I'm confused. First off, Larger reModels have a higher gross margin, they just have lower collection. The GP is high but Cashflow is low. Larger Modelling business makes sense if they can sustain cash deficits. What sense does assuming Larger remodel business as low margin business make? It has practically same selling and support costs, thus higher operating leverage. Although I agree with the scalability point and that is fine.
I agree, the Small remodels make more sense from a branding/competitive position aspect as the client has better win rate tho, the Large one makes more sense if the client wants to focus solely on revenue maximization.
1. The client is more competitive i.e. wins more projects, in the small remodel market. It is possibly because small remodels are more suited for marketplace transactions. Large remodel transactions are potentially done offline, 1-1 with the contractors and not via marketplace 2. Small remodel business is easier to scale, time to revenue is low and client has higher collection efficiency 3. Large remodel has a different business profile - Requires different success factors (quality assurance, service and contractor reputation), as a marketplace, it is difficult to guarantee these - For large remodel (large, complex transactions), a lead-based revenue model is more suitable. It is difficult for marketplaces to stay in the middle for the duration of the project and command 5% fees because customers will sideline the marketplace and connect with contractors 1-1. - Collection efficiency is lower, as client needs to wait for project closure. On top of that, extracting timely payments from large contractors is difficult.
