If you're selling a residential service business, make sure it's actually residential.

If you're planning to sell your residential HVAC or plumbing company, make sure it's 100% residential. Or at least under 10%.

The thresholds buyers care about.

The bands matter and they're tighter than most owners think:

• 0% → 5% commercial: No discount. Pure residential.
• 5% → 15% commercial: PE starts to apply a discount. Diligence focuses on the commercial revenue specifically — what kind, how concentrated, what margins.
• 15% → 25%+ commercial: PE heavily discounts. Above ~20%, most PE buyers don't submit at all — the business gets re-categorized as "mixed" and falls out of pure-play residential platforms.

Why the gap is so wide.

Residential and commercial service look similar from the outside, but the unit economics are radically different. To generate $1M of EBITDA, a residential business typically delivers 3,000+ service calls, 2,000+ maintenance visits, and 300+ install jobs — spread across thousands of customers. The risk profile is diversified, the recurring revenue is meaningful, and the customer acquisition flywheel is well-understood.

To generate the same $1M of EBITDA, a commercial business needs only a fraction of the labor — but the work is concentrated in a few large construction or service contracts. Lower average margins. Higher customer concentration. Much more lumpy revenue. Often heavy working capital requirements.

Buyers price those two profiles differently because they are different — and the same $1M of EBITDA on a residential P&L is genuinely worth roughly twice what it is on a commercial P&L.

The implication.

Commercial work isn't bad work. There are excellent commercial-only platforms generating great returns. But it doesn't belong inside a residential business if your goal is to sell to a residential PE buyer — and most residential PE buyers won't even look at a business with 20%+ commercial mix.

If you're 12–24 months from a sale and you're carrying meaningful commercial exposure inside a residential platform, the highest-value strategic move you can make right now is probably to spin out, divest, or wind down the commercial book.

Pick a lane and go all in.