What Profit Margin Should an Integration Business Make? Lessons From Paul Starkey
A well-run integration business can make 20% net profit, and any integrator under 10% is probably underpriced. That's the benchmark from Paul Starkey, who has reviewed more integrator financials than almost anyone in the industry. He has helped dozens of companies move from 2% to 6% net profit to between 18% and 25%.
Starkey was a driving force behind ELAN, Bravas, VITAL, PrepTECH and Magnifi, and has since worked in businesses outside the industry. On episode 7 of 1NSIGHTS, he explained how integrators get there, what changes as they grow, and how to prepare a company for an eventual sale.
How do integrators improve their profit margin?
By understanding the business model behind the business and pulling the right levers. Starkey says most owners are so absorbed in selling and installing that they never step back to see how the company actually makes money. He breaks every integration business into four parts:
- Demand. Marketing and the referral sources that bring in new opportunities.
- Sales. Turning that demand into signed projects.
- Operations. Installing efficiently and profitably.
- Finance. Understanding cash and profit, which are two very different things.
Most residential integrators rely on builders, architects and designers for demand. Starkey calls that drafting off someone else's client, and for many companies, business development stops there. A lead that arrives as "the client on lot 39 needs a quote" isn't a demand strategy.
Finance is where he sees the most missed leverage. Many AV companies get financial reports late or inaccurate, often from a family member doing the books part-time. Generalist CPAs don't understand how sell-and-install businesses work. Starkey compares running without prompt, accurate numbers to driving with the windshield sun shade still up.
What's the ideal size for an integration company?
Historically, about $5 million to $6.5 million in annual revenue, according to Starkey. At that size, a well-run integrator could earn $1 million to $1.5 million on the bottom line. He notes the range has likely shifted somewhat with inflation.
Past that point, the pattern changes:
- Over $10 million, companies tend to add layers of people who neither sell nor install, and people are the biggest cost after equipment.
- Over $15 million, most companies he's reviewed see their bottom line shrink even as revenue grows. He has looked at $20 million businesses and estimated they were walking past $2 million a year.
His point isn't to stay small. It's that revenue growth doesn't automatically mean profit growth, and every layer you add needs to earn its place. He was equally clear that profit shouldn't come at the expense of paying your people well.
What breaks as an integration company grows?
Communication and process. In Starkey's early companies, the culture shifted roughly every time the team grew by 30 people. For a smaller integrator, going from 4 people to 8 can be just as big a change.
Early on, everyone does everything and the owner is in the middle of every decision. Growth requires moving away from that owner-centric model:
- Document what lives in people's heads. Tribal knowledge is hard to replicate. Processes need to be written down and refined over time.
- Empower people to decide. Hire people who act without being told and who can work through ambiguous problems. Starkey never faulted anyone for a mistake, only for repeating one.
- Keep improving. Continuous improvement applies at every size, not just when something breaks.
How do you prepare an integration company to sell?
Start with the end in mind. Starkey has been involved in 15 equity events, and most owners he asks have never thought about an exit. Before valuations, decide what you actually want: retirement, a successor, or capital to grow.
Then get the business ready:
- Clean up the counting. Use a consistent chart of accounts and revenue recognition, and separate personal expenses from the business.
- Know cash from profit. Many owners strip cash out every year, leaving accounts receivable, inventory and payables out of balance.
- Build a middle management layer. Buyers want a business that can grow 2x to 5x, not one that depends on the owner.
- Keep growing. A business that isn't growing is going backward.
Also plan for the day after. Whether you sell to a successor or an investor group, things will change. Starkey says to choose a capital partner the way you'd choose a marriage partner. He made that mistake on his first deal by focusing on closing instead of who the money came from.
Looking back on Bravas, which raised more than $65 million, he'd do three things differently: bring in fewer companies with aligned go-to-market models, stay through the first year after closing, and standardize product lines across locations sooner.
Watch the full conversation
Paul Starkey - ELAN, Bravas, VITAL | What Winning Businesses Understand: A Founder’s Perspective
1NSIGHTS Podcast
Starkey and Jason Griffing, OneVision's Director of Product, also discuss how Starkey uses AI as a daily strategic thought partner and why he urges owners to think 10x.
About 1NSIGHTS
1NSIGHTS by OneVision explores how integrators, operators and industry leaders think, build and adapt in a fast-changing custom integration landscape. Recorded live and shaped by audience questions, each episode goes past surface-level trends to the real decisions and trade-offs behind growing smarter and staying competitive. Explore all episodes →
