Residential Contractor Report: Key Trends and Risks to Know for 2024

2024 Outlook for Residential Contractors

Hunter says the report essentially takes the pulse of contractors nationwide to understand their risks and obstacles for growth. He and Snow dive deeper into recent industry trends and best practices for overcoming them.

“As a contractor, I always wanted to know, ‘Am I in this boat alone? What are others experiencing? Am I doing well? Am I not?’” Hunter says. “And it’s worth noting that as ServiceTitan customers, you do have access to your Benchmark Report. It will give you some industry trends and data about your company specifically and how you're performing against other companies like you in your area.”

As the graphic above indicates, it’s the small residential contracting businesses that feel most optimistic as a whole versus midsize or larger companies.

Owners of small businesses see so much opportunity, Snow says, with new tools, technology, markets, services, and processes to implement on their path to growth and expansion. It’s also easier to make changes or add new technology when the business is small with two or three trucks, as compared to when you need to scale for 50 trucks.

Hunter agrees, pointing to external factors that often inhibit growth. “The economy's tightening up, people are tightening up, growth rates are down, credit usage is at an all-time high…maybe now I'm not quite as optimistic. I think that's a lot of what we're seeing.”

Residential Contractor Goals

The 2023 Residential Contractor Report asked contractors to define their goals as they plan for a new year. Not surprisingly, the majority named growing revenue and retaining customers as their top priorities, closely followed by customer acquisition.

While these top three priorities come as no surprise to Hunter, as most businesses want those same things, he says it’s important to understand “the why” behind your goals.

“What is it that you're specifically wanting to do? How does it tie back into your mission, the vision for your business, where you see it going, or the purpose of it?” he asks.

And looking forward to 2024, Hunter says contractors who use ServiceTitan say they’re focusing less on growing revenue and more on streamlining for efficiency to gain higher profits.

“They're still planning on growing, but if it's harder to grow at the big number that we saw over the last three years, they better make sure they got their house in order and they're able to be profitable doing it,” Hunter explains.

“I know for our company, we really are having to tighten things down and look at ways we can be more profitable,” says Snow, owner of Western Heating, Air, & Plumbing in Utah. 

To achieve their goals in 2024, 29% of the survey respondents said they planned to increase their use of software technology, and 76% of businesses surveyed said they already use two to six software providers for certain purposes, like business management, payroll, and HR.

Hunter says he was shocked that less than half even use a field management software tool.

“Can you imagine doing business today without having a tool like ServiceTitan or a field service management software?” he asks. “I don't know how anyone could ever even think about hitting a goal without utilizing technology like this.”

Doing business today as a residential contractor is all about “winning the customer,” Hunter says, and software tools that make it easy for customers to do business with you—such as book online, receive texts with appointment reminders, choose from tiered product options, or apply for financing—give contractors a competitive edge.

“My theory is, double down on your strengths, because not everyone's doing it yet, so you might as well leverage that to help grow your company,” he adds.

Biggest Risks to Meeting Goals in 2023

“The recession, obviously No. 1,” Snow says. “This is what people have been a little bit leery of. As someone who ran a business through the prior recession, that was a tough time. We had to cut back in so many areas. And I'm grateful we did that because it's given us experience. But maybe for some of these newer contractors…this might be a brand new thing to think about, ‘How do we get through this recession?’”

The ongoing labor shortage comes in as the second biggest risk to meeting goals.

“We're all still struggling to get people,” Snow says. “Some people figured it out, so let's learn from each other. What are people doing to keep their technicians, their trucks full to meet demand?”

Other top risks include access to working capital, labor/overhead costs, growing competition, an increase in material costs, and more.

Where some contractors see risk, others might see opportunity, Hunter says. Rather than whine about the risks, they go on the offense and try to maximize their gains.

“They're going to do whatever it takes to make sure they've got their budget, they've got their goals, they've got their plan, and they know exactly what they need to do to hit those,” he says. 

Actionable Steps to Overcoming the 4 Biggest Inhibitors

1. Recession

One way contractors plan to navigate a recession is by diversifying, Hunter says. For instance, during the past three years, especially during the COVID pandemic, companies performed more HVAC installations than they normally would have because people were at home and had more money to spend. In 2023, however, HVAC installs decreased significantly, forcing companies to rely on service and repair calls to make a profit.

“Is their service department actually profitable? Because in the past, they might have used their service department as a subsidy just to get to the install. Well, now, if the install isn’t there, they have to go back to offering great service, indoor air quality products, and find other ways they can help,” Hunter says.

Diversifying might also include adding a new trade or expanding to new locations. Contractors can also take advantage of offering instant rebates on certain HVAC, plumbing, and electrical products soon to be made available through the Inflation Reduction Act.

Hunter says companies on ServiceTitan find success by offering great customer service and choosing to go on the offense during recessionary times.

“They're going on offense by outbounding, they're using their marketing, they're doing whatever it takes to keep their technician in a home to create opportunity. And they're not just sitting there waiting on the phones to ring,” he says.

While some companies choose to boost their digital marketing efforts to acquire new customers, others rely on basic guerilla marketing tactics like yard signs and door hangers in neighborhoods to increase brand awareness.

“We need to get back to just being visible, being interactive in our communities, and really just serving well,” Hunter says.

According to the contractor survey, 71% say word-of-mouth referrals tops their list for new customer acquisitions.  

“We talk about a lot of ideas to increase your customer experience. Do those things so you're providing an amazing experience, and you're getting those referrals, whether it's by word-of-mouth or online reviews. Online reviews is the new word-of-mouth,” Snow says.

