Every two years for more than four decades, ELECTRICAL CONTRACTOR magazine has conducted original, in-depth research to help paint a clear picture of what makes up an electrical contractor. This year, we revamped the questionnaire to better reflect the dynamics of a changing industry. That said, it would be more difficult to analyze this profile with those of the past in a line-by-line comparison. However, the information enveloped in these pages will help electrical contractors better understand where they stand today compared to their peers, and help them better plot a course for the future.
Regardless of size or financial wherewithal, certain trends reign across the industry. Others, of course, are determined by the size of the company. This profile attempts to analyze volumes of data to provide electrical contractors with the tools to improve their businesses, capitalize on opportunities and avoid disasters. This research is in no way comprehensive, but it delivers a keen insight into what makes up the ranks of electrical contractors around the country. The survey includes almost 700 electrical contracting firms, representing various-sized companies, from the one-man shop to the 600-person shop. The findings in this profile closely align with data from the most recent U.S. census (1997). Therefore, we are confident this profile is representative of the entire industry.
According to the research, 79 percent of the respondents generate revenue less than $1 million a year, whereas 21 percent produce more than a million in annual revenue. To best demonstrate the electrical contracting market, we broke down the industry’s firms into three categories: firms with fewer than 10 employees (small), companies with more than 10 employees (medium-to-large), and finally, firms with greater than 50 employees (largest). Among small contractors, 61 percent of respondents generate less than $250,000 in annual revenue, followed by the 36 percent who made between $250,000 and $1 million. And only 1 percent of this group made between $1 million and $2.5 million in revenue. Among medium-to-large contractors, 5 percent reported revenues below $250,000, 24 percent fell into the $250,000 to $1 million category, and about 36 percent generate between $1 million and $2.5 million. Thirty-four percent of this group made more than $2.5 million. About 64 percent of the largest firms fall between $2.5 and $10 million in annual revenue, while 10 percent of this group reported between $10 and $25 million. And 15 percent reported more than $25 million in annual revenue, while another 11 percent reported less than $1 million.
So, about 70 percent of the reporting firms operate with fewer than 10 employees. About 22 percent operate with 10 to 49 employees, and a mere 6 percent reported having more than 50 employees. These figures aren’t necessarily surprising, as 70 percent of the firms might only produce 20 to 30 percent of the revenues. Large electrical contracting companies, while fewer in numbers, generate 70 to 80 percent of the industry revenue.
In small firms, contractors wear several hats, often being the estimator and accounting supervisor. Conversely, in the companies with more than 50 employees, there seems to be dedicated positions for specific tasks. Among small firms, there is no differentiation between office staff and field staff because the employees perform both tasks.
Aging industry population
It is no secret that the electrical contracting industry is on the brink of a major manpower challenge, as leaders scramble to find the next generation of workers and leaders alike. The average age of the typical electrical contractor is 50 years old. Regardless of company size, though, about 60 percent of respondents are between the ages of 45 and 64, and 73 percent are older than 45. Conversely, a mere 5 percent of the industry’s leaders fall into the 25 to 34 age group, which is alarming. Also, contractors older than 65 are much more likely to operate smaller firms.
This data translates into an industry ripe for dynamic changes in the next 15 years, as aging Baby Boomers enter retirement, leaving their businesses to the next generation or closing up shop. There could be a substantial reduction in the amount of overall companies, particularly if small firms have no heirs-apparent to take over the businesses. If small companies are attractive enough to lure offers from larger companies and rollups, consolidation may transpire in greater numbers. Large companies might see added value in experience.
The average contractor has 26 years of experience in this industry. That level of experience varies only slightly by company size. With the average age at 50 and the average experience at about half of that, it is safe to conclude that the great majority of industry leaders have made lengthy careers in this industry. Regardless of age, the bulk of respondents have been active in the industry since they were in their 20s.
Depending on the size of the company, the disparity between numbers of experienced employees versus new ones is tremendous. In companies of 50 or more employees, 36 percent of their work force has less than 25 years of experience, while 62 percent have more than 25 years of experience. The gap is shorter among companies with fewer than 10 employees. In this group, 41 percent have less than 25 years of experience and 56 percent have more than 25 years on the job.
Education levels also vary widely between the two ends of the electrical contracting spectrum. About 90 percent of the largest contractors have completed at least some college, and 51 percent in that group said they had a bachelor’s degree or higher. Only 15 percent of small contractors reported having a bachelor’s degree or better. These numbers depict the changes in American culture and the economy between the Baby Boomers and their younger counterparts. These younger industry players appear to be better educated and understand more-sophisticated systems technologies, likely because they grew up around computers.
