Fire Service Providers are essential for ensuring the safety of various types of establishments worldwide. While that’s the overarching goal of these companies, they also strive to achieve this goal while maintaining a successful and profitable business. Traditionally, these companies have balanced their operations between installing products and systems and servicing them throughout their lifecycle. However, the industry is experiencing a shift, with service-related business now comprising a growing share of its activities. This article will explore the trend of focusing on service and its domino effect on the industry.
The Appeal of Service-Based Models
One of the main reasons Fire Service Companies lean towards a service-based model is the recurring revenue that comes with it via service contracts. Many products and systems require routine inspection, testing, and maintenance (ITM). Whether it’s the monthly visual inspection and annual maintenance for portable fire extinguishers, the six-month service for kitchen systems, or ITM requirements for alarm systems. These service stops, in general, require fewer people, less time, and fewer parts, resulting in a higher margin per stop.
For example, one industrial services company overseeing 100 Fire Service Providers uses inspections to drive deficiency repairs and ongoing service contracts. According to their 2024 Annual Report, 54% of APi Group’s (APG) revenue flows from inspection and monitoring services. This is an increase of 2% from the year prior. Their goal is “improving mix with long-term target of 60%+ of revenue from inspection, service, and monitoring.” While they don’t specify in their public findings, multi-year inspection contracts often include annual escalators up to 5% or tied to the consumer price index. This is not something associated with installation projects, which are one-offs and very sporadic.
Another benefit of implementing a service-based model is higher margins. In the same 2024 Annual Report, they discuss their “inspection-first go-to-market strategy.” The reason behind the strategy is so that “every dollar sold can lead to subsequent service work.” From the 2024 data, the Safety Services Net Revenues and Earnings were $5,227 million and $809 million, respectively, with a gross margin of 15.5%. This was an increase of 1.9% from the previous year. Their strategy results in higher operating margins because no extra sales and marketing expenses are required to acquire additional revenue. As many businesses focus on increasing their value ahead of selling their company, the mix between service and installation moves more to service.
Understanding the Complexities of Installation Work
When it comes to installing new systems, there are plenty of overhead costs that are nonexistent in standard service and maintenance. This includes the purchase of expensive equipment and extensive labor. That’s not to mention the other consequences that Fire Service Companies can face during long-term projects, such as unforeseen inflation and project overruns. Additionally, installations are often rewarded on a bid basis, which suppresses margins.
Beyond these financial and logistical challenges, the nature of installation work comes with its own set of complexities. Installing new systems can involve complex processes and rigorous compliance with safety regulations. This increases the potential for liability issues if something goes wrong. On the flip side, service work mainly involves maintenance and repairs, which leads to fewer risks and can be managed more effectively. More information on liability in Fire and Life Safety can be found here.
The Consequences of an Overemphasis on Service
While prioritizing service can bring forth impressive financial results for many Fire Service Providers, there are plenty of risks that come along with doing so. When companies decide to shift away from installations, technicians may not have opportunities to build upon their technical skills that only come from hands-on work. Over time, this can lead to surface-level familiarity in the workforce, making it more difficult to attract and retain top talent. Letting go of the installation culture may also chip away at a company’s reputation for handling complex systems, potentially impacting long-term competitiveness and the quality of service delivered.
Fire Service Companies that switch to a service-based model may have high profit margins. But, as more companies follow this trend of prioritizing service, the market may become saturated with service providers. This can generate even more competition and reduce profit margins in the future. Large Fire Service Providers may be able to fight this and come out on top. However, smaller companies without the same resources could struggle to continue operations.
The Role of Smaller Independent Companies
Fortunately, many smaller independent Fire Service Providers continue to prioritize installation projects in specialized areas like kitchen fire suppression systems. These new installation projects seed future service contracts. Companies that install can differentiate themselves and retain the best technician talent.
Overall, those who stick to installations keep the industry balanced. As larger companies benefit from service contracts, smaller ones continue to meet the demand for new installations and help the industry grow.
Conclusion
Fire Service Companies leaning toward a service-based model offer many benefits, including predictable revenue, high margins, and reduced liability risks. Regardless, it’s essential to learn the downsides, such as stagnation in innovation and market saturation. Independent companies end up being the de facto foundation for maintaining balance. A balanced approach between installation and service is essential for the sustainable growth and effectiveness of the Fire and Life Safety industry.
