Someone recently reached out to me because they’re considering getting into the home service space.
They told me what they were thinking about doing and I ended up chatting with him, giving him feedback on what I thought actually makes a good business model.
Spoiler alert: it was completely different from what he was actually going to do.
The truth is not all business models are made equal. Yes, you can make a lot of money with some, but it doesn’t mean they’re good. I’m approaching this from my own opinion, while also keeping in mind what I learned from working in private equity.
Here’s what I came up with.
The Two Models: High Ticket vs. Low Ticket
In the home services industry, there are primarily two business models to choose from: high ticket with low recurring revenue or low ticket with high recurring revenue.
- Low ticket, high recurring: Services like residential cleaning. While each job may bring in a relatively low amount (around $200 to $300 per job), the recurring nature ensures a steady stream of income. People need their homes cleaned regularly, which makes this a very dependable business model.
- Low ticket, low recurring: Carpet cleaning, rug cleaning, or residential pressure washing fall into this category. While the individual jobs may also be low-priced (around $200 to $400), they’re infrequent. It can be challenging to sustain a business solely on these every-once-in-a-while services unless you can bundle them with other low-ticket offerings.
- High ticket, low recurring: Painting, HVAC (air conditioning), and/or dryer repair. These jobs often involve substantial one-time costs (often exceeding $1,000), but they don't require frequent repeat services. Mastering marketing and sales can be the key to success in this model.
High ticket, high recurring services are like the unicorns of the home service industry — as much as we would like them to, they just don’t exist.
Need-to-Have Services
Ideally, you'll want to offer services that fall into the need-to-have category.
These are things that people require regardless of how the economy is doing. Think locksmith services and plumbing — when someone is locked out of their home or dealing with a plumbing emergency, they'll need these services immediately, recession or not.
Now, it's not always possible to offer need-to-have services. People might delay non-essential things like dryer vent cleaning during an economic downturn. Folks in the dryer repair industry should plan to compensate for this by focusing on their marketing and sales to ensure a steady flow of customers.
The Value of Recurring Revenue
When you eventually plan to exit your home services business, you'll discover that not all revenue is created equal. Recurring revenue is considerably more valuable to buyers.
Businesses with stable customer contracts and dependable income from repeat customers are highly attractive.
Consider this: a cleaning company might have a mix of one-time and recurring customers. A potential buyer may only be interested in acquiring the business based on its recurring customer contracts, disregarding one-time clients. In the eyes of buyers, recurring revenue reigns.
Ultimately, a good business model in home services needs the right pricing strategy, service frequency, and customer demand to create a sustainable and profitable biz. Understanding these key aspects can set you on the path to success in the competitive world of home services.
Photo by Slidebean on Unsplash
This article was written by Neel from MaidThis Franchise, a remote-local franchise opportunity for people looking to escape the rate race and reach financial freedom. Learn more here.
