There is also another important financial opportunity you should be paying attention to, and that’s your ability to expand “wallet share” with your end-customers.
If you’re unfamiliar with the phrase, share of wallet refers to the percentage your company receives of the end-customer’s total project budget. So, for example, let’s say an office renovator has a lighting retrofit budget for a small office space of $200,000 and it includes plans for adding SLC.
Originally, perhaps you’d be getting approximately 25%percent of that total budget, or $50,000, primarily for providing a share of the luminaires.
By adding an SLC solution pre-integrated with your luminaries, you have the opportunity to grab a greater share of the total contract budget from your competitors, both from selling more luminaries and from selling the SLC system.
Our latest research shows that, on average, you can increase your total share of wallet by 30-40% using an SLC solution over what you’d achieve otherwise.
That would mean instead of making a total of $50,000 on the example contract above, you would have the opportunity to make $70,000 (35% of the contract). Over 100 similar small projects, you have increased sales by $2 million. Not bad.
There’s more good news here. In addition to larger TAM, CAGR and wallet share potential, adding an SLC solution provides an opportunity to significantly increase profit margins.
First, when building your strategy for entering the SLC market, we recommend you start by IoT-enabling the lamps and luminaires in your portfolio that are already the most successful and are already providing the highest contributing margins.
Why? Because by offering these products integrated with your SLC platform first, it increases the chances of success for the total offering, since the original devices are already well received, in high demand and generating profitable revenue.
Our research shows that when you combine these winning devices with a white-labeled SLC platform the total profit margin can increase by as much as 50% over lamps and luminaires alone.
This is especially true since luminaire & lamp manufacturers are seeing their profit margins get crammed down at a staggering rate due to rapidly increasing competition.
Let’s revisit the example from above. Perhaps, you are selling in a mix of luminaires, both low-margin and high-margin SKUs, for a combined direct profit margin of 20%.
But now you can offer luminaires integrated with an SLC solution.
Because you choose to have your SLC solution integrate with your higher margin luminaire products first, you can sell in a greater percentage of your higher-margin devices and the higher margin SLC solution components (e.g. white-labeled intelligent control gateways, wireless control devices, software, etc.).
By selling this integrated solution, you can increase your overall profit margin to 30%. And, since you were now able to take the increased 30-40% wallet share, in our small office space contract example, your total profit from the contract goes from $10,000 to $21,000. Over 100 similar projects, you have now increased your contributing profit margin by $1.1 million.
As you’ll recall, those 100 projects resulted in a $2 million revenue boost. So now you’ve seen that $1.1 million was pure profit. Now we’re talking.
There’s one more important opportunity that SLC brings, and that’s the ability to build and grow subscription-based, recurring revenue streams over time.
This aspect of the SLC opportunity is just beginning to emerge, but stands to be one of the greatest financial benefits of IoT-enabled lighting in the future.