Would you rather have one customer pay you $200 once or 50 customers pay you $140 each? The answer isn’t as simple as it seems—because when it comes to running a field service business, volume and margin can pull your strategy in different directions.
On one hand, high-margin residential jobs offer quick cash and solid profits, but they’re few and far between. On the other, high-volume commercial clients provide stability and repeat work but often come with tighter margins and slower payments. So, where’s the sweet spot for your business?
In this blog, we’ll break down the volume vs. margin dilemma, helping you weigh the pros and cons of residential vs. commercial clients. You’ll learn how to manage costs, optimize pricing strategies, and identify opportunities to maximize long-term value—all while keeping cash flow in check. Let’s dive in!
What is the Contribution Margin in Field Service?
Before we dive into the comparison, let’s clarify what we mean when we talk about what you “make” on each job. While it’s easy to think of this as the top line, the revenue amount your customer pays—that’s not quite it. What really matters is the contribution margin.
If you’re unfamiliar with this concept or want a deeper dive into how variable costs in field service are derived, check out our post on Field Service Fixed vs Variable Costs.
To put it simply, the contribution margin is the revenue billed to the customer minus the variable costs incurred to complete the job. It’s what’s left over to help cover your fixed costs, such as labor burden, materials, equipment, vehicles, and subcontractors.
In other words, it’s the revenue that contributes to keeping your business running smoothly.
It’s tough to compare apples to apples in this scenario because there’s usually a trade-off between high-volume work and low-volume work in field service. Usually, that trade-off is in contribution margin. It’s also the type of customer.
Low volume and higher-margin customers are usually residential customers, and high-volume and lower-margin customers are usually commercial, municipal, or property management customers.
Building a Sustainable Business with High-Volume, Low-Margin Clients
A typical customer that would have a high volume and low margin would be a commercial property or property management company. The trade-off they require for sending a steady stream of work orders is low margins.
If you can manage your job costs, accurately compile them, allocate them to the appropriate job, and do this in a timely manner you can create a pricing strategy that is systematic, profitable, and sustainable. The strategy would typically be based on accurately predicting costs and applying a cost margin to different segments to project the price that the customer would pay time and time again.
In the example above, the volume vs margin is usually not that extreme. A more realistic example of the contrast between High Volume / Low Margin vs. Low Volume / High Margin is something like this:
Customer Type Job Freq. Margin Cost Rev Annual Profit
Property Management – weekly (52) 40% 100 140 $2,080
Residential Customer – annual (1x) 100% 100 200 $100
This example might be somewhat exaggerated, but it is to show the point that repeat business develops value for your company, not just infrequent, higher-margin jobs.
The key here, though, is that in order to develop and follow a disciplined pricing strategy requires you to accurately predict costs for estimates and know actual costs as they are incurred.
Swivl field service software was developed to drive this type of cost insight. By segmenting variable job costs and assigning appropriate markup rates, you can accurately project required revenues.
Timely and accurate cost allocation will verify adherence to the successful customer pricing strategy that drives value with repeat business.
Check out the post on Customer Lifetime Value or marginal Customer Lifetime Value to learn more about how to understand customer value. One of the main factors in determining the value of one type of customer and another is the risk of that customer ceasing to use your services.
Barring any relationship killer event, studies would show that the risk of a property management customer ending their relationship with your company forever is much lower than that of a residential customer so the duration of the relationship tends to last much longer.
In addition to the financial benefits, repeat customers also provide a powerful form of brand loyalty. By consistently delivering high-quality service, businesses can create a sense of trust and reliability with their customers. This can lead to increased word-of-mouth referrals and positive reviews, which can in turn, attract new customers to the business.
Commercial customers, in particular, can be powerful advocates for a business, as they often have networks of other business owners and decision-makers who may be in need of similar services.
Another benefit of repeat customers is the increased efficiency in service delivery. When a business has a solid base of repeat customers, it can better anticipate their needs and tailor its service offerings accordingly.
This can lead to faster service delivery times, more accurate estimates and proposals, and improved resource allocation. By streamlining its operations in this way, a business can not only improve its bottom line but also deliver better service to all of its customers, regardless of whether they are repeat customers or new clients.
Finally, repeat customers can help businesses weather economic downturns or other disruptions. During difficult times, businesses may see a decline in new customers as potential clients tighten their budgets or postpone projects.
However, businesses with a strong base of repeat customers can rely on these customers to continue providing a steady stream of revenue. This certainly helped our business weather multiple storms to emerge stronger on the other side every time.
The Art of Acquiring and Retaining High-Value Residential Clients
A typical customer that would be a low volume, high margin customer is the residential customer. You typically don’t see these customers often, but you want them to call you back in a year or so.
