Contents
Executive Summary and Key Takeaways
Brief Recap of 2020
Demand in 2021
February winter storm of 2021
Hottest June on record
Revenue Growth in 2021
Decomposing Growth into Jobs Completed and the Average Ticket
Residential vs. commercial sectors
Higher inflation in the second half of 2021
In-Depth By Trade
HVAC
Plumbing
Electrical
Outlook for 2022
Trends in scheduled jobs suggest a steady demand into the first few months of 2022
Inflation Expectations
Technical Notes
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1. Executive Summary and Key Takeaways
As a leading software platform for the trades, ServiceTitan has a unique vantage point into the home services industry. Since March 2020, ServiceTitan has published timely analysis on how the industry was impacted by the Covid-19 pandemic and shared insights about ongoing trends.
In this report, ServiceTitan examines how the home services industry evolved in 2021 based on proprietary data on more than 2,000 shops across the country. We explain the impacts of major weather events on the demand for home services and provide an in-depth look at the revenue growth for the shops on our platform. All information contained in this analysis reflects information for shops on the ServiceTitan platform only.
While ServiceTitan shops tend to be more representative of the larger companies in the industry, our customers are located throughout the U.S. and include shops of all sizes, from small businesses with fewer than 5 technicians to businesses with hundreds of technicians on staff.
This report shows trends across three main trades一HVAC, plumbing and electrical一and, to some extent, other home services such as garage door, water treatment and chimney sweep.
The home services sector showed resilience in the face of continuous challenges brought about by the pandemic and ended the year with the highest top-line growth over the past four years . However, higher inflation in the second half of 2021 created a setback for the industry. Due to supply chain disruptions and higher than expected consumer demand, costs for materials and equipment for the trades soared. As a result, the high top-line growth in 2021 tends to overstate the tangible gains for the home services companies. Nevertheless, on an inflation-adjusted basis, the home services sector still experienced a double-digit growth, showing that the industry continues to weather the evolving pandemic and the changing economic conditions well.
Key takeaways:
In 2021, home services businesses experienced a robust growth in consumer demand, boosted further by extreme weather events throughout the year. The year-over-year (YOY) growth in the call volume for a typical shop on ServiceTitan was 16%.
The strong demand fueled a prominent revenue growth for the industry. For a typical home services company, revenue grew by 24% YOY. Across the U.S., shops in the Northwest experienced the fastest annual growth, with shops in Oregon increasing revenue by 44% YOY. Shops in South Carolina, California and Florida saw lower, but still healthy growth of 17 to 19% on average.
Adjusted for the rise in prices, in 2021, a typical shop likely experienced an approximately 15% YOY inflation-adjusted growth (compared to a 24% unadjusted growth).
Based on the trends observed at the end of 2021, demand for home services appears to remain strong in the first quarter of 2022. While inflation may ease later in 2022, prices will likely keep rising for some time into the new year.
2. Brief Recap of 2020: significant but short-lived drop in demand followed by a strong rebound
In 2020, the Covid-19 pandemic brought an extraordinary uncertainty into the economy. The year was characterized by repeated stay-at-home guidance, social distancing requirements and supply chain disruptions.
For home services shops, 2020 had been a difficult year, necessitating constant adaptation and flexibility.
When the stay-at-home guidance unfolded across the country in the second half of March, calls and revenue for the shops dropped quickly. Compared to 2019, weekly calls were more than 20% lower by mid-April and revenue was about 10% lower (Figure 1).
Figure 1. 2020 vs 2019 Percent Change in Weekly Calls and Revenue
FIGURE 1 IMAGE HERE
Notes: Data reflects 3-week moving averages for growth in weekly calls and revenue across the U.S. home services companies on the ServiceTitan platform. All trades are included.
As people spent more time in their homes, however, the demand for home services increased and the sector quickly rebounded.
By mid-June, the weekly YOY growth in calls and revenue had surpassed what it has been in the first two months of the year. With an unprecedented share of the labor force working from home, the demand for home services surged back and the sector delivered.
For the remainder of 2020, the revenue growth remained robust, culminating in the aggregate annual increase of 13%.
