Home Service Category Performance
CUSTOMER DEMAND AND REVENUE
At the start of Q1, the Home Service category saw positive growth in new work scheduled, which declined sharply in March and even more significantly in April when the country began implementing stay-at-home directives. New work being scheduled is an early indicator of the health of these businesses, and a proxy for consumer demand.
New work scheduled started to show signs of recovery from May onwards, and hit a record high for the year in June with 17% growth year-over-year. The growth has slowed down slightly in Q3, but continues to look healthy year-over-year, and is back to pre-COVID levels.
Median revenue is following a similar pattern. The spike in June is followed by slower, but healthy growth, from July to September. Revenues haven’t quite reached pre-COVID levels, and this is a dynamic that might linger for a while as the economy overall takes time to recover. The same pattern appears in employment data and other key metrics, as well.
- Home Service category stabilizing after initial COVID-19 volatility
- Overall, YoY growth now exceeding pre-pandemic levels in new work scheduled, and very healthy YoY growth in revenue
- Employment in Home Service has rebounded quicker than most major categories but recovery is slow
New Work Scheduled YoY – Home Service
Median Revenue YoY – Home Service
Although the U.S. unemployment rate has seen a positive trend for the last five years, this all changed as a result of the pandemic, with the biggest impact coming in April 2020. In April, unemployment shot up to a record high of 14.7% largely as a result of COVID-19 related layoffs. Since then, there has been an improvement in this rate related to the re-opening of the economy. By July, the unemployment rate improved to 10.2%, and further to 7.9% by September. 2
To assess employment in the Home Service category, we look at how it compares to Total Nonfarm employment.3 Although the Home Service category spans a vast amount of industries, two North American Industry Classification System (NAICS) categories make up a large portion of the businesses in this category. Services to Buildings and Dwellings refers to most businesses that make up Cleaning and Green businesses such as pressure washing and landscaping, while Specialty Trade Contractors refers to Contracting businesses such as plumbing and HVAC.
Total Nonfarm employment was growing over 1% year-over-year in Q1, and then fell to -13.4% in April. There has been slow improvements every month since then, but employment remains on a decline year-over-year, with Q3 seeing an average of around -7%.
Home Service began 2020 with positive growth on a year-over-year basis in Q1, outpacing the employment growth in Total Nonfarm. However, when stay-at-home orders came into effect towards the end of March and into April, employment fell in Home Service by -12.9% year-over-year. This was just slightly better than the overall effect on Total Nonfarm. Since then, employment in Home Service has recovered quicker than Total Nonfarm, with Q2 seeing rapid recovery from -12.9% in April to -4.9% year-over-year in June 2020. Q3 has continued to improve, though the recovery has slowed down, with September still seeing a -3.9% year-over-year decline in employment. This employment dynamic is still much better than Total Nonfarm.
Employment Rate YoY
HOME SERVICE COMPARED TO OTHER CATEGORIES
Using U.S. Census Bureau data, we see that a lot of major categories experienced similar positive revenue growth at the start of 2020. As the COVID-19 pandemic entered the country and the ensuing policy changes impacted the economy, there was a lot of volatility starting in March. With the exception of Grocery Stores and General Merchandise Stores, Home Service was the most stable category through the peak of the pandemic. It has also recovered very well through June and Q3 compared to others such as Clothing Stores and Restaurants.4
- Home Service was the most stable category aside from Grocery Stores and General Merchandise Stores through COVID-19
- Consumer spending on Home Service has returned to pre-pandemic levels
Revenue Comparison YoY
As we look deeper into Q3 2020, it’s clear that Home Service businesses continued to recover well as states across the country re-opened their economies this past quarter. Grocery stores had seen unprecedented growth early on during the pandemic, but have since normalized considerably. The Automotive category has been very volatile as it declined drastically in March and April, followed by a quick recovery, and now impressive growth in September. Restaurants and Clothing stores have recovered relatively speaking, but still continue to struggle this past quarter.4
Category Comparison YoY (Q3 2020)
Data from the U.S. Bureau of Economic Analysis has been used to evaluate consumer spending in these different categories. Although there’s no specific expenditure type that directly aligns with Home Service spending as a whole; Furnishings, household equipment, and routine household maintenance is a category that can be used as a proxy.
As seen below, all expenditure types were seeing positive growth early in the year. Similar to revenue growth, there was significant volatility in consumer demand in March, as we saw spending increase suddenly in Food and Beverage, which is directly correlated with Grocery store sales. This is indicative of behaviors seen during the lockdown as people stockpiled on items early on, but then this type of spending stabilized in April and May.
