How Big Can Your Home Service Business Get?
Two of the most common questions small business owners ask are: “How big can my business get?” and “How big do I want it to be?” This blog will address the first question by exploring key concepts and strategies to understand and expand your Business Growth Potential.
Understanding Market Potential
To gauge how big your business can get, you need to understand these market terms:
Total Addressable Market (TAM)
The total demand for your product or service in a market. It represents the maximum revenue opportunity if you achieve 100% market share.
Serviceable Available Market (SAM)
The portion of TAM targeted by your products or services which is within your geographical reach.
Serviceable Obtainable Market (SOM)
The segment of SAM that you can realistically capture, considering your competition and capacity.
For simplicity, we often use “Market Cap” to describe the potential size of a business. It’s a commonly used term that helps in explaining the business growth potential of your company.
Strategies to Increase Your Sales
As a home service business owner, you can expand your business by implementing these strategies:
- Raise Your Prices
Adjusting your pricing can boost your revenue, especially if your service quality supports the increase.
- Add Services to Your Portfolio
Expand your service offerings to attract new customers and retain existing ones by meeting more of their needs.
- Increase Your Service Area
Expanding your geographical reach allows you to tap into new markets.
- Increase Service Frequency
Encourage your clients to use your services more frequently.
- Mergers and Acquisitions
Acquire or merge with other businesses to increase your market share and capabilities.
Lessons from the Field
During my 10+ years in the home service industry, particularly in franchising, I learned valuable lessons about market competition and opportunity capture. In 2012, we sold a franchise in Raleigh, North Carolina, which was highly competitive with over a hundred competitors. Initially, I was concerned, but our founder reassured me, saying, “It costs less to capture demand than to create demand.” This means entering a market with existing demand is often easier and more profitable.
Calculating Your Market Cap
Your business has a market cap based on several parameters. Here’s how to calculate it:
- Total Population: Assess the number of people or households in your service area.
- Demographic Criteria: Identify the households that meet your target demographics, such as average income.
- Target Market Percentage: Calculate the percentage of the total market that could be your potential clients.
- Desired Market Share: Estimate the market share you aim to capture.
- Average Ticket Price: Determine your average sale price and service frequency.
- Lifetime Customer Value: Calculate the customer value over their lifetime with your business.
Confused? Download the worksheet here:
Franchisors typically determine territory viability by examining population and qualified households. For example, if there are 100,000 households and 20,000 meet the criteria, you have a 20% viability rate.
Real-World Example: Home Automation Services
Home automation services have grown in popularity, increasing the market cap for smart home companies each year. As more homeowners adopt smart home technology, demand for these services grows, illustrating how market potential evolves with consumer trends.
Ready to Create Your Own Home Service Empire?
To explore your business’s growth potential, download our free resource here:
For more insights on scaling your business, check out our YouTube video.
Unlock your business’s growth potential today. Download our free resource and start exploring your market cap
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