Words of Wisdom
Aug 1, 2000 12:00 PM, Gary Eskow
Four industry professionals share their strategies for and experiences inselling to the residential installation market.
Home-theater systems are becoming increasingly popular, and as
HDTV becomes more fully implemented, that trend is likely to continue. Thecraft of selling theater systems to theconsumer is as new as thestill-developing field itself. The techniques that successful contractorsuse to maximize profit margins, however, are well established, though theydiffer greatly from those used in commercial installations. I spoke withfour people involved in the residential installation market. What thesepeople had to say may help others looking to enter this field or increasetheir profit margins.
Mike Flanagan, a 20-year veteran of the industry, owns Home Systems ByDesigns, Lenexa, KS, which has 11 employees. HSBD was incorporated in 1995,and the company specializes in A-V systems work, including multi-roomlayouts and personal theaters with plans to install phone systems,automation and lighting design and control.
Eric Chittick, a store manager at Genesis Audio & Video, Irvine, CA,channeled his enthusiasm for music to lead owner Bill Anderson to open arecord store with a small audio equipment department. Anderson, sensingthat emerging technologies would present good business opportunities, hadput a dedicated home theater in his store using a video projector and a 10foot (3 m) diagonal screen by the early 1980s. In 1986, Genesis Audio &Video started its custom-installation division, and since that time, morethan 15 of the company's system designs have been published nationally andabroad.
The two final people with whom I spoke are Eric Leicht and Ralph Tarnofsky.Tarnofsky owns Professional Audio Consultants, Millburn, NJ, one of themost respected audio and video design firms in the state. Leicht isdirector for JBL Professional's systems integration specialist productsgroup, Northridge, CA.
Residential vs. commercial
The actual differences between selling to the residential and commercialclients are profound, and these differences must be acknowledged to succeedin the residential market. For residential clients, Flanagan relies uponhis ability to work directly with them and get them emotionally involved.Corporate work, however, is different because a plan has almost alwaysalready been put in place, usually by an architect, and the emotionalelement does not come into play. In commercial installations, dealing witha finished business decision eliminates the opportunity for creative saleswork.
Further, Flanagan believes that getting involved in the beginning of theprocess is critical to a successful residential installation. Working withan architect before a client has finalized his plans and budget candramatically affect the profit margin, often in the 30% to 40% range forFlanagan. Otherwise, the job is limited to bringing something new to thetable that the architect and home owner have not already considered. Atthat stage, it is too late to bring in many new ideas.
Flanagan said, "If I can sit with the couple, and that's the model Iusually work with on the home side, I can show new possibilities to excitethem. A couple may have planned on installing a 55 inch (1.4 m)high-definition television that will be built into a cabinet. I can showthat couple how they build a 110 inch (2.8 m) television into a wall andeliminate the need for a cabinet altogether. Working with sheet rock,before a new house is built, is easy. In some cases, getting the clients torethink their plans before they're set can eliminate expected expenditureson furniture that are in the $5,000 to $10,000 range. That money, whichleads to no profit for my company, can then be applied to the budget thatI'm handling, thereby increasing our profit margin."
Similarly, Leicht said that most homeowners have a good idea about whatthey want, but they tend to have little concept about what a quality A-Vsystem really costs. An astute salesperson should be able to sell ahomeowner on products better than those with which the homeowner wasfamiliar. To that end, presenting the products, especially in a showroomhelps generate the desire for better equipment and services. Then, discusscosts. Most corporations, however, have strict budgets for a project, andthe challenge in that case is to deliver the best quality within budgetwhile looking for opportunities to expand the budget, perhaps in a laterphase of the job.
"Homeowners also tend to think on a smaller scale," Flanagan said. "Youhave to know how to nudge them. You have to educate them as to what'sreally going on in the industry. If I can take the clients to a facilityand show them an HD-ready, data-grade projector, they're generally shockedat how good the picture is. I've taken budgets that called for a $3,500television set and a $3,500 cabinet that takes up 2 feet to 3 feet (610 mmto 914 mm) of space and converted that sale into the $20,000 to $30,000range and even higher. Of course, homeowners are spending their own money,and there are those times when budgets are tighter than in some commercialjobs."
When asked to compare the selling techniques his company uses when dealingwith residential and commercial clients, Chittick, on the other hand, saidthat consumers can find technology confusing, especially based on previousexperiences with some super-stores. Usually, they ask technical questionsbased on acronyms that they may have heard. In general, this turns into ateacher/student relationship with the client. They can see the installer asthe professional in the field and ask for suggestions based on industryexperience. Corporations, however, expect the contractor to integrate wellwith other trades on their jobs and to ensure a quality, trouble-freeinstallation. There is typically less instructional presentation with acorporation.