Compared to 2019, the growth was similar across the trades as well as shops of different sizes. Electrical services grew at an annual rate of about 17%, while heating, ventilation and air conditioning (HVAC) and plumbing services grew by about 13% each. Shops with less than 5 technicians grew by about 14% on average, while shops with 25 or more technicians increased their top-line revenue by about 12%.
Despite the immense uncertainty that COVID has brought to the economy, home services shops navigated through 2020 well.
3. Demand in 2021
Consistent growth, boosted further by the extreme weather.
Throughout 2021, home services shops continued to see strong and consistent consumer demand.
In January of 2021, aggregate calls to the home services shops were about 9% higher than they were in prior January, indicating substantial growth in consumer demand at the start of the year.
By February, that strong demand was boosted further by the winter weather.
Figure 2. Weekly Call Volume in 2021 vs. 2020
FIGURE 2
Notes: Data reflects the weighted average weekly call volume across ServiceTitan customers. All trades are included.
a. February winter storm of 2021
In mid-February, a highly unusual spell of cold weather wrecked chaos on Texas and the neighboring states. The scale of the storm coupled with the rolling blackouts was unprecedented for Texas, resulting in burst pipes and overloaded heaters.
During the week of the storm, calls to home service shops in Texas shot up 7-fold, overwhelming the local shops. The resulting spike in calls is prominent in the calls data for the country as a whole, and reflects the week with the highest call volume for the entire year (Figure 2). On the monthly basis, February call volume for the U.S. was about 37% higher than the prior year.
While the storm itself ended in less than two weeks, its impacts spanned several subsequent months. As our in-depth analysis showed, plumbing shops in Texas had significantly higher YOY revenue growth than the other trades through May.
To offer guidance on how cold spells may impact shops going forward, we analyzed the unusually cold weather over the past three years. Our analysis summarized the average impacts on calls and revenue for the shops across the country, and provided a detailed look into how impacts vary by state一see Preparing for Chill: Impact of Cold Weather on HVAC Shops’ Bottom Line.
b. Hottest June on record
Following the unprecedented winter cold, the summer heat has also shattered records. This June was the hottest ever for the country.
The HVAC shops in the Pacific Northwest and Southwest experienced the highest surge in the demand during the June heat wave. For example, shops in Oregon saw their weekly calls more than double during the heatwave week compared to two weeks prior. For the full month of June, calls in Oregon were up over 70% YOY.
On average across the country, monthly calls for June were more than 20% higher than the prior month and nearly 20% higher than June of the prior year.
For 2021 as a whole, the YOY growth in calls was 16%. Compared to 2019, the call volume was 23% higher.
4. Revenue Growth in 2021: strong growth in the first half of 2021, but higher inflation reduced gains in the second half of the year.
The strong demand in 2021 translated into sizable revenue growth. The YOY top-line revenue growth for a typical shop was 24%. Compared to 2019, revenue in 2021 was 40% higher.
Shops of all sizes and across states have seen sizable growth rates. For example, shops with 1 to 4 technicians grew at an annual rate of 29%, while shops with 25 or more techs grew at about 22% (see Table 1).
Table 1. Revenue Growth by Shop Size
TABLE 1
YOY Growth
Shops with
1-4 Technicians 29%
5-14 Technicians 26%
15-24 Technicians 25%
25+ Technicians 22%
Note: Shop size is measured in January 2020.
Across the U.S., the typical state-level revenue growth ranged from about 17% to 44% YOY (see Figure 3). The region with the highest growth was Northwest, where the summer heat waves resulted in a surge of demand for home services. Oregon and Idaho experienced some of the fastest growth in the country, with 44% and 41% YOY increase in revenue, respectively. The states with some of the lowest一yet still double-digit一top-line growth included South Carolina and Nebraska, which had 17% YOY growth on average. California and Florida also experienced relatively lower average growth rates of about 19% YOY.
Figure 3. Annual Top-Line Revenue Growth for 2021, by State
Note: States with fewer than 10 home services shops powered by ServiceTitan since January 2020 are excluded. All trades are included.
Substantial differences in top-line revenue were also observed by trade, with electrical and garage door services growing faster than HVAC, plumbing, and water treatment (Figure 4). Section 5 below provides additional insights into the trends by trade.