2. Labor shortage

As for navigating the labor shortage, Hunter advises recruiting for employees the way college football coaches recruit players. Engage, interact, and go to your target recruits, rather than waiting on them to find you. And strive to do more with less by streamlining your operations and gaining efficiency. With ServiceTitan’s suite of Pro Products, such as Dispatch Pro and Scheduling Pro Live Services, contractors can optimize and maximize their systems to get more out of what they have.

3. Access to working capital

If you’re struggling to gain access to working capital, partner with a private equity firm to sell all or a portion of your business in exchange for operating funds or buying new trucks. Another way to gain working capital is to start a relationship with your banker and begin building a line of credit—before you need it. 

And cash flow management should simply be an integral part of your business operations.

“That's business,” Snow says. “You should have an eye on your numbers, where are your numbers, know what's coming in and going out.”

4. Labor and overhead costs

Ways to reduce your labor and overhead costs include:

• Shopping insurance and other fixed costs annually for better quotes

• Increasing efficiency by choosing to outsource or not outsource certain tasks

“Things can be automated a whole lot now, so I'd advise you just to check into it. It’s a great way to reduce your overhead and your labor costs,” Hunter says.

Trends to Watch

Rising Costs and Salaries

Critical trends to watch include rising service costs and salaries, Snow says.

“We know costs are going up everywhere,” she says. “To combat these increasing costs, some contractors expect their service prices to change.” But, according to the survey data, those price increases remained fairly even across the board.

Remember the good ol’ days when price adjustments happened just once a year? “Well, that's not the case anymore,” Hunter says. “Almost, if you're not doing it in real time or at least weekly or monthly now, it'll catch up to you.”

The survey also asked contractors about expected technician salary changes in 2023, and the majority of respondents said they planned to increase salaries by varying amounts.

If that’s your plan for 2024, Hunter advises creating a solid plan to deliver on all fronts. 

“If you plan to increase your technicians’ or CSRs’ pay, you’ve got to figure out a plan to make sure you can compensate for increased costs and not take a hit on the bottom line,” he says.

Payment Methods

Only 7% of survey respondents said they offered financing as a payment option, which surprised both industry advisors.

“We know ServiceTitan customers are much higher than that, because we've got integrated financing and all these tools to make it easy,” Hunter says.

And with consumer credit at an all-time high, which indicates homeowners’ credit cards are maxed out, offering financing options can help seal the deal.

“If you're not offering financing, chances are you're leaving a whole lot on the table, but more so you're doing a disservice to that homeowner,” Hunter says. “We should offer it on everything and make it an option. It's amazing how many people will take you up on financing if you just ask.”

Revenue Benchmarks 

When analyzing revenue benchmarks from the 2023 Residential Contractor Report, Hunter says two things stood out to him:

1. The average revenue growth for ServiceTitan customers during the same time period was about 26%. But according to the report, only about a quarter of contractors in the survey experienced any growth.

2. Small and large companies increased revenue, but the middle group saw the largest decrease.

“You're starting to grow…but it's a dangerous area,” Hunter says. “If you don't learn how to scale and use automation and grow past that point, you can get stuck.”

Snows says it feels like a big hump to get over when you’re at the midsize range.

“You have to restructure so many things in your company. You cannot run a $2 million company the same way you run a $5 million or $6 million company,” she says. “You just need more leadership. It has to be able to scale at a different level.”

Profit Benchmarks

As for profit benchmarks, the majority remained unchanged year over year, Snow says.

While the above graph shows that larger companies increased profits by the highest percentage, Hunter says small to midsize companies can compete on the same playing field by taking advantage of ServiceTitan’s Titan Intelligence and AI automation to improve operations.

“It is the great equalizer,” Hunter says.

Keys to Success in 2024

To improve your company’s operational efficiency, Hunter and Snow suggest focusing 2024 goals on the following three areas:

• Automate

• Delegate

• Eliminate

“I know this was a trap for myself. I wear so many hats that I think I need to be the one doing it all,” Snow says. “I am the bottleneck of the company as well. So, it’s thinking about what we can delegate.”

For example, delegate one member on your team to become a ServiceTitan certified admin so you can take advantage of the software’s full functionality. Outsource certain functions like your call center so a live person answers the phone 24/7, or hire a third party to run payroll or perform accounting services.

“What are these tasks that you're doing in-house that you're probably devoting a whole lot of attention to, which if you just delegated or outsourced, would free you up to be able to invest in your team and do things even better?” Hunter asks.

If you’re a ServiceTitan customer, check out Titan Advisor (the little rocket ship in the right-hand top corner of your dashboard) to see how well you’re utilizing ServiceTitan features. 

“Get in there, find out what you're not utilizing that could help you be more efficient, things you could automate, things you could eliminate. Where are you not as efficient or optimized as you could be?” Snow says.

Embrace new technology, but understand the risks and find ways to turn them into opportunities.

“How can you leverage technology to double down on some of these areas to help you avoid these risks and turn them into opportunities?” Hunter asks. “How can you do more with less? And how can you do it super smart? A great way to do that is through Titan Intelligence and AI.”

Finally, stay focused on your data. 

“Know your numbers,” Snow says. “Have a way to track those and measure those. What are you trying to accomplish? What are the goals? And you've got to take action on those numbers. You can't just pull the reports and have them sent to you and do nothing about it. It's about taking action.”

Hunter says ServiceTitan CEO Ara Mahdessian said it best during Pantheon 2023, the company’s annual conference for the trades:

“Those that don't take action and leverage technology to get ahead and stay ahead, man, you're going to get left behind,” Hunter says. “And we already see with this report the difference in the numbers between the ones that use ServiceTitan and the ones that aren’t—the gap is huge and it's not going to slow down.”