Industrial automation · Manufacturing
Separate the hardware margin from the engineering margin on every automation project
An automation integrator sells hardware, engineering and commissioning in one price, and usually only knows the blended result. We split each project into the margin on bought-in hardware and the margin on your engineers' time. You can then see which one you are actually in business for.
In one paragraph
System integrators earn most of their value from engineering time that is rarely recorded against the project. They include PLC, SCADA and drives integrators, control-panel builders, and robotics and machine-vision firms. Most turn over ₹10–200 crore and sell to plant owners and machine builders. A large share of revenue is third-party hardware with a thin margin. The founder or managing director usually leads the work, often with the head of projects.
Founder or managing director, often with the head of projects
The economics
How the money moves in this trade
A typical automation project bundles PLCs, drives, sensors and robots bought from brand principals with a control panel built in-house. Add application software written by your engineers and a period of commissioning at the customer's plant. Hardware is often imported or bought from a distributor at a negotiated discount, with targets and rebates attached. Engineering is priced as a lump sum and consumed in hours that stretch when the customer's plant is not ready.
The project can look profitable on paper because hardware margin is booked at dispatch. Engineering overruns, extra site visits and post-commissioning support are spread across salaries and travel. Annual maintenance contracts, software licences and remote support add recurring income. That income has to be recognised over time rather than when it is billed.
The problem
Where the numbers usually break down
Hardware and engineering margins are blended
Project profitability is reported as one number, so a project that lost money on engineering looks fine because of the hardware it carried.
Engineer time is not booked to projects
Programming, testing and site hours go unrecorded or are recorded in a separate tool that never reaches the accounts.
Site waiting time is never charged
Engineers wait at the plant for the customer's equipment or approvals, and the extra days are absorbed rather than raised as a variation.
Principal rebates and targets are untracked
Volume rebates from automation brands are recorded when received, not when earned, so the hardware margin by project is misstated.
Maintenance contracts are booked when billed
Annual contracts and support plans are taken to revenue on invoice, overstating the month they are billed and hiding the support cost that follows.
What we do
The work, and the result each part produces
Project costing in two layers
Each project split into hardware cost and margin, and engineering and commissioning cost and margin, from quotation to close.
You see which projects earn on expertise and which only on resale.
Engineer utilisation and time booking
Billable and non-billable hours captured by project and engineer, with a cost rate built from actual salary and overhead.
Engineering capacity is priced and planned from evidence.
Variation and site-delay records
Customer-caused delays and scope additions logged during the project with a priced variation raised.
Extra site days are paid for.
Import, duty and foreign-exchange costing
Landed cost of imported hardware including duty, freight and exchange movement, matched to the project that used it.
Quoted hardware margins survive the exchange rate.
Principal rebate accrual
Target-linked rebates estimated as purchases are made and allocated to the projects that earned them.
Hardware margin is stated correctly month by month.
Recurring revenue and deferred income
Maintenance contracts, licences and support plans recognised over their term, with their cost reported alongside.
The recurring business shows its true margin.
Where we start
The first steps of an engagement
Project files and principal terms
We ask for quotations and purchase orders for recent projects, import and distributor invoices, the principals' rebate terms, any engineer time logs and the list of maintenance contracts.
Split closed projects in two
A sample of closed projects is split into hardware cost and margin and engineering cost and margin, using landed hardware cost and an hourly engineer rate.
Hours and rebates against projects
Engineer hours start being booked to project codes, and principal rebates are accrued as purchases are made rather than when they are received.
A two-layer project margin report
The first report shows hardware margin and engineering margin for each project reviewed, with site days planned against actual.
How it is measured
The reports the work is judged on
Each is recorded as a baseline before the work starts, so later reports have an honest comparison.
- Hardware margin and engineering margin, by project
- Engineer utilisation, billable against available
- Site days planned against actual
- Variations raised and recovered
- Landed cost of imported hardware, against quotation
- Recurring revenue and its margin
Who it suits
Written for, and not the right fit for
- You are a pure distributor of automation hardware with no engineering content — our trading and distribution work is a closer fit.
- You want a project-management or field-service tool selected and implemented; we work inside the systems you already run.
- PLC, SCADA and drives integrators, control-panel builders and robotics or machine-vision firms.
- Founder-led engineering firms where the founder still prices every project.
- Firms adding maintenance contracts or software products to project revenue.
Services
Services this work draws on
Costing and profitability
What each product, line and customer really contributes.
Explore service ↗MIS and financial planning
Reporting built around the questions you actually need answered.
Explore service ↗Outsourced accounting
Your books kept current and reconciled, closed to a published calendar.
Explore service ↗Fractional CFO services
Senior financial leadership on the days you need it, not a full-time hire.
Explore service ↗Every other service, also available in this trade
Common questions
Questions owners in this trade ask
Why split hardware and engineering margin on automation projects?
Because they behave differently. Hardware margin is set by your principal's discount; engineering margin is set by how well you estimate and control hours. If you only see the blend, you can't tell which one to fix.
Can engineer hours from our project tool feed project costing?
Yes. We'd take the hours from the tool you already use and bring them into project costing with a cost rate attached. The gap is usually the link between the two, not the data itself.
How should automation maintenance contracts be accounted for?
Generally over the period the service is provided rather than when invoiced. We set out the treatment for your contract types and agree it with your statutory auditor.
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