How Building Service Contractors Can Find the ‘Paths to Profit’

Revenue growth continued for most building service contractors (BSCs) in 2023, but expansion of profit margins proved challenging. That was one of the main findings of the recently published third annual Commercial Excellence Survey conducted by Simon-Kucher & Partners, a global strategy consulting firm.

In our industry, the lever of price has proven to be most impactful when it comes to profit dollars and a company’s bottom line. Mastering price leadership is a multifaceted endeavor. It requires strategic vision, continuous engagement and a commitment to delivering value.

Dave Clement, managing partner of Simon-Kucher’s New York office, comments, “BSCs are in an industry where the cost pressures are higher than most. Digging deeper, we found that price increases were the core way to overcome those challenges.”

Simon-Kucher’s poll asked whether respondents increased prices in the past year. One hundred percent said “yes.” Furthermore, almost nine of 10 said they are planning price hikes in the current year. “And not just one,” says Tom McClure, a director in Simon-Kucher’s Chicago office. “They’re planning multiple increases, knowing inflation is going to remain persistent and protecting margins is imperative to their business’s success.”

Pricing is not a silver bullet, of course. It’s not going to solve every problem. Although general business outlook among BSCs is positive, profit threats have lingered throughout 2024’s first half and are forecasted to continue. The biggest threat, though? Rising labor costs, cited by 74% of respondents.

As such inflationary pressures persist, BSCs are balancing customer acquisition and retention with strategic price increases. To limit and even avoid angering their customer base, BSCs’ conversations with customers in this regard are increasingly focusing on value.

McClure reasons, “Value is what your customer or client gets. Price is what they pay. While those two things seem similar, they are actually quite different. You need to focus the conversations around the value they are getting. As long as they perceive the value is higher than the price they are willing to pay, that is a surplus for them and they’re going to take that any day of the week.”

Clement and McClure discussed the results of their firm’s survey in an April 10 webinar attended by BSCAI members titled, “Paths to Profits.” Their state of the industry presentation showed that just over 70% of BSC companies reported growing their top-line revenue in the past year. “That is a solid number that is comparable to some of the best industries we see,” Clement says.

BSC companies tagged as “the best” excelled in several key areas, ranging from setting higher price increase targets in order to anchor and account for leakage, to embracing digital technologies that increase efficiency and better reach customers. As a group, they are also confident of their brand strength and the quality of the services they provide, touting them as better than the general average when pitching to prospective customers and angling to retain existing clients.

All of this ultimately calls to mind a fairly well-known quote from billionaire investor Warren Buffet of Berkshire Hathaway: “If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business.” Based on those words, the veteran Buffet is a prime example of how much success BSCs can achieve by staying the course in trying economic times.

“Fifty percent of our survey respondents said they expect to improve profit margins in 2024,” Clement says. “You, as BSC leaders, need to be involved. Year after year, our global pricing surveys show that when CXOs, CEOs, COOs and so forth are involved in pricing . . . there are upwards of 20% to 30% greater profit performance than those that are not. It really should be a board-level topic. And, for most companies, it is