Figure 4. Annual Top-Line Revenue Growth for 2021, by Trade
FIGURE 4
a. Decomposing growth into jobs completed and the average ticket
In 2021, about half of the aggregate revenue growth can be attributed to the growth in the volume of jobs completed, and the other half to an increase in the average price of a job, referred to as the average ticket.
On average across all trades, the YOY job growth and average ticket growth were 11% and 12%, respectively. (Average ticket is computed as the sum of revenue from all completed jobs divided by the sum of all jobs completed.) For both of these metrics, the growth in 2021 was among the highest observed in the past four years (see Figure 5). Indeed, the growth in the average ticket of 12% YOY was more than double the growth observed in the past few years, which shows that the shops have been increasing their prices in response to the rising input costs.
Figure 5. Annual Percent Growth in Job Volume and Average Ticket
b. Residential vs. commercial sectors
While this report focuses on the performance of the residential home services sector, most residential shops do at least some commercial work. During 2020, as many offices shuttered and some work moved remote, revenue from the commercial jobs dipped, dropping by 5% compared to 2019. It was the residential services that carried the industry with a sizable 14% top-line growth compared to 2019.
In 2021, the commercial sector rebounded, growing by about 19% above the low 2020 level. However, it was still below the growth observed for the residential sector, which was 24%. Compared to 2019, commercial revenue was only about 11% higher in 2021, while residential revenue was 39% higher.
Figure 6. Annual Percent Growth in Commercial vs. Residential Revenue
FIGURE 6
c. Higher inflation in the second half of 2021
Although the aggregate top-line growth numbers for 2021 are high, the higher inflation reduced the tangible gains from that growth.
Inflation in 2021
Inflation is the growth in prices in the economy. High inflation means that groceries, gas, rent, and other items are getting more expensive—quickly. Low inflation means that prices are growing slowly, so that year-over-year changes are almost unnoticeable.
The soaring inflation in 2021 reduced the purchasing power of the dollar, particularly in the home services sector (see Box 1 for more details). In December, prices for equipment and materials used by the home services shops were up 29% compared to December of 2020. COO Mario Martinez from Scott’s One Hour Air reported their material and equipment prices increasing every 3 to 4 months, while other contractors have even seen some prices rise on a daily basis.
In the other sectors of the economy, including food and housing, prices also increased but the aggregate rise was generally lower. For example, in December, prices of consumer goods increased by 7.0% compared to December of 2020.
How Inflation Impacts Revenue Growth
The high inflation complicates the year-over-year comparisons of revenue.
In December of 2020, $1,000 could buy 29% more tangible equipment and materials in the trades compared to $1,000 in December of 2021. In other words, to purchase the exact same number of equipment units the managers could afford with $1,000 in 2020, they would need to spend $1,290 in 2021.
What this means is that a 24% top-line growth in a high-inflation year does not provide the same lift for a company as a 24% growth in a low-inflation year. Brad Johnson, a partner at the AAA Northgate One Hour Heating & Air, LLC, reports that this year “margin contribution is definitely under stress because of inflationary pressures.” In a high-inflation environment, businesses need more dollars just to keep up with the rising prices across the economy.
An Example with Inflation-Adjusted Numbers
In this section, we illustrate what the revenue growth for 2021 looked like once we take into account inflation. While there are many ways to adjust for inflation, our approach approximates the inflation in prices across business inputs that the home services companies use, from equipment and materials to labor and overhead.
To adjust for inflation, we converted prior years’ dollars into today’s purchasing power. This conversion brings the dollars from different years closer to an apples-to-apples comparison and reflects how many tangible units of inputs those dollars can buy today. (See Box 1 for details about the inflation-adjustment.)
Adjusted for inflation, average YOY growth in 2021 was 15%, which is lower than the 24% top-line growth not adjusted for inflation.
Because prices were rising rapidly throughout 2021, the gap between the unadjusted and inflation-adjusted numbers increased over the course of the year and reached higher levels in the 2nd half of the year (Figure 7). Part of that gap could have resulted from the lag between the rising costs and the shops’ pricing. Johnson suspects that “much of this lag is due to many contractors not being nimble enough to act on the frequent cost increases.” Some contractors could be “playing wait and see out of fear that they will price themselves out of the market,” adds Johnson.
