Why are there so few bigger Ci companies?

In today’s Coffee…

*The Reasons Why Large is Rare

*396 words, total reading time about 2 minutes

With approaching $2B in revenue annually from 500 companies serving the luxury client market, why are there such few $10M and greater companies? Depending on your data sources, less than 24 companies report revenue above $10M in the luxury Ci market space aka traditional Ci in the residential space.

Companies seem to settle at a level under $10M. There could be many reasons:

  • One might be not being able to find enough installers, or

  • Not being able to expand the trade partners to support the volume, or

  • Not being able to retain the mgmt. personnel to continuously grow

  • Others might argue competition prevents it, while

  • Others might suggest systems and internal practices prevent it, and

  • Another argument is that owners settle for less long before they can maximize their potential.

So why not pursue the $10M revenue barrier? Our experience points to company after company above $10M who rarely make more than 5% net operating profit. An absolute dollar level reached more often by much smaller firms.

Companies with 40 or more employees should have greater specializing, more bench strength, and support personnel to make the rainmakers and highly productive installers the best they can be.

In almost every case, we find that bigger companies have a much higher % of total compensation to revenue than their smaller counterparts. So, why the productivity gap?

For whatever the reasons, the larger companies fail to make adequate margin on their labor pool. Rarely do we see 50% or 60% margin on labor revenue from 8 digit revenue companies. Many eke out a mere 30% to 40%. Regardless of your size, maintaining high labor margins is paramount to consistent high profitability. It is maximizing the time on site, doing productive work. It’s charging for every hour an 8 hour a day employee works. Added personnel overhead has to be met with higher productivity from the installing and selling resources of the company.

Healthy expansion is adding people who raise the production of rainmakers and production kings in the business at a much lower cost per revenue unit.

There is a strong business model for a $10M, $15M, $20M+ operation that can realize 15% to 25% net operating profit levels. But it just doesn’t come by being Bigger.

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