How Technology Is Creating Growth Opportunities in The Home Services Industry

The home services industry is ripe for disruption, and technology is one of the primary vehicles that will significantly disrupt home services. And that disruption has already begun, but the changes that technology has brought to the home services sector thus far are only the tip of the iceberg.?

Already a $500 billion industry with an expected CAGR of approximately 35% between now and the end of 2026, there is ample room to consume significant market share through both disruption and capitalizing on industry tailwinds. For operators, this presents a tremendous opportunity over the course of the next several years.

Industry Challenges:

In its current state, the home services industry is littered with companies that run on extremely dated and inefficient back office and customer support processes. The impact of this means higher operating costs, ineffective customer communication, a lack of transparency, and inadequate sales and marketing. All of which equal lower revenue and profit margins and a subpar customer experience.

But the good news is, for those who have not begun to adopt technology, there is a very obvious path to improve the overall profile of their organization.

The Low Hanging Fruit:?

When we look at the line of business functions that present obvious areas for improvement through the use of technology, there are three areas to focus on.

1. Back-Office / Admin: Common back-office tasks that are required to run a business in the home services space naturally include; billing, accounting, HR, project management, and field service management, among other areas. The truth is there is already a plethora of software solutions in the market that will satisfy the need to create a degree of automation and improved management across these areas. So, this merely comes down to adoption and deciding to invest the time and money necessary to embrace these tools, all of which over time should produce a return on investment for operators.
2. Customer Experience: The area that presents the biggest opportunity to harness technology to produce a meaningful impact on business performance, as well as a company’s overall reputation, is across customer support and customer experience activities. Old-school approaches of managing all facets of customer interaction have typically resulted in poor communication and a lack of transparency, both of which yield a suboptimal customer experience.Leveraging software applications that both streamline and automate the process of communicating with and supporting customers throughout the customer journey will end up producing a greater degree of efficiency for operators and a better customer experience. The net effect is an improved overall reputation, more repeat customers, and a positive impact on profitability and revenue over the long run.
3. Sales and Marketing: Most home services companies adopt an approach to sales and marketing that relies heavily on word of mouth and utilizes basic directory listings to get their name out. While all those mediums are effective and should not be ignored, technology offers a lot of room for growth when it comes to attracting new customers as well as generating repeat business. There's a long list of digital technologies that can be leveraged to achieve this, and a few obvious ones include:

• Search engine marketing technologies including pay per click advertising, display advertising, and retargeting through display advertising.
• E-mail marketing campaigns.
• Website chatbots geared towards engaging potential customers and answering questions in real-time.
• Automated text message alerts and follow-ups with new and existing customers.

In addition to the obvious improvements that can be made across these three areas, looking at a business holistically and identifying inefficient or time-consuming tasks that are executed on a repetitive basis, software and some forms of AI present an opportunity to reduce the time investment in those tasks or even eliminate them entirely.

Finding The ROI:

The long-term return on investment that home services companies can achieve by leveraging technology is realized in two ways.

Firstly, the automation and improved efficiency of cumbersome and repetitive back-office tasks reduces both the time and financial investment in these activities, but also minimizes the need to bring on new resources as the organization grows. Furthermore, the improved efficiency and organization of information will significantly reduce the opportunity for human error and the costs associated with those errors. All of this means lower operating costs, higher profit margins, and a more well-run organization.

Secondly, the improvement technology brings to sales and marketing activities as well as the overall customer experience, results in increased market share over time by accelerating new customer acquisition and generating more repeat business.

Long Term Threats:

The emergence of technology in the home services sector does present some challenges and threats for operators. Those challenges will primarily lie within sales and marketing. The use of digital mediums to attract new customers and build brand reputation through reviews means consumers now have far more information at their fingertips and are subsequently able to more easily compare one provider against another by using both online reviews and price as their primary measuring stick.?

For underperformers, customer relationships gone wrong can be significantly detrimental. And for all providers, the ability for consumers to more easily get quotes and compare prices means increased price pressure and commoditization.?

In the US alone, companies will spend an estimated $350 billion on digital transformation initiatives in 2023. That figure is expected to reach close to $500 billion by 2025. While the home services sector has been a laggard, the signs of technology adoption are already showing, and there is ample room for the utilization of even more technology within this sector. Those who are willing to embrace this change will realize long-term success, leaving less technology-savvy organizations facing shrinking market share.

I am the Founder and Managing Partner of Drive Equity Advisors. An investment bank focused on providing M&A advisory support to sellers and acquirers of IT and management consulting firms in the digital transformation space. You can learn more about the work we do at driveequityadvisors.com