When you understand that the largest firms typically have leaders who are better educated and possess a higher level of understanding of sophisticated systems, the rest of the profile falls in line. This isn’t mentioned to speak ill of the smaller contractors, but rather, to indicate everyone’s role in an evolving industry. Let’s take a look at who is dominating which markets.
Types of work and dominance
The largest contractors dominate the new construction market, reporting an average of 59 percent of their work in that area. This group reported an average of only 29 percent and 12 percent, respectively, of their work coming from modernization/retrofit or maintenance/service/repair. Among small contractors, the balance of work is not as lopsided. About 38 percent indicated new construction was their bread and butter, while 31 percent turn to modernization/retrofit work and another 30 percent specialize in maintenance/service/repair work. The numbers among medium-to-large firms are very similar to those reported by the largest contractors, except in the case of maintenance/service/repair, where the average is higher.
Regardless of specialty in the broad sense, the breakdown of the building codes’ three main work areas shows greater balance. Across all three size categories, contractors said an average of 73 percent of their work still comes from power distribution, followed by controls (security/fire/life safety/HVAC/lighting) at 18 percent, and then communications/data systems with about 8 percent. However, the amount of contractors indicating they performed any work in those three categories demonstrates a growing sophistication among the smaller companies. For example, 70 percent of small contractors performed controls work and 58 percent worked on a communications/data system. Contractors in the two larger categories are more likely than small firms to report having performed controls work (84 and 82 percent respectively versus 70 percent).
A closer look at the communications/data work suggests that large companies are more affluent in low-voltage systems. And while 82 percent of this large segment reported doing comm/data work, 76 percent of the medium-to-large group reported involvement in this area as well. Bringing up the rear were the contractors with fewer than 10 employees, who reported that 58 percent of them perform comm/data work. The jump from 82 percent to 58 percent is likely due to the differences in having the financial wherewithal to invest in data communications technicians, testing equipment and the training that prepares technicians for the field.
A further breakdown shows that size has a direct impact on which sector of the market the company specializes in. For example, contractors with fewer than 10 employees reported residential work made up an average of 52 percent of their overall work. Only 43 percent of this group’s work falls in the combined commercial, industrial and institutional (CII) sector. Conversely, contractors with more than 50 employees reported that an average of 74 percent of their work comes from CII, and only 13 percent falls into the residential realm. This group is also much more likely to land contracts for highways, amusement parks, electric generating plants and airports.
Across all sizes of firms, lighting, power and backup power projects represent the bulk of their workload, but some of the emerging areas are beginning to take hold. For example, 47 percent of all respondents are involved in security work (CCTV, access controls, motion detection, etc.) That can be broken down to 62 percent of the largest firms, 58 percent of the medium-to-large group and 42 percent of small companies. In addition, 27 percent of all respondents perform home automation work. Also, 15 percent of those surveyed performed distributed generation work in 2001 and 12 percent did fiber optic cabling. Only 6 percent of the smallest firms reported doing fiber optic cabling.
Not surprisingly, fiber optic lighting is only being done by 8 percent of the total sampling. About 6 percent are doing photovoltaic (solar) work. Other emerging areas are wireless local area networks (WLANs), which 21 percent of the largest contractors perform. However, only 4.7 percent of the all contractors surveyed work with WLANS. More than 20 percent of the largest contractors are doing wireless towers, while a mere 5.3 percent of the total sample reported doing that type of work.
Growth potential and emerging opportunities
Work in energy-related fields, such as fuel cells and wind generation represent a very small percentage of work, but they also represent great potential for growth. A separate question sought information about growth potential for the same categories. What was surprising with this particular question was that a large percentage of all contractors see growth potential in lighting (46 percent), power (45) and backup power (40). That means they expect growth even in the areas that dominate their existing workloads. They also see growth in integrated building systems work. Comm/data systems and building automation ranked fourth and fifth with 39 percent and 37 percent of the contractors respectively indicating growth potential.
Popping off the charts was a whopping 56 percent of the largest contractors indicate growth potential in building automation/industrial controls work over the next three to five years. Another 49 percent see growth in comm/data and 46 percent expect growth in security work. Thirty-three percent of the largest electrical contracting companies predict growth in the fire/life safety area, while 31 percent see potential in fiber optic cabling and 26 percent feel that distributed generation will emerge as a growth area.
