Inflation Is Up — Here’s How Home Service Businesses Can Stay Competitive

As of July, inflation rose 2.7% year over year, over and above the inflation rates of the past three years. Home service companies are feeling the impact. Costs for materials, labor, fuel, and financing are on the rise. Additionally, some of the inflation is driven by government-mandated refrigerant changes and efficiency upgrades, which are more in the 8% to 10% range or more over the past 36 months. This puts pressure on profit margins, drives up the cost of services for homeowners, and ultimately affects providers’ bottom line. 

It is no surprise that home service providers will have to make adjustments. Here are a few strategies to help them do so. 

Navigating Rates Amid Inflation

When home service parts and equipment prices rise, these companies will be forced to consider passing the increase on to customers to ensure they are still making a profit. If they fail to increase prices, home service companies risk shouldering the burden and negatively impacting their bottom line. The key is to make the necessary adjustments without making customers feel blindsided. Consider this: necessity is almost always the driver when customers need home services. They have to accept the cost due to the essential nature of the work, but clear communication goes a long way to help them do so.

Communicate With Vendors

In today’s inflationary environment, home service companies should regularly engage with their vendors, not just during crises but at least twice a year. During the pandemic and recent supply chain disruptions, vendors have become accustomed to raising prices with minimal pushback. However, it’s crucial not to automatically accept every price hike. Each increase should be carefully evaluated and challenged when necessary to ensure it’s justified for your business to take on.

When vendors do raise prices, companies should respond strategically. Immediately adjust your pricing to maintain a 50% gross margin. At the same time, notify all vendors and their sales teams that you require a minimum 30-day notice for future price increases to keep yourself ahead of surprises.

Additionally, ask your primary vendors to provide a list — ideally in Excel — of the SKUs that make up 80% of your purchases. Remove the pricing information, send this SKU list to at least three competing supply houses interested in earning your business, and request quotes for those items. Don’t forget to factor in any rebates or incentives you receive from current vendors when comparing offers. This process gives you complete visibility into your cost structure and helps you make informed purchasing decisions that protect your margins and overall profitability.

Offer Financing Options to Customers

As prices for home service parts and services rise, home service companies need to consider offering customers financing options. By making services more accessible through flexible payment plans, they can encourage larger purchases and cater to a broader customer base, ultimately securing business growth. This also gives home service companies a competitive edge over those who do not offer flexible payment options. 

The most important takeaway is that home service companies must proactively manage pricing amid inflation. While some cost increases will be inevitable, success lies in being strategic and transparent, balancing profitability with customer trust.