Tarnofsky found that the biggest difference between doing business withcorporations versus individuals is loyalty. Corporations are seldom loyal,and job turnover often means a loss of contact. Corporations are alsodriven by price and competitive bidding, more so than most homeowners, andgetting paid promptly at the conclusion of a corporate project can befrustrating because of delays and runarounds. The decision-making processis usually more convoluted in corporate work, often requiring multiplecommittee meetings.
A sensitive issue involves the dynamics that exist between a husband and awife. When Flanagan started in retail 20 years ago he quickly found that ifhe could get the husband the desired sound and the wife the desiredcosmetics, then success would follow.
"Focusing on the wife makes her less resistant to the sale," Flanagan said."Sometimes, I teamed up with the husband in advance, showing himalternative loudspeakers of different sizes and anticipating the wives'objections. In home sales, I have two obstacles to overcome - budget andcosmetics. By dealing with the woman initially, I eliminate half of theequation. Showing her how we can build loudspeakers into the wall or usecabinets is a help. Often, a wife will wash her hands of the sale. I usedto move on from that point and deal with the husband, but many times, afterpreparing a sales plan that met with the husband's approval, the wife wouldshoot it down. I learned to stay with the wife. Another factor to considerin the residential arena is that when it comes time to do repair orwarranty work, you may end up dealing with the wife because she may be theone who is home when you call. It makes it easier if, when you come back tothe house, she doesn't hate you for selling her husband something that shedidn't want."
Along those lines, Chittick said, "Attention to the dynamics between ahusband and wife is crucial to designing and recommending the correctcomponents to the clients. Everyone should have fun with the system andfind it easy to use. Many times, the husband will be concerned with theperformance of the products, whereas the wife might be concerned with howthe products integrate with the interior design of the room. Wespecifically pre-evaluate products based on these and other criteria toensure that we recommend a quality product to everyone in the family. Evenafter the job is complete, we request that everyone in the house be presentfor our training so that everyone knows how to use the system."
Tarnofsky agreed, saying that remaining sensitive to the dynamics between ahusband and wife is critical. The key, he maintains, is to make intelligentcompromises between the performance level of the system and the aestheticvalue of the room. The husband must believe that the new system willperform to his expectations, and the wife must be comfortable with thelook, feeling that the equipment will have a minimal impact on the layoutor style of the room. Tarnofsky sees that his role may be that of anarbitrator or even a referee. He elects to stay neutral, making suggestionsto which both spouses can relate.
Leicht, concurring that being aware of the different needs of a husband andwife is critically important, said, "Sometimes you almost have to treatthem as two separate clients. Going through a major construction projectcan be pretty taxing on a family; we've seen many a husband and wife breakup after a big renovation. You certainly don't want to alienate eitherparty. It's not uncommon, for example, for one top dealer to proposeseparate home-theater systems, his and hers, when clients express divergentneeds. That may be better received than proposing one theater thatcompromises the clients' different needs and the dealer's own integrity."
Educating the client
A little bit of knowledge can be dangerous. Leicht tries to keep thetechnical aspects simple. Manufacturers and dealers can get bogged downwith technical terminology. Consumers, on the other hand, think in terms ofhow the equipment will look when mounted on the wall. Leicht said thatsystems contractors and integrators need to let the consumer know what theycan and cannot do, but we also need to be focused on the consumer's needs,and that usually means asking a lot of questions before educating theclient.
Regarding client education, Chittick said, "It depends on the situation,but most of our sales process focuses on what we offer in the way ofservices as opposed to selling a specific feature or box. Once the clientrealizes that we offer such services as acoustic design, seating,programming and future-wiring, it becomes clear that an experiencedprofessional is needed to complete entertainment systems at this level. Wego into technical detail with the client only when needed by clearing theconfusion and taking the time to explain details and the ways that oursolutions benefit the user. Having a patient bedside manner wins overcustomers better than storming them with acronyms."
Likewise, Tarnofsky said, "I seldom quote specifications to clients butrather focus on the features and benefits of the gear. I try to assess howmuch time my clients want to invest in the buying experience and to gaugeinterest and attention span."
Flanagan, however, views the matter a little differently. "I'd say that Ieducate about 75% of my customers a little bit about the equipment that Irecommend. For example, we're currently in a period where most video isNTSC with a 1.33 aspect ratio. I explain that if they're building a housethat they plan on occupying for awhile and are spending $8,000 to $10,000dollars on a cabinet, they should build that cabinet to handle a differenttelevision because the nature of broadcasting is changing. We build so thatthe inside of the cabinet can be expanded by using a removable cover. As ageneral rule, when I deal with either a commercial or residential client,if any new cabinet is built, I tell them not to design anything around anold set because it will have to be replaced. Building around the future isa key rule when you're designing furniture. A set will break or becomeoutdated. If I design a cabinet for an existing television, and three yearslater, the clients want to go to high definition, I can end up looking likethe villain if it means that an entirely new cabinet has to be constructed.On the other hand, if it only costs $500 to have a new face plate made forthe new television, I look like a hero."
