orlando, Fla. 22.39
St. Paul, Minn. 20.33
St. Petersburg, Fla. 20.18
Rock Hill, N.C. 17.16
13. Sacramento, Calif. 17.13
14. Detroit, Mich. 15.33
Chapel Hill, N.C. 14.07
16. Ft Worth-Arlington,
17. Indianapolis, Ind. 13.06
18. Denver, Colo. 13.01
19. Jacksonville, Fla. 12.64
20. Philadelphia, Pa. 12.41
Source: National Association of Home Builders