A New Survey Reveals Service Industry Trends and the State of Small Service Businesses

A survey of small service businesses in the United States and Canada recently released by EverCommerce Inc. reveals that service SMBs have rebounded from the turbulence of the global pandemic and are experiencing increases in demand.

Service businesses are the companies that provide skilled labor or expertise (instead of tangible products) and represent a massive number of businesses and jobs, generating billions in revenue annually in the United States and Canada. In America alone, service businesses are responsible for 77.6% of the gross domestic product (GDP), and nearly half of that is generated by small and medium-sized businesses (SMBs).

Matthew Feierstein, president of EverCommerce, says while service businesses are a “cornerstone of the economy,” they were hard hit by the pandemic. However, he adds, “They’re incredibly resilient, especially during periods of economic turbulence. And they face unique challenges when it comes to shifting consumer expectations around technology, payments, and cost.”

State of service businesses

The 2023 State of the Service Economy report primarily surveyed SMB leaders in the home improvement, professional services, and healthcare fields. Key findings from the report:

Service SMBs are resilient

Most services businesses have recovered from the decreases in consumer spending and disruption in the labor markets with 69% of businesses reporting “moderate to healthy recoveries” from Covid-related anomalies.

Despite challenging economic conditions, the services industry is healthy and growing. Across the field services, home improvement, and healthcare verticals, the average increase in demand from 2022 was 61%. Field services businesses experienced the largest increase at 83%.

Only 32% of service merchants tightened inventory control, and just 30% operated with fewer employees in 2023. One caveat, these numbers are higher than those for larger service merchants.

Tech shortfalls

An area that small service businesses need to improve on is using technology. Larger service businesses invested more heavily in tech that automates their business functions. And while most of the businesses report being satisfied with their current business software and level of customization, the survey showed the companies feel “limited” in their ability to find new business tools.

The service businesses were most interested in finding software to help them in these areas of business management:

• Operations management: Accounting and appointment scheduling
• Analytics and reporting: Customer and historical sales analytics
• Payroll, employee scheduling, and time clock management

Payment solutions

Another problem area for the small service businesses was in the payments area. While 57% wanted to increase the level of integration between their payment solutions and their current software, only 26% of the merchants fully integrated payment solutions into their current software.

• Payments: Currently, service merchants use checks, ACH/EFT transfers, and credit/debit cards as their primary payment solutions. Cash is more popular among smaller merchants, while financing options, digital wallets, and HSAs are more commonly used by larger merchants.

• Invoicing: Merchants in service verticals rely on invoicing processes to retrieve and track payment for their services. While 53% of merchants use a POS system of some kind, and 47% benefit from online commerce, most service merchants (66%) collect payment via invoicing. However, the business owners reported having significant challenges with facilitating timely and full payments, citing economic pressures and inflation. To help, they wanted features like embedded invoices and detailed and comprehensive invoice-tracking software.

• Payment Improvements: Ranking the improvements that would have the greatest impact on their businesses, service merchants said seamless integration of payments into their existing business management software would help them the most. Achieving faster processing times ranked a close second, with the business owners adding that often-delayed payments resulted in cash flow issues. With 2023’s higher inflation and economic uncertainty, being able to surcharge to recoup credit card processing fees ranked third.

What’s next for the services industry?

Despite the challenging economy, Feierstein says, “When we look deeper at economic spending, we see that [U.S. and Canadian] consumers continue to spend on items outside of what we consider essential, and they are looking to do so using digital payment methods as long as the transaction size remains reasonable.”

The State of the Service Economy report shows that the demand for digital wallets and contactless payment options grew beyond the demand for Buy Now, Pay Later (BNPL) and QR code-based payment options, though these payment methods will likely be more popular as payment trends in the services industry continue to evolve.

As service merchants look ahead to 2024, they say they’ll likely hire more staff, explore and switch business software solutions, seek additional capital, identify new supply chain options, and/or develop a website this year.

Very few service businesses expect to lay off staff or close their doors, which Feierstein says indicates a strong future for the services industry. The service merchants earning more than $500,000 annually were more likely than their smaller counterparts to plan to hire, explore new business software, and identify new supply chain options. The smallest merchants were more likely to continue operating with the same staff, software, and supply chain processes.

According to the report, as the service SMB sector continues to evolve, businesses that focus on offering diverse payment methods will generate increased purchase volume, transactions, and higher customer satisfaction.