On the other hand, there was a sudden decrease in spending on items such as Clothing and footwear and Food services and accommodations, which is directly related to Apparel sales and Restaurants / Hotels. As a lot of these businesses shut down in many states in April, this dynamic is to be expected. Even Healthcare, which is non-discretionary in nature, took a big dip in April as outpatient services such as physicians, dentists, and paramedical services either shut down or saw reduced business. All of these expenditure types saw significant recovery in May and June as the economy started to re-open throughout the country. In July and August, these expenditure types were still improving but at a slower pace. They have started to plateau while still seeing negative growth year-over-year. September data will not be available until the end of October.Furnishings, household equipment and routine household maintenance did see a slowdown in March, followed by a sharper decline in April; but it also recovered quickly in May and June, back towards positive year-over-year growth in consumer spending. This is directly correlated with how the Home Service category has performed over the past two quarters, and is indicative of the non-discretionary nature of work that many home service businesses provide. This positive story has continued this past quarter, with July and August seeing positive growth year-over-year. Consumer spending is now right back to where it was before the pandemic.6
Consumer Spending Comparison YoY
As explained earlier, the NAICS categories of Services to Buildings and Dwellings and Specialty Trade Contractors make up a significant portion of businesses within the Home Service category.
Similar to revenue growth, employment across all categories, with the exception of Food and Beverage Stores, dropped sharply in April. This directly correlates with Grocery Store sales, which have stayed strong throughout the pandemic. On the other hand, Clothing stores were impacted the most as their retail locations were completely shut down in many states. In the case of Restaurants, many of them continued to operate with fewer employees as they saw an increase in their take out sales while in-person dining was shut down. All of these categories that were hit hard in April saw great recovery in May and June, followed by a relatively flat quarter from July to September.
Home Service has been more resilient in comparison to most other categories as many services provided by these businesses tend to be non-discretionary, such as plumbing or pest control. There’s also a significant amount of work that can be done externally in industries such as lawn care and landscaping. After a moderate decline in employment in April, there has been a significant improvement in May and June as the economy has started to re-open across the country. Similar to other categories, last quarter has been relatively flat for Home Service as well. As the economy slowly recovers and businesses figure out their new normal, employment is likely to see slow recovery as most businesses will try to keep their expenses low in these uncertain times. 3
Employment Comparison YoY
TOUCHLESS PAYMENTS & CONSUMER INTERACTION
Based on a report from Bain & Company, the adoption of digital payments has accelerated significantly due to the COVID-19 pandemic. Specifically, the estimated percentage of transaction values done digitally in 2025 is now expected to be 67% rather than the previous estimate of 57%. 5 Although the Home Service category has been slower to adopt this trend compared to others, the COVID-19 pandemic and the social distancing rules that come with it have provided some tailwinds.
The data shows a rapid change in the market with a huge increase in payments being collected through e-payments rather than other payment methods such as cheque, cash or ACH. From January to May 2020, the payment share for e-payments grew from 32% to 37%, a lot of which can be attributed to social distancing measures that came into effect earlier this year. The increase has sustained over the following months and service providers are increasingly offering e-payment options to their customers. Based on the results we’ve seen so far, we believe the trend will continue throughout the duration of Q4 and into 2021.
Each business within Home Service has its own unique dynamics related to e-payment usage. Some businesses like the immediate liquidity of cash, and others prefer to take cheques for a large job so they don’t have to pay a large amount in credit card transaction fees. The Cleaning segment has seen great traction with e-payments historically, and continues to grow well through 2020. The Green and Contracting segments have historically been a bit slow to adopt e-payments as they can often have large invoice sizes, however, they both saw a large increase in e-payment adoption through the pandemic.
E-payments as % of Total Payments Collected
Customer communication is an integral part of any Home Service business’ success as every part of their workflow; quoting, schedule and doing work, invoicing and getting paid; is made up of back-and-forth communication between the business and its customers.
As the economy slowed down during the pandemic, Home Service businesses in the Cleaning and Contracting segments saw no growth in visits to customer sites year-over-year in April and May. However, even during that time, there was over 50% growth year-over-year in visit reminders being sent by those same businesses, as customer communication was more important than ever.
This communication trend has remained strong throughout 2020, and continues to look very positive in Q3. In September, all three segments within Home Service saw around 40% growth year-over-year in customer visits, while seeing over 150% growth year-over-year in visit reminders.
YoY Visits & Visit Reminders
YoY Growth in Visits
YoY Growth in Visit Reminders
Home Service Segment Breakdown
Since the Home Service category consists of a large range of businesses, it’s helpful to segment the data to better understand trends within different sections of this category. We split the data into three segments: Cleaning, Contracting, and Green businesses.
New Work Scheduled YoY – Cleaning
Median Revenue YoY – Cleaning
The Cleaning segment has a lot of residential and commercial cleaning businesses with a high proportion of contract jobs that are regular, recurring, multi-month contracts. These contracts provide a high level of stability in revenue and visibility into the future. While some businesses saw the frequency of work increase within their contracts as sanitization became more important than ever, many contracts have also been cancelled as many commercial properties shut down and private residents started to do this work themselves. As a result, contract jobs in Residential Cleaning saw a major decline from February onwards, and hit a decline of -55% year-over-year in April. This work recovered well in Q2, with growth in Q3 slowing down but still remaining positive compared to last year.