Typically, this customer is acquired with marketing dollars, even to the point that some high-profile residential outfits spend 50% of their revenues on marketing! You have to spend a lot to get these customers.
This type of job is most typically the residential customer. They may call once or twice per year and may be susceptible to upsells and higher prices for typical jobs. The fact is that marketing expenses to acquire these residential customers are usually higher, and the duration of these customers is usually lower.
There is one stand-out benefit for these customers – faster cash flow, as they usually pay deposits before the work commences and pay the balance once the job is complete.
How to Maximizing the Value of Repeat Business in Field Service
The benefits of repeat customers, especially commercial customers, in the field service industry cannot be overstated. By generating more revenue, building brand loyalty, improving service delivery, and providing stability during difficult times, repeat customers can help businesses thrive and grow.
For businesses looking to build long-term success in this industry, cultivating repeat customers should be a top priority. However, it is important to consider the potential trade-offs that come with the volume of work orders from commercial customers.
The primary downside is cash flow. Most property management companies pay their invoices in 30 days or more. My experience was that even with decent collection efforts, the average property management accounts receivables lasted about 50 days. Is it worth it? Without a plan and some cash to fund your receivables, the answer is no.
With a plan and some cash to fund your receivables, then very much, yes, it is worth it. Some people are just afraid of borrowing money but it’s just a question of math. Simply put, the value that high volume work order business like property management creates dwarfs the value that the collection difference detracts from that value. But the cash FLOW needs to be covered.
There are a couple of factors at play, including the opportunity cost of capital required to finance the accounts receivable (AR) and the risk of delayed or even non-payment. Looking at the table below, you can see some different scenarios, including the example above with a residential job with no AR to consider but only once a month, as well as a coupl ofe other scenarios where we’ll need to finance the cost of the jobs at different collection periods and collection effort costs.
| Customer Type | ||||
| Risk Level | No Risk | Low Risk | Medium Risk | Higher Risk |
| Payment Terms / Expectations | upon completion | net 30 / pays in 30 | net 30 / pays in 60 | net 30 / pays in 120 |
| Frequency of Work | monthly (1/month) | weekly (4.3/week) | weekly (4.3/week) | weekly (4.3/week) |
| Revenue / job | $200 | $140 | $140 | $140 |
| Costs / job | $100 | $100 | $100 | $100 |
| stipulation* | cut off after 90 days | |||
| Cost / job | $100 | $100 | $100 | $100 |
| Your annual cost of money | 10% | 10% | 10% | 10% |
| Quarterly Revenue | ||||
| max Accounts Receivable | $0 | $602 | $1,204 | $1,806 |
| Total Revenue / month | $200 | $602 | $602 | $602 |
| Cost of AR (cost/job x # of jobs/month) | $100 | $430 | $860 | $1,290 |
| Total Quarterly Revenue | $600 | $1,806.00 | $1,806.00 | $1,806.00 |
| Total Quarterly Cost | $300 | $1,290.00 | $1,290.00 | $1,290.00 |
| Cost of AR financing* | $0 | $3.58 | $10.75 | $35.83 |
| Collections labor cost | $0 | $0 | $5 | $30 |
| Total Quarterly Contribution Margin | $300 | $512.42 | $500.25 | $450.17 |
In the table above, we’re even increasing the frequency of the residential job to monthly from annually just to prove a point. Even if we exaggerate the frequency of the customer work orders to monthly to accommodate for any realistic variance in either the residential or commercial frequency or degree of price strategy fluctuations, this table demonstrates how frequency and risk, and cost of financing factor into the value of each customer.
The Impact of Technology on Field Service Business Success
Commercial customers are by far the most valuable type of customer that you can have IF you know how to handle it. Swivl embeds AR tools that most accounting software does not, including automated emails with statements and past due invoice copies as well as lien reminders, and by doing so, it lowers your collection cost. It accelerates the payment process by putting payment links on every correspondence, easing the barriers to actually making the payments.
Swivl’s embedded finance, after using it for a few months, can open up new lines of credit for you to enable AR financing, for example, lowering the hurdles required to handle repeat commercial or property management business. You’ll have to gauge the risk and know what your borrowing rate is, but as long as you have cash or the access to borrow cash and a plan to handle it, high volume – low margin creates much more value than low volume – high margin customers.
Final Thoughts
How do we get those repeat customers? You need a good pricing strategy, and in order to develop that, you need to know your costs intimately! Swivl’s focus on cost allocation provides those insights. Take a look at some of the other posts about fixed vs. variable costs, breakeven analysis, and how Swivl Transformed my Business.
