How Scaled Facilities Services Providers Can Win Share in a Competitive Market

Winning commercial facility service providers will look less like traditional roll-ups chasing size and more like digitally adept, commercially disciplined partners that align national scale with local responsiveness. 

While many providers and investors assume bigger equals better, L.E.K. Consulting’s most recent survey of commercial facility decision-makers challenges this and several other long-held beliefs amid a shifting facility services landscape. Account management quality, proactive communication and targeted digital investments are equally determinative of customer acquisition and retention success — if not more of a factor than scale alone.

For investors in those providers, that means looking beyond company size to assess the strength of their account management and client retention as well as their investment in digital tooling and automation. Ensuring commercial discipline when it comes to pricing, bundling and renewals — and of course, the ability to manage any impacts from broader macro uncertainty — is key.

Five takeaways from our survey

The number of vendors used in the facilities management space varies by end market, with pest control being the most concentrated (37% of facilities managers use one provider) and painting the least (only 8% use one provider). But facilities managers typically use multiple vendors (see Figure 1). 

In order to differentiate themselves from the competition, service providers (and, by extension, their investors) need to have a thorough understanding of the facilities manager purchasing space. With that in mind, our primary research uncovered the following:

1. Most providers are discovered digitally. 
   Online search/review websites are the most common discovery method as they allow decision-makers to easily compare, aggregate and assess provider options while avoiding back-and-forth communication with prospective providers. Indeed, online searches are the primary discovery method across end markets. That said, healthcare, multifamily and education also rely significantly on recommendations from original equipment manufacturers and other business partners, indicating that providers may need to adapt their customer acquisition approaches to specific end markets.
   
   Meanwhile, as generative searches (e.g., ChatGPT, Google AI) increase — and with them, the number of AI-generated summaries — the resulting decline in organic individual website visits means commercial service providers will need to ensure their marketing algorithms are set up to succeed with AI.
2. Quality and professionalism are a potential source of differentiation. 
   While service quality is consistently cited as the most important criteria across building/equipment maintenance and replacement services, price certifications (e.g., manufacturer certifications), and professionalism are key differentiators, particularly for critical regulatory and safety-driven services such as security access and control. Quality, price and professionalism are also highly valued when it comes to routine maintenance services like janitorial/cleaning and landscaping, as consistency of these services — or lack thereof — is more apparent given their regular nature.
3. Sales teams need to be even more proactive. 
   Of the approximately 37% of survey respondents who said they’d switched providers within the past year, some cited delivery/quality issues or customer personnel changes, but others said the switch was due to a lack of proactive commercial excellence. It seems that many facilities managers have accepted a somewhat passive level of sales support, which creates an opportunity for those providers that pursue it well, while making those that don’t vulnerable to their more proactive, disciplined competitors.
   
   Proactive communication was the only metric that scored below average satisfaction, which suggests providers that stay ahead of customer concerns will have an edge when their contracts come up for renewal. Providers that successfully adopt digital/data-driven personalization are likely to be at an advantage as well.
4. Renewal rates vary depending on the category. 
   High automatic renewal rates are common for services that feature ongoing vs. one-time project work (see Figure 2).

5. Bundling offers simplicity and cost-efficiency. 
   In a bid to save money and simplify processes, larger enterprises are increasingly seeking bundled contracts and centralized purchasing from service providers, sometimes all from a single provider (which can create its own set of challenges). 

Scaled providers can benefit from a shift toward more centralized purchasing

For all but the smallest organizations (i.e., fewer than six locations), speed, consistency and national reach are crucial as the company continues to shift toward centralized purchasing. That’s why going forward, scale is expected to become an increasingly important differentiator when it comes to choosing a service provider.

Unsurprisingly, it’s all relative. Larger organizations tend to be more interested in national scale as it offers them greater potential for realizing benefits across a larger number of locations. Smaller organizations, on the other hand, have less upside — and less incentive — to standardize across their network, and instead tend to be more interconnected among their individual locations relative to their larger peers.

So when considering salesforce structure, service providers are likely best positioned to win with national/key account managers focused on large customers. The more localized the customer, the more they favor localized providers, ideally those with local/regional sales representatives who prioritize customers that have five or fewer locations. Of course, there are exceptions to these broad rules of thumb, but these guideposts can provide a starting point of focus.

Digital has become a core retainment and growth tool

Providers that make tools such as online work order management, digital inspection reports and automated billing part of their core service model are better positioned not just to win clients, but also to retain them.

Digital offerings for work order management and billing/payments, as well as inspection and reporting tools such as apps and photo-based inspection capabilities, are already common and are highly valued by customers. To remain competitive going forward, service providers need to continue investing in these features.

Client portals, digital communication and scheduling tools are less frequently offered today but are of interest to commercial building managers. As such, these options present a way for service providers to differentiate themselves.

With trust comes cross-selling potential

Facilities managers are now willing to consider multiple services from providers who are able to reliably deliver said services — so long as they have shown they can deliver. Indeed, the trust-in-delivery factor seems more important than the level of expertise.

Our previous research on residential cross-selling opportunities, Bundling Opportunities in Residential Services, showed that in addition to trust, convenience and expertise were also factors. This suggests that while there is a cross-selling opportunity in residential services, the opportunity is arguably even greater in facilities services.

Challenges remain

As our survey makes clear, scale offers providers a host of advantages. But they’re still faced with a number of challenges.

Sales reps are reactive. 
Facilities managers report being generally happy with their sales reps, but those reps tend to be reactive, which leaves the door open for a commercial excellence-driven competitor to succeed.

Digital differentiation is increasingly difficult. 
Differentiating through digital is becoming harder now that basic digital features have already been widely adopted. But other, less developed digital offerings such as client portals and real-time scheduling aren’t as frequently offered by providers despite being viewed as high value.

Broader business risks persist. 
Rapid price changes are always possible due to tariffs and immigration/labor shortages, for example. Geopolitical uncertainties aside, escalators are a recommended best practice. Many providers, though by no means all of them or for all of their contracts, already have these in place (see Figure 3).

Price escalators are frequently included in commercial building services contracts of two or more years, with more than 95% of facilities managers indicating that at least some of their contracts include them. Market participants note that price escalators have become increasingly commonplace, especially after COVID-19-driven disruptions brought unforeseen increases to the cost of labor, equipment, etc. Shorter-term contracts generally do not include price escalators, which can leave providers vulnerable in periods of market volatility/high inflation. Tariff and labor shortage risk makes those without price escalators potentially vulnerable to margin compression.

Client turnover is disruptive. 
Sometimes new staff means some existing client relationships will end. Broader account management (i.e., not being dependent on a single relationship, although that can be unavoidable) and ensuring a relationship is quickly established with a new provider can mitigate the risk.

Thoughtful scale wins

While scale that supports consistent execution of cross-regional contracts provides a necessary platform, it is far from enough. To maximize their return on investment, investors need to assess a service provider’s ability to:

• Manage accounts and retain clients
• Invest in digital tooling and automation
• Consistently execute cross-regional contracts
• Exhibit discipline in their pricing, bundling and renewals

Moreover, investors need to ensure that national reach is combined with proactive service, relationship-based selling and digital fluency. After all, the point of scaling facilities services isn’t to be a bigger provider, but a better one.

For more information, please contact us.

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