The Channel Shake-Out Is Already Here: Why Scale Alone Won't Save You
Growth is splitting, margins are compressing, and consolidation is accelerating across custom integration. What the shake-out means for owners.
On paper, 2025 looked like a strong year for custom integration. D-Tools' annual dataset showed average integrator sales grew 18.8%, with higher contract values across the board. But that headline average masks a severe split in the market.
Data from 90,547 contracts and 250,112 proposals in D-Tools Cloud reveals that while 35% of firms grew sales by over 51%, one in five firms lost more than 21%. Meanwhile, average gross margins compressed from roughly 41% down to 38.6%.
This split occurred across all firm sizes. Large integrators above $5 million suffered steep losses while smaller operators posted massive gains. Scale alone did not dictate performance; operational capability did.
The Hidden Margin Trap
Growing sales by 18.8% while losing 2.4 points of gross margin points to a clear issue: volume outrunning operating discipline.
When revenue expands without tight job costing, procurement controls, and change-order tracking, profitability erodes. Higher equipment costs, labor inefficiencies, and scope creep quietly absorb your margin. The calendar stays packed, technicians work overtime, yet cash reserves shrink.
Fragmentation vs. Institutional Capital
The custom integration channel remains overwhelmingly fragmented. In the CE Pro 100, the median firm generated $4.7M in revenue with 17 employees and a single location. Excluding major security giants, the top 100 integrators account for nearly $1 billion in combined revenue, with almost half held by the top ten.
That fragmentation has attracted significant capital and rapid consolidation. Daisy expanded from an idea in 2023 to over 40 locations and 300 employees. Bravas completed 20 acquisitions across its platform and does business in nearly every state. Regional players are growing their reach too. Recent CEPro coverage reportes new acquisitions for Liaison Technology Group and Audio Advice as they continue to building a national footprint.
Even if you have no interest in acquiring competitors or expanding to new markets, local integrators will soon have enterprise-level recruiting, procurement leverage, dedicated service programs, and institutional marketing backing them.
The Market Sorting Process
As the channel matures, market participants are being sorted into three distinct groups:
Acquirers: Firms with clean financials and operational bandwidth that leverage debt and equity to buy regional competitors.
Sellers: Well-run operators with transferable value who exit on their own terms and timeline.
Targets & Surrenderers: Unprepared shops forced into fire sales, or independent operators who quietly surrender margin, market share, and operational control year after year.
This sorting isn't determined at the deal table; it's decided years in advance inside your operating model.
Three Tactical Steps
Acknowledge the Shift: Stop waiting for pandemic-era demand surges to return. The market has permanently shifted toward operational rigor.
Evaluate Your Firm Like an Investor: Ask hard diagnostic questions. Could your business operate for six weeks without you? Are your financials audit-ready? How much revenue resets to zero on January 1st?
Align Your Model with Your Goals: Whether you plan to hold, scale, or sell, build an operating foundation that creates enterprise value and protects your margins.
The market shake-out is already underway. Deciding where your firm lands is still in your control.