How to Organize a Heating System Installation Business

Heating System Installation

My home is my castle. Housing is one of the basic human needs. The first man’s home was a cave, then a hut. Today we live in comfortable apartments and individual households. It would seem that many centuries of evolution have paved an insurmountable chasm between modern ancient houses, and they cannot have anything in common. However, there are still more similarities than it might seem at first glance. And one of them is warmth. In the cold, a person – today, like thirty thousand years ago – is uncomfortable. And a bad and prolonged cold may well be a threat to life.

For this reason, we try to heat our home. In the cave, a fire was used as a means of heating. Heating systems have evolved. There were also fireplaces fired with coal and wood. There was steam heating. Today, water heating is most often used;

According to one of the definitions, a heating system is a set of technical elements designed to receive, transfer and transfer to all heated rooms the amount of heat required to maintain the temperature at a given level.

What are these elements? To obtain heat, sources of various sizes and levels of technical complexity can be used – from thermal power plants and nuclear power plants to wall-mounted gas boilers. As a means of transfer, piping systems filled with heat carriers are used – as a rule, liquids with a high heat capacity and low viscosity. In most cases, plain water is used. Heat transfer from the coolant directly to the room’s atmosphere occurs through cast iron, steel, aluminium or bimetallic heating radiators. Altogether, as mentioned earlier, these elements represent the heating system.

Another important human need is the need for water. A water supply system was created to satisfy it, delivering sufficient water to our homes for drinking and domestic needs. The means of transporting water is also a pipeline, making heating and water supply systems inherently similar.

For this reason, heating and water supply often coexist with each other – when studying at universities, in the structure of departments of design institutes, in the lists of services of installation organizations, or otherwise – installers of engineering systems. We will talk about the latter in detail in this article.

The engineering systems market is quite clearly diversified: there are design organizations, suppliers of engineering equipment and tools, and installation organizations. In rare cases, two, very rarely – three functions are combined within one organization. Usually, there is an effective division of labour.

The tasks of the installation organization are the purchase of equipment, its installation according to the existing project and the subsequent maintenance of the system. Nothing complicated, it would seem. However, not everything is so simple. As in many other industries and lines of business, people are everything here. You can use the best tools and only work with the best suppliers, but spoil all this glamour with a lack of employee qualifications. Therefore, the most important task of an entrepreneur who has decided to invest in opening an installation organization for heating and water supply systems is the selection of highly qualified specialists. And here we are talking about the possession of a particular installation technique and the availability of experience and the adequacy and learning. Today, products and technologies are rapidly evolving. Their manufacturers and suppliers conduct seminars and workshops for specialists, so you need to be aware of the news and keep in trend constantly. This will provide the company with high competitiveness.

It is possible to classify installation organizations according to many signs, which indicate broad opportunities for specialization, which, in turn, suggests a large number of large areas and narrow niches with completely different levels of competition and profitability. For example, according to the industry sector of customers, the market is segmented as follows: 30% – the primary construction market, 25% – operating organizations of housing and communal services, 10% – construction and repair of industrial enterprises, 35% – retail and intermediaries. As a rule, installers form a sales structure focusing on their connections and capabilities. For example, if the founder has links in housing and communal services, this area will account for 90% of its turnover. As practice shows, it is the housing and communal services that are the most corrupt today,

In addition, when repairing existing networks, the bulk uses substandard materials, which will allow, after a while, to repeat the repair of the same section for new rollbacks.

New construction is another matter. Usually, subcontracting issues are resolved here through tenders. You can win due to the low price and by offering a more complete set of services than competitors, a guarantee, etc. Of course, there is no getting away without kickbacks. Such is the bitter truth. But in fairness, it is worth admitting that this method of achieving results is less and less frequently used today. Personal acquaintances also play an important role: not all builders choose subcontractors on a competitive basis.

And yet, even despite the crisis, the volume of new construction continues to grow. According to some reports, their growth is limited to 1-2% of real estate funds, but this is a good indicator in the current economic and political situation. In addition, developers strive to build a long-term business, which requires a good reputation. At their low relative cost (up to 5% of total construction costs), engineering systems have a very significant impact on the feeling of comfort for residents. Therefore, they try to save on them less and less.

The retail market (retail refers to installing and repairing heating and water supply systems for private customers) is interesting and complex. Suppose an entrepreneur does not limit himself to orders only through word of mouth. In that case, it is necessary to be puzzled by opening an office and a small warehouse of materials. This is the ideal. Having a trusted supplier of materials and equipment, as they say, at your side, you can completely refuse to freeze money in the warehouse stock. For office work, a sales manager will be enough to answer incoming calls and advise visitors. It will be superfluous to remind that the manager must more or less bearably understand the proposed equipment and installation technology.

The main difficulty in this segment is the need to find an individual approach to each client. To make oneself known, large-scale advertising is needed – as a rule, in specialized print media, the Internet. When entering the market, the advertising budget must be at least 500$ per month, in the event, of course, if the founder plans to overcome the break-even point during the first year of operation.

When choosing a focus, it should be remembered that new construction is lower profitability, but, in the case of obtaining a contract, provision of work for a long time, during which you can participate in several other tenders, providing yourself with work ahead of time. The retail market is heterogeneous, more sensitive to economic and social disturbances – in a word, more capricious.

Next, you should decide on the market segment (economy, standard or premium) and the materials and technologies used. This provides several more opportunities for differentiation. The price segment will certainly set the framework for choosing materials and technologies, but only up to a certain limit. For example, in the middle price category, imported polypropylene pipes and metal-plastic pipes with two or three types of connections can compete. Each of the types will require knowledge of the technology and the availability of the appropriate tool, the cost of which can reach several thousand euros. Although a middle-handed assembly team gets by with the simplest – hand – means, the more expensive and efficient – electrical or electro-hydraulic – can usually be rented from an engineering supplier. You will also need a general construction tool – a grinder, a hammer drill, and so on. The entire set for one brigade will cost about 1000$. The optimal number of people in the team is 2-3 people. The number of teams will depend on the anticipated volume of work.

It is quite logical that the installer earns from work performed. The average installer has practically no opportunity to make a mark-up on materials. The profitability of installation works is on average 15-18%. Thus, with the sum of monthly fixed costs for advertising, office and staff maintenance at 500 to 1000$, the monthly revenue should be at least one million$. This figure at current prices for work is quite easy to achieve.

Retail trade-in components will provide additional profit in an office for heating and water supply systems. In this case, you can set the retail margin on average up to 20%. The most effective location for an office store will be within a large construction market. The installation of sewage systems can also provide additional profit. In the main part of the article, this direction was not considered due to the ease of installation and rather low profitability.

The most appropriate company and legal form for this type of organization are, perhaps, an individual entrepreneur working under a simplified taxation system; in this case, the expenses will reduce the tax base. The taxation of the store will be carried out only according to the UTII system (unified tax on imputed income) by the legally established physical indicators; in other words, the number of tax payments will directly depend on the area occupied by the store.

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