Early in the process, Flanagan educates the customer with respect to usingproper terminology because after installation, plenty of little issues cropup. A babysitter, for example, may push buttons or grab the remote, therebygetting the equipment out of synchronization. If the customer knows exactlywhat pieces he owns, it allows the installer to handle problems over thephone by simply walking him through the set up. About 95% of these issuesthat arise, for Flanagan, can be settled this way if the homeowner has aclear idea of the name and purpose of each piece of equipment. The clientwill also remain more satisfied if he does not have to wait several daysfor a service call, and in this business, the client may be the soleadvertising medium. Flanagan relies on his customers to refer new clients,and keeping things simple helps everybody stay happy.
Rarely does Flanagan cover actual specifications. To him, that is a losingbattle, especially because specifications may not always be the bestmeasure of real-world performance. He simply explains why a problem ishandled in a given way while sharing a bit of terminology, and that is theextent of the education. Most clients do not want more information; theywant to know as little as possible while having everything in the housework properly.
Educating the client can also have a positive effect on the bottom line.Chittick said that some clients have a pre-determined budget for homeentertainment, but his clients often have no idea as to what a quality A-Vsystem costs. A showroom allows him to display various possibleinstallations and give price points on each one. This visualizationcomforts the client and lets them know what they can expect. At that time,the specific custom aspects of their home may be discussed and applied tothe design, and to meet some of these needs, the client's budget may beadjusted accordingly.
Flanagan uses a similar strategy, stressing to the client that long-termopenness is the most important aspect of planning. As long as he wires thehouse for that long-term plan, the client can execute it in as many phasesas they desire. Clients often want to spend only $10,000 but end upspending $50,000. He does not listen to the initial dollar amount; helistens only to what it is that the client ultimately desires. He thenmakes the necessary suggestions, making sure that the customer is aware ofthe available technology. From that point, a client can make an educatedassessment of what best fits the needs and budget. For example, mostclients are not aware that front-screen projection can be as good as itreally can be, and if they want prewiring for it, Flanagan will be happy toaccommodate.
"Over the last six years," Flanagan said, "I've probably sold 50front-screen projection TVs to clients who initially wanted only abig-screen television. They'll come in saying they want a 55 inch (1.4 m)set and end up with a 90 inch to 138 inch (2.3 m to 3.5 m) diagonal screen.It's like using a used car salesman's tactics. If you're driving an Escort,and I can show you how you could be driving a Corvette without spendingthat much more money, what choice would you make?"
Flanagan said that HSBD does not have relationships with its vendors thatturn into after sales work becoming a profit center for his company.Chittick, on the other hand, said that all his custom jobs include aone-year warranty on installation services. After one year, he charges forvisits to the clients' home and completes any additional work at the normalhourly rate plus the cost of materials. Although programming touchpanelsand other controls is extensive, technical work, he does see profit in thisarea. Chittick makes it a point to keep this within reason and maintain acompetitive edge within the market. Clients prefer a turnkey approach tosystems, and having these services within the building helps maintain thisrelationship.
Neither Flanagan nor Chittick finances the end user's purchase. "With ourcustom jobs," Chittick said, "terms are laid out comfortably so that theclient is aware of the next scheduled payment well in advance. Because ofthis, it is typically not necessary to finance the system. On a retaillevel we do offer financing."
As for the actual mechanics of the sale, Flanagan said that maybe 5% of thetime, someone from his company will set the hook, and he comes in andreinforces the sale. This happens when the sale is past the comfort levelof the initial salesperson. Some people have difficulty asking for $250,000not because of a lack of knowledge about the equipment, but simply becauseof comfort. Once a salesman breaks $50,000, it is easier for him to ask forthat much the next time.
"There have been plenty of instances where a potential client will give mea $45,000 budget," Flanagan said, "and I come back with $85,000. They agree75% of the time, and about 15% of the time, they end up doing the wholesystem, but over time, but I've still locked them into using me for theentire job. About 10% of the time, I lose the sale because I've gone pastthe client's comfort zone. I can live with closing 90%. The trickiestsituation is when a client says that he doesn't want to spend the money foryour proposal but still hasn't released the emotion that comes with wantingeverything I've suggested. That's a job I don't want because experience hastaught me that I'm not going to make that client happy. I've already shownthem the gold, and although they want it, they don't want to come up withthe budget that will let them have it."
Finally, Leicht said that many dealers and installers do not realize thatthey really control the sale. Sometimes, customers ask for certain types ofproducts or even brands, but these thoughts may be misguided because oflack of awareness of more appropriate products or brands. Positioningyourself as the expert and using good demonstration facilities, ahigh-quality job portfolio with good references and good rapport, theclient will trust you to sell whatever you think is right for their job.