Mike Andes explains why home service businesses lose by competing on price. A 5% margin business makes roughly a third the profit of a 15% margin one, even at the same revenue. Differentiate on value instead.
5% margin versus 15% margin.
It's rare that a low price strategy is going to ever win in this home service industry because there's always someone willing to do it cheaper. For most home service businesses, we do not have the skill required to be the low price competitor. Most of the time a low price competitor goes out of business because we do not have economies of scale like a Walmart that is, you know, international. Whereas with like home services, that moat of just being around for a long time doesn't do a lot bigger. Differentiated based on price is a short term strategy. If you can do it based on value, you can have higher margins. And the difference between a 5 margin, 5% margin business and 15% margin business is a tripling of profits.