Figure 7. YOY Percent Growth in Revenue, With and Without Accounting for Inflation
Semi-annual and annual YOY revenue growth
GRAPHIC
Weekly YOY revenue growth
GRAPHIC
Notes: Data reflects 3-week moving averages for weekly revenue growth across the U.S. home service companies. All trades are included.
When it comes to inflation, 2021 was a relative outlier. In prior years, inflation was low and, therefore, inflation adjustment did not make such a significant difference to a business’ bottom line.
In 2018 through 2020, inflation-adjusted growth was within a few percentage points from the unadjusted growth (see Figure 8). In 2021, however, the difference between unadjusted growth and inflation-adjusted numbers was bigger because of the rapid rise in prices. As a result, the high unadjusted growth in 2021 overstates the tangible gains for the companies in the home services sector.
Figure 8. Annual Revenue Growth Across the Years, With and Without Accounting for Inflation
However, even though the tangible 2021 growth may not have been as high as it seems, a typical home services company still experienced a double-digit real growth that was likely higher than in both 2020 and 2019. Many contractors like Shawn Mitchell, President and CEO of Modern Mechanical, worked diligently to “job cost every call, and when [they] found one that was outside of [their] gross profit goals because of material increases then [they] would immediately adjust that pricebook item.” As a result, while customers did have a “sticker shock” from higher prices, many kept buying from them, reports Mitchell.
All in all, the home services sector continued to weather the ongoing pandemic and changing economic conditions well.
Box 1. How do we adjust for inflation?
To adjust for inflation, we converted prior years’ dollars into today’s purchasing power. We defined purchasing power as the ability of home services companies to expand operations by purchasing business inputs, from equipment and materials to labor and overhead.
In 2021, prices for equipment and materials in the trades grew much faster than prices of most other inputs. In this report, we approximate that growth using the Producer Price Index (PPI) for Hardware, Plumbing and Heating Equipment and Supplies Merchant Wholesalers. Figure 9 shows that prices of equipment and materials used by the home services shops were up 29% compared to December of 2020.
However, prices of many other business inputs did not increase as quickly. In this report, we approximate the inflation across all other business inputs using the growth in prices of consumer goods, captured by the Consumer Price Index for all urban consumers (CPI-U). This is the most widely known measure of inflation in the economy and reflects the aggregate price increases across food, energy, housing, transportation and other sectors. In December of 2021, the aggregate prices were up 7% compared to December of prior year.
Figure 9. Inflation in the Economy: Year-Over-Year Growth in Consumer Price Index and Producer Price Index, January 2017 through December 2021
FIGURE 9
Notes: Producer price index reflects the index for Hardware, Plumbing and Heating Equipment and Supplies Merchant Wholesalers produced by the U.S. Bureau of Labor Statistics (BLS) and serves as a rough proxy for the equipment and materials prices for the trades. Consumer price index reflects the BLS index for all urban consumers.
To combine the two price indexes into a single measure of inflation, we assume that the costs of equipment and materials represent 25% of total business costs for a typical shop. This share can be lower for plumbing shops and higher for HVAC shops due to higher relative cost of the HVAC systems compared to plumbing equipment. We model 25% of business costs to grow at the rate of PPI and 75% of costs to grow at the rate of CPI-U.
Because the composition of business costs differs across companies, our inflation adjustment serves only as an illustration. For example, a shop with a higher share of total costs coming from equipment and materials would have a lower inflation-adjusted growth than in this approximation.
5. In-Depth By Trade
Because the home services industry is diverse and consists of many types of services, we present more detailed results for three specific trades: HVAC, plumbing, and electrical companies. Table 2 provides the average values for the key metrics in 2021 and the percent changes in metrics since 2020.
We show two main measures of the average ticket that are commonly used by our customers.
Total Job Average is the average ticket among all completed jobs, including no-charge jobs, warranties and recalls. It is computed as the sum of all revenue from completed jobs in a given trade divided by the total number of jobs completed in that trade.