In the medium-to-large group of contracting companies, 48 percent predict growth in building automation/industrial controls, 46 percent in comm/data systems, and 40 percent in security work. In addition, 34 percent expect fire/life safety to emerge as a growth opportunity, along with home automation and fiber optic cabling, each at 26 percent.
Among small contracting firms (fewer than 10 employees), the greatest growth potential beyond the staples of lighting, power and backup power, was comm/data systems at 37 percent, followed by building automation/industrial controls with 33 percent. Home automation was identified by 32 percent of this group’s ranks as being an emerging area for growth. Security was identified by 30 percent as being a growth spot, followed by fire/life safety with 23 percent.
To analyze and summarize, the greatest growth areas across all sizes of contracting companies are essentially the same. Beyond the traditional main three categories (lighting, power and backup power), contractors identified the hot opportunities as: comm/data systems, building automation/industrial controls, security, home automation and fire/life safety. This particular information is interesting because it demonstrates willingness by all sizes of companies to encroach into markets dominated by other contractors. For example, the largest contractors identified home automation as a growth area (at about the same percentage of their current work in the residential sector), despite the fact they do not dominate the residential market.
Likewise, small contracting firms anticipate growth in building automation/industrial controls. This is interesting because the larger companies dominate the CII sector. This information sets the stage for a market-share battle between various sizes of contractors. The larger firms may see opportunities in the often-ignored residential market, while smaller companies seek to take advantage of the fertile CII market, which they have traditionally not dominated.
Sophistication levels on the rise
By identifying potential areas of growth, electrical contractors have also indicated that their sophistication level is on the upswing. For example, outside the three traditional growth areas of power, lighting and backup power, contractors identified integrated building systems (IBS) work as having great growth potential. Not only do they feel they can improve in the mainstay categories, but they all see potential where maybe they haven’t ventured before.
When you dive further into the data, you can clearly see that electrical contractors have become much more sophisticated over the last several years, especially in the IBS realm. Across all categories of contractors, 24 percent said they performed comm/data systems moves, adds and changes (MACs), ranging from 20 percent of small firms to 51 percent of the largest companies. In addition, 17 percent have done electrical work for an Internet services provider (ISP). That includes 36 percent of the largest contractors. Another 28 percent of the contractors of that size have done comm/data work for ISPs, which may indicate they are building off their existing relationships from doing electrical work for these ISPs. Surprisingly, upwards of 7 percent of the smallest-size contractors have done comm/data systems work for an ISP.
The majority of the public perceives electrical contractors as construction workers who hook up electrical components and make sure the juice is flowing into any given building. How much of a departure would it be to know that 10 percent of large contractors have actually configured a Cisco router, and 13 percent performed in an IT/programmer capacity? About 18 percent of this group installed a telecommunications hotel or data center in 2001.
The numbers fall off dramatically outside this size of contractors. However, to say that across all groups, 4 percent have served in an IT/programmer role and 2.6 percent configured routers, indicates tremendous strides by electrical contractors who have dedicated themselves to learning new markets. Gone are the days where electrical contractors were seen only as mere cable pullers. This information also illuminates a commitment to training and hiring better-educated technicians who are skilled in low-voltage areas.
Across all sizes of contractors, 25 percent expect to perform more MACs work in 2003. That percentage grew to 54 percent in the 50-plus group. If you exclude the smallest-sized contractors, almost 40 percent of electrical contractors expect to ramp up their MACs work in 2003. The expectations to grow in router configuration and other IT capacities are high, as well, especially among the largest contractors. About 21 percent of them expect to configure a router and 13 percent expect to perform an IT/programming function in the upcoming year. But, small contracting companies are also aggressive in what they expect for 2003. For example, 20 percent of this group expects to perform low-voltage MACs work, 4 percent expect to serve in an IT role, and 3 percent expect to configure a router. These aspirations appear to be contradictory to the fact that the bulk of these contractors dominate in the residential market.
Design and specifying influences
Design-build work is also a potential area for growth among electrical contractors because it helps the electrical contractor provide early input into the design process. Furthermore, electrical contractors who work on a design-build basis have more influence over what product types and brands go into projects. According to the survey, an average of 44 percent of the respondents’ dollar volume in 2001 was completed on a design-build basis. Electrical contractors also reported that 12 percent of their work involved substantive changes being made to the drawings and specifications provided by another entity. In another 14 percent of their projects (on a dollar basis), slight modifications to specs and drawings supplied by someone else were necessary. Finally, in 30 percent of the projects, electrical contractors followed the specs provided by someone else. In summary, electrical contractors have direct input on design 70 percent of the time and follow provided specs about 30 percent of the time.
