The breakeven number we need doesn't exist; does this mean my business model is flawed?

At school, we learned about the economies that could be achieved in a service business when there is density in terms of customers. When customers are closer together it is cheaper to serve them as the operating/logistics cost are less. One professor said the ideal would be a really tall building where you had all your customers. We discussed clusters.

As part of our support for guesthouses we provide facilities management including repairs, laundry, and food delivery. We started with 12 guesthouses, all within a few kilometers of one another. We could offer them rapid response at a realistic cost. As we added more guesthouses, distances grew until we were working in a 6 km radius. This was in a dense urban area where 6 km is a large distance and rapid response became almost impossible with the traffic. Service levels declined.

We modeled the cost of opening a facilities management depot and it was too high. It appeared we needed 30 guesthouses to cover the cost of a depot. There weren’t 30+ unit clusters anywhere in the city. Does this mean our business model is flawed?