Opportunity Job Average is the average ticket of all opportunity jobs, which exclude the no-charge jobs with revenue below a shop-specific sold threshold. This measure of the average job value is computed as the sum of all revenue from opportunity jobs in a given trade divided by the number of opportunity jobs for that trade. (See ServiceTitan’s Contractor Playbook for more information about these metrics.)
In addition, we break down the opportunity average by the type of job: installation, service and maintenance. For example, Opportunity Install Average is computed as the sum of all revenue from installation opportunity jobs in a given trade divided by the number of opportunity installation jobs performed for that trade.
Table 2. Metrics By Trade
TABLE 2
Notes: * To compute Opportunity Installation Averages for HVAC, we excluded installation jobs with revenue below $4,000 to capture full system installations rather than furnace-only or other partial installations.
All average ticket sizes are rounded to the nearest $10.
Among shops powered by ServiceTitan, HVAC shops tend to have slightly more technicians than plumbing and electrical shops and higher Total Job Average. Across Opportunity Job Averages, both HVAC and Electrical services have very similar tickets一$920一which are substantially higher than the typical ticket for the plumbing services ($730).
Among installation jobs, HVAC services have by far the highest Opportunity Average ticket: $10,250 compared to $2,370 and $2,770 for plumbing and electrical services, respectively. This outsized ticket size for HVAC installs is due to the price of HVAC systems being higher than the typical equipment in plumbing and electrical fields.
For service jobs, electrical services have the highest Opportunity Average ticket一$850一which is more than twice is high as the average ticket for the HVAC service ($380) and substantially higher than the average ticket for plumbing services ($680).
Compared to 2020, the revenue for electrical services grew faster than the revenue for HVAC and plumbing services among the shops on our platform. YOY top-line growth for electrical services was 38%, while the growth for HVAC and plumbing shops was 24% and 25%, respectively. Part of that growth in electrical services was fueled by a substantially higher growth in the average ticket. YOY change in Opportunity Job Average was 22% for electrical services, compared to 13% and 12% for HVAC and plumbing services, respectively.
a. HVAC
HVAC shops provide essential heating and cooling services for the residential homes. As such, these shops were the least impacted by the reduced demand in April and May of 2020 due to the lockdowns and lower economic activity in the early months of the pandemic (Figure 10). For people who spent more time in their homes, having adequate heating and cooling became ever more important.
In 2021, total revenue from all jobs completed for HVAC services grew 24% YOY. The month that brought the most revenue for the shops was June, fueled by the record-breaking heat waves.
Figure 10. Weekly Revenue for HVAC Services, 2021 vs. 2020
GRAPHIC
Notes: This figure is based on weighted average weekly revenue for HVAC services. The trends reflect 3-week moving averages.
In terms of geographic distribution, revenue for HVAC services grew the fastest in the Northwest region, which was particularly affected by the summer heat waves (see Figure 11). Compared to 2020, revenue for a typical shop in the Northwest in 2021 was 42% higher. In contrast, typical HVAC shops in the West, Southwest, South, and Southeast have seen growth of about 20% YOY.
Figure 11. YOY Growth in HVAC Revenue, by Region
MAP
b. Plumbing
Unlike the HVAC services that see a seasonal surge in demand in the late spring and summer, plumbing services face a more consistent demand throughout the year (Figure 12).
In 2021, top-line revenue for plumbing services grew 25% YOY. In February and March, the higher revenue growth for plumbing services was driven by the repairs of the damage caused by the February storm. Overall, the month that brought the highest revenue was November, with Thanksgiving festivities fueling an uptick in demand for plumbing work around the home.
Figure 12. Weekly Revenue for Plumbing Services, 2021 vs. 2020
GRAPHIC
Notes: This figure is based on weighted average weekly revenue for plumbing services. The trends reflect 3-week moving averages.
Across the U.S., top-line growth in plumbing revenue was relatively consistent. The regions with the highest YOY growth were the South and the Ohio Valley, each with 27% YOY growth. The South was particularly affected by the higher plumbing demand as a result of the February winter storm. The regions with the lowest growth for plumbing services were the West and the Northern Rockies, each with 21% YOY growth.
