The U.S. home services market is worth $700 billion and still growing. The contractors who capture the most of it won’t just be the best at the work. They’ll be the best-run businesses.
McKinsey’s recent paper on the US home services market breaks down exactly what that looks like in practice. We pulled the four findings that matter most for contractors looking to grow.
1. Digital adoption is essential for operations and growth
The industry is in the middle of a massive digital transformation. From trade-specific CRMs and documentation platforms to AI agents and digital marketing, it’s never been more important for home services businesses to figure out how to adopt and use software.
They found that the average home services company can achieve at least a 5% margin improvement by targeting business functions with the right processes and tools. Here are a few areas they highlighted that are ripe for digitalization:
Operations: Job-costing analytics and AI agents can help identify areas of improvement. Effective booking, scheduling, and dispatching can increase bookings by 10 to 20 percent.
Sales: Equipping sales teams with tools, training, and dynamic pricing can improve customer referrals by 10 – 20% and increase on-site upselling opportunities by 20 – 40%.
Marketing: Building a full-funnel marketing flywheel and optimizing for user experience will build long-term value and lower cost per lead.
Production. Standardized service times can reduce the time required to service customers by 10 to 15 percent, and providing real-time updates to customers boosts long-term retention.
The bottom line: Digital is no longer just for large operators and early adopters.
2. Skilled labor shortage is a concern, but it is addressable
You read that and thought, “Well, duh. Nothing new here.”
But owners, operators, and managers who shift their mindset from no one wants to work to I need to level up who’s here can better navigate a tight labor market. By implementing onboarding, training, and development programs and standardizing your offerings, you’ll increase productivity and employee satisfaction.
A specific area addressed in the report is sales teams: By providing ongoing training, giving them tools to simplify quoting and customer communication, and aligning incentives with company goals, you’ll see revenue growth and reduced turnover.
On the production and job site management side of the house, home service operators need to stay current with licensing, safety, and documentation requirements for both their teams and subcontractors.
3. Customer experience is as important as ever
Your potential customers use dozens of apps and websites every day to order food, buy clothes, and post updates. And when they’re looking for services like the ones you offer, they expect a similar, frictionless experience, from their first search through the final payment.
More than providing a great end product, there are a few other easy wins to improve customer experience:
Make it easy for them to find you online. Optimizing your website for search and updating your Google Business Profile regularly are great places to start.
Online booking that integrates with your back-of-house software will get projects off on the right foot. Consider AI agents who can help you book appointments around the clock.
Provide real-time updates while the job is ongoing. Keep customers in the loop by sharing photos, videos, and text reports of the day’s work.
Offer different ways to pay, like Tap to Pay or a secure portal where they can use a card, ACH, or Apple Pay.
Request reviews after the project to make it easier for the next customer to find you online, and use the feedback to continue to refine your processes.
By embracing digital tools and developing your team’s skills, you’ll be better prepared to deliver a great customer experience.
4. The trades are resilient and growing
Overall, the paper paints an optimistic picture for the trades. Over the last decade, the home services market has shown consistent growth and resilience during recessions, thanks to the large number of existing homes and a willingness to outsource projects to pros.
Their paper separates trades businesses into four categories based on how critical and frequent the offering is. Depending on where you land, there are different strategies you can use to increase your market share:
Critical and rare (roofing, electrical, non-bath renovations). Compared to other categories, these services are experiencing lower growth, so it’s important to have the processes in place to win the job when you have the chance. Better sales process and documentation are key to capturing market share.
Critical and frequent (plumbing, bath renovations, HVAC). These areas are experiencing high growth, in part because 75% of the U.S. housing stock is 25+ years old. Customers are looking to make updates to and maintain their homes. Contractors who can show proof of good work will win more of these jobs.
Optional and rare (painting, solar, junk removal). These services are dominated by local players and independent businesses, rather than national brands and franchises. The paper’s authors suggest that these small shops could benefit from merging with others to realize economies of scale in purchasing, labor, and technology, which would increase market competition.
Optional and frequent (landscaping, cleaning, pools). These businesses are the fastest-growing category of all, thanks to the market’s growing willingness to outsource these tasks to professionals rather than handle them themselves. Capture value here by making your customer experience from quote to payment as seamless as possible.
The home services industry is a great place to be. With a healthy demand for services and resilient growth, there’s room for pros to make their mark.
But as the market continues to grow, though, we’ll likely see more investors, entrepreneurs, and mergers. The businesses that embrace digital tools, empower their teams with processes, and level up the customer experience will be better positioned to outmaneuver new players — or become the ones worth acquiring.
Looking for more insights on running and growing a trades business? See how other owners and operators are planning for growth this year.