One-off jobs have been trending positively in 2019, and started 2020 with positive growth as well, with growth outpacing contract jobs during that time. Similar to contract jobs though, one-off jobs declined quickly in March and April, and reached a similar floor in terms of year-over-year decline. There was a recovery in one-off jobs in May and June, though this recovery has been slower than contract jobs. In Q3, this recovery continued with one-off jobs finally seeing positive year-over-year growth of 3.3% in September.
YoY – One-off Jobs vs. Contract Jobs – Residential Cleaning (2020)
New Work Scheduled YoY – Contracting
Median Revenue YoY – Contracting
The Contracting segment is dominated by one-off jobs of typically higher invoice values. The nature of the line items on the invoices gives us some insight into the type of work being performed by these service providers. The types of work have been categorized and visualized below. 7
All work types show similar trends from the start of the year; showing modest growth in Q1, a sharp decline in Q2, and a recovery in Q3. Warranty services stand out as one work type which didn’t decline quite as much as the others, as this is work these businesses have previously committed to doing. It is the least volatile.
On the other hand, the inspection/consultation work type is the most volatile as it relates to new projects being started. In the middle of the pandemic, this declined significantly to -19% year-over-year in April. Since then, it has been consistently improving, especially in Q3, and shows a strong path of recovery after growing 5.7% year-over-year in September.
Labor/material and regular repair/maintenance work moved in sync and are showing a modest trend towards recovery. However, they have not been able to get back to positive growth year-over-year, or pre-COVID levels.
YoY – Type of Work Performed – Contracting
New Work Scheduled YoY – Green
Median Revenue YoY – Green
Similar to the Cleaning segment, many Green businesses have a high proportion of contract jobs that are regular, recurring, multi-month contracts. Unlike Residential Cleaning, Lawn Care and Lawn Maintenance businesses saw very little impact to the performance of one-off jobs. There was a slight decline in April, but otherwise one-off jobs have seen positive year-over-year growth throughout 2020.
However, contract jobs have been significantly impacted. After seeing some strong positive growth in Q1, they declined to -18.5% year-over-year in April, and saw slow recovery in May and June. The recovery has been much faster in Q3, with flat growth in August, and September actually seeing nearly 20% growth year-over-year.
YOY – One-off Jobs vs. Contract Jobs – Lawn Care and Lawn Maintenance (2020)
2020 has been a tumultuous year for most major categories—Home Service included. Record declines in new work scheduled and revenues, particularly in April, were followed by record high growth in June. Although many indicators suggest that the Home Service category has made nearly a complete recovery, the future is heavily tied to the lingering COVID-19 pandemic.
As of today, it’s clear that Home Service as a category is incredibly resilient as most businesses managed to survive through unprecedented economic hardship. Analyzing measures such as consumer demand, employment, and revenues illustrates a remarkable recovery across all segments.
Although there has been a positive economic turnaround for all categories towards the end of Q2 and through Q3, it’s difficult to predict where we are going with the recent rise in COVID-19 cases throughout the country. While consumer spending and employment have recovered from the massive declines they saw in early Q2, they seem to be stagnating a bit below their pre-COVID growth levels, suggesting that both consumers and businesses are remaining cautious.
Data Sources & Methodology
- The small business data provided is from the U.S. Small Business Administration Office of Advocacy. The specific metrics shared are from a Research Summary published by the organization as well as an annual FAQ they provide.
- Unemployment rates are extracted from the U.S. Bureau of Labor Statistics’s new release.
- The employment growth metrics are provided from FRED Economic Data, who sourced their data from the U.S. Bureau of Labor Statistics. We combined employment statistics for’ Services to Buildings and Dwellings’ under “Professional and Business Services” with Specialty Trade Contractors under “Construction” to create an equivalent for the Home Service category.
- All category data outside of Home Service comes from the U.S. Census Bureau’s advance monthly retail trade report. The year-over-year change in Median Revenue has been used as a proxy for the Home Service category data point, which is the Home Service equivalent to ‘same-store sales growth’. As a result, we believe this to be a conservative estimate for the category as a whole because it doesn’t include new business starts, while the U.S. Census Bureau’s trade report includes all sales from new business starts as well as same-store sales.
- Data on projected percentage of digital payments in 2025 is from the report The Covid-19 Tipping Point for Digital Payments, published by Bain & Company on April 29, 2020
- The consumer spending data is sourced from the U.S. Bureau of Economic Analysis. The year-over-year change in consumer spending is calculated from personal consumption expenditure data published on the website.
- *Keywords for grouping line items:
- Labor/material: line items contain ‘labor’ or ‘material’
- Work/repair/maintenance: line items contain ‘repair’, ‘maintenance’, ‘treatment’, ‘plumb’, ‘wall’, ‘ceiling’, ‘carpet’, or ‘window’
- Warranty services: line items contain ‘warranty’ or ‘guarantee’
- Others: everything else