Figure 13. YOY Growth in Plumbing Revenue, by Region
MAP
c. Electrical
The demand for electrical services is generally consistent throughout the year, similar to the demand for plumbing services (Figure 14).
In 2021, top-line revenue for electrical services grew 38% YOY. The month of November brought in the weeks with the highest average revenue.
Figure 14. Weekly Revenue for Electrical Services, 2021 vs. 2020
GRAPHIC
Notes: This figure is based on weighted average weekly revenue for electrical services. The trends reflect 3-week moving averages.
Regionally, growth for the electrical services was a lot more uneven than the growth for HVAC or plumbing services. The shops in the South experienced a 64% YOY growth in electrical revenue, while the growth in the West was only about 15%. The rolling blackouts during the February storm in Texas and the long-lasting power outages following Hurricane Ida in Louisiana likely contributed to the growth in electrical work in the South.
Figure 15. YOY Growth in Electrical Revenue, by Region
MAP
Note: Region with fewer than 10 electrical shops powered by ServiceTitan since January 2020 is excluded.
6. Outlook for 2022
While no one can predict what happens to the home services sector the coming year, several trends can serve as early indicators of the industry performance.
a. Trends in scheduled jobs suggest a steady demand into the first few months of 2022
The amount of work being scheduled towards the end of last year can shed light on the demand for home services in the first few months of 2022.
Future jobs are all jobs scheduled but not yet finished as of a given date, including jobs that are canceled later. This metric captures the volume of all work currently on the books and waiting to be completed.
As of the end of December 2021, the volume of future jobs for shops on ServiceTitan was about 15% higher than in the prior year, suggesting that the industry is on track for growth.
The trends in new jobs scheduled each month also show consistent positive growth (see Figure 16). Throughout 2021, the YOY monthly growth in scheduled jobs was positive. Since June 2021, that growth has fluctuated around 7%. For a typical shop, the volume of jobs scheduled in December 2021 was about 4% higher than in December of prior year.
Figure 16. Year-over-year Percent Changes in Monthly Scheduled Jobs
GRAPHIC
Overall, the home services companies were logging in a healthy volume of jobs at the end of 2021, suggesting that the industry is poised to start off the new year well.
b. Inflation expectations
With inflation heating up in the second half of 2021, a pressing question for 2022 is how long the period of higher inflation will last.
Some drivers of higher inflation in 2021 are expected to ease in the coming year. The supply chain disruptions may gradually resolve if the global production adjusts to the new normal of the pandemic. The surge in the consumer demand for durable goods, partly fueled by accumulated savings, changing spending patterns and the stimulus packages, is likely to subside. On a monthly basis, the rise in aggregate consumer prices in December relative to November was already lower than in the prior two months一an increase of 0.5%, down from the peak of 0.9% in October. This suggests that the pace of the increase is slowing down.
On the other hand, the new emerging COVID variants could continue to cause disruptions in production and recurring delays with moving goods through the backlogged supply chains. Moreover, the ongoing inflation could increase the overall inflation expectations in the economy, leading to a self-perpetuating cycle of high inflation. The Survey of Consumer Expectations by the Federal Reserve Bank of New York showed that Americans already expect inflation to remain high next year.
Taken all together and based on the information available at the end of 2021, the consensus points to the price growth slowing down sometime later in 2022. In December, the Federal Reserve officials projected inflation in 2022 to be about half of what it was last year, although still slightly above it’s long-run average of 2%. Other government agencies and financial organizations similarly expected inflation to ultimately subside in the coming year.
However, substantial uncertainty around the inflation timeline remains. While the pace of the increase is expected to slow down in 2022, prices will likely keep rising for some time into the new year.
7. Technical Notes
In this report, we analyzed proprietary data on about 2,300 home services shops throughout the U.S. that were on the ServiceTitan platform since at least January 2020.
Unless specified otherwise, outcomes for a typical company reflect the weighted average of ServiceTitan shops’ outcomes.
Aggregate calls are defined as distinct incoming calls to the shops. Unless specified otherwise, revenue includes all revenue invoiced for completed jobs, including any adjustments or discounts.