A closer look indicates that large companies are more likely to stick with provided drawings. In fact, electrical contractors with less than 10 employees are twice as likely to work on a design-build basis than their 50-plus-employee counterparts. The average amount of projects involving substantive changes and slight modifications to the drawings didn’t vary much. However, large contractors are much more likely to follow specs, perhaps because they work on larger, more sophisticated projects with multiple-firm project management teams. The largest-sized electrical contractors are also more likely to rely on their relationships with general contractors.
Conversely, smaller electrical contractors are less likely to work on projects that have multiple-firm project management teams, which, in turn, gives them more influence on the design and specifications. Overall, electrical contractors directly specify the brand 62 percent of the time. They have some influence over an additional 30 percent of all brand selection. In the smallest-sized contractor group, they specify brand 68 percent of the time. The medium-to-large contractor group specifies brand 47 percent of the time.
Suppliers and relationships
And when electrical contractors have to specify type and brand, whom do they turn to? According to the survey, the electrical distributor tops the list. Across all sizes of contractors, 74 percent of the time, they turn to the electrical distributor. The numbers also indicate that warehouse home centers (i.e., The Home Depot, Lowe’s, etc.) are making progress among electrical contractors, carried of course, by small contractors. Across all three groups, warehouse home centers account for 12 percent of the electrical contractors’ purchases. For contractors with fewer than 10 employees, the big-box retailers get about 15 percent of their purchase dollars, followed by the medium-to-large firms, who buy 7 percent of their materials from warehouse home centers. The 50-plus-employee group gives a mere 3 percent of its purchasing dollars to the mega-retailers. This number may grow, as these retailers aim at contractors by providing job site delivery, specialized financing terms and a decent stock of commodity-type items at low prices.
Industrial distributors, direct purchases from manufacturers, communication/data systems distributors and electronics companies collectively accounted for only 14 percent of electrical contractors’ purchases. Only 4 percent of all electrical contractors’ buy direct from the manufacturer. This trend should grow as electrical contractors increasingly employ the Internet as a tool to save money and eliminate the middleman—traditionally the electrical distributor. But, when you consider the stronghold electrical distributors have in the industry, they shouldn’t be overly concerned just yet. However, e-commerce is growing in popularity, despite the “dot-bomb” debacle.
Embracing technology and e-commerce
According to the survey, 55 percent of all electrical contractors reported making online purchases, accounting for an average of 10 percent of all their purchasing dollars. Among the small contractors who reported purchasing materials over the Internet, online buying represented 10.5 percent of their spending. Among medium-to-large contractors who purchased materials online, this form of purchasing represents 8.2 percent of their spending. Online buying covers 3.9 percent of the overall spending of the largest contractors who shop online. These numbers will all but certainly increase in the near future.
According to the survey, 91 percent of the largest contractors said they would increase online purchases in the next two years. About 67 percent of the medium-to-large firms said they would increase online buying as well. And 44 percent of the companies with less than 10 employees said they would ramp up online purchases. Of those companies reporting they purchased items online in 2001, only 3 percent suggested they would decrease their online spending.
Now that we know electrical contractors are increasingly purchasing materials online, we must also understand the patterns of what they are buying. Tools and equipment lead the pack at 42 percent of online purchases, followed by electrical products (36 percent), then by computers (20 percent), comm/data products (13 percent), controls (11 percent), mobile phones (9 percent) and personal digital assistants (PDAs) at 3 percent. According to the survey, younger electrical contractors are more likely to report having made any purchases over the Internet. In addition, those contractors with a bachelor’s degree or higher are more likely to purchase materials online than their peers who completed only high school.
And while computers and computerized assistants emerge as a business necessity even for the older generation of electrical contractors, the level of sophistication goes up. According to the survey, 90 percent of the respondents utilize some type of computerized device. I suppose the remaining 10 percent operate out of small wooden shacks where electricity isn’t yet available. Of the 90 percent who use computer technology, 82 percent use mobile telephones, 78 percent have computer work stations, 33 percent use field laptops and 22 percent use PDAs.
The use of handheld technology (wireless phones and PDAs) is also intriguing when you consider that 34 percent of the respondents said someone in their company ordered materials through a handheld wireless device in 2001. What’s further intriguing is that the smallest-sized contractors buy materials through their handheld wireless devices more often than the largest group. According to the survey, 36 percent of small contractors reported using handheld devices to purchase materials. Conversely, only 14 percent of the largest contractors said they purchased materials in that way.
What this indicates is willingness among all sizes of contractors to utilize the latest technology to their advantage. For example, 77 percent of all respondents use computers for Internet access, 74 percent use computers for e-mail, 70 percent use them for accounting, 67 percent use them for word processing, 55 percent use computers for payroll and 54 percent use the technology for estimating. Not surprisingly, the largest contractors rely more heavily on computers. A whopping 100 percent of the largest contractors reported they perform accounting functions on computers.
Among some of the other lesser-utilized uses for computers are project collaboration, equipment/tool inventory and fleet management. Equipment/tool inventory was mentioned by 30 percent of the respondents as an expected use for computers in 2003. About 16 percent mentioned fleet management as a potential use for computers, while 13 percent identified project collaboration as a future use of computers.
Almost 40 percent of the respondents mentioned project collaboration. Among contractors in the 50-plus-employee group, 77 percent mentioned project collaboration. That group also claims it initiated the use of project collaboration 23 percent of the time. In another 27 percent of their projects, collaboration was a joint decision. The general contractor initiated collaboration 19 percent of the time. The owner/customer is rarely the entity that suggests project collaboration, among the largest contractors.
As far as fleet management is concerned, the survey suggests that leasing vehicles is not popular among electrical contracting companies. Overall, 86 percent of electrical contractors reported they own fleet vehicles, while only 14 percent lease them. The ratio of purchasing versus leasing is 6 to 1. It’s still unclear exactly why leasing isn’t more popular, especially in a down economic swing. More research would be necessary to derive answers.
The same holds true for tools and equipment, as the bulk of electrical contractors opt to purchase, rather than lease. According to the survey, 97 percent of all tools and equipment are obtained through purchase, while only about 3 percent of those types of items are leased. The notable exceptions to this include aerial lifts/scaffolding and digging/boring equipment, where leasing is more popular, probably because of the amount of the investment. Electrical contractors are also equally inclined to purchase OTDRs (very expensive fiber optic testing equipment) as they are to lease them. However, a very small percentage of respondents (1 percent) reported purchasing or leasing OTDRs.
To summarize the current makeup of a typical electrical contractor, multiple factors must be weighed. This in-depth research provides all the puzzle pieces. In the final analysis, the typical electrical contractor is about 50 years old, generates between $1 million and $10 million in annual revenue and is thinking about retirement. With manpower challenges on the horizon in the next 15 years, the way in which the current leadership handles succession planning and expansion into new arenas will dictate the future of this industry.
The good news is that the typical electrical contractor has adapted well to computer technologies by integrating them into many business practices. As the next generation of leaders takes the reins, the sophistication level will skyrocket. New leaders, as the numbers indicate, will be better educated, more tech-savvy and have a greater willingness to venture into new areas. They will also be more inclined to purchase materials over the Internet and over wireless handheld devices.
Armed with college degrees, a familiarity with computer technologies and all the mentoring from an experienced group of existing industry participants, the next generation of electrical contractors is primed for success beyond that of its forefathers. If they learn from the past and apply current knowledge toward future endeavors, the future remains bright. EC
METHODOLOGY/ABOUT THE SURVEY: This research resulted from a mail survey conducted in March and April 2002 among a random sample of 6,000 ELECTRICAL CONTRACTOR subscribers. In lieu of cash incentives for participating in the survey, respondents were asked to choose one of three charities to receive a $5 donation on their behalf. As a result, $1,500 was donated to the Make A Wish Foundation, $1,000 went toward Diabetes Research and another $1,000 went for Cancer Research. No follow-up mailing was conducted.
The margin of error for the total sample (excluding subgroups) is +/- 3 percent at the 90 percent confidence level, which includes percentages determining "any." However, some of the means would require additional calculation on a case-by-case basis.
Tables and figures contained in this article come from data generated by this year’s Electrical Contractor Survey, which was conducted by New York, N.Y.-based Renaissance Research & Consulting, an independent marketing research firm that specializes in construction.
KELLY is Editor of ELECTRICAL CONTRACTOR. He can be reached at email@example.com.