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NOTABLE! The Definite Guide to Productized Services

UnrealCreative

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In the spirit of @LightHouse 's challenge during the summit to reach NOTABLE or GOLD on at least one thread this year (2018), I want to introduce this thread. Also, special thanks to @Andy Black for posting so much about Productized Services and exposing me to the concept in general.

A bit of background...

Over the past year, I've run a Service Business, going through the sliding scale common to Services: Starting with Freelancer, then Agency, then Productized Service.

This thread is for the Freelancers who are doing okay, but are either struggling to scale your services or are trying to get out of services altogether. My observation was there weren't many service business owners at the summit, and understandably so. After all, services are inherently harder to scale, which to some extent violates the Commandment of Scale.

But...

What if I told you that services CAN be Fastlane?

To illustrate this possibility, I'd like to go through the math on the 3 different service business models mentioned earlier: Freelancing, Agency, and Productized Services. If you look at the math from the Freelancing and Agency Models, you can see how they can't be made Fastlane, and how Productized Services can be made Fastlane:

Freelancing: Income = Hourly Rate * Billable Hours
As a freelancer, your upper limit of Billable Hours (BH) is ~12h/day tops, and even as a high-paid freelancer, there is still an upper limit to Hourly Rate (HR)

Agency: Income = Number of Employees (Company Hourly Rate * Billable Hours) - Employees (Employee Hourly Rate * Billable Hours)
As an agency, it's essentially the same equation as a freelancer, multipliable by employees. You still deal with a cap for BH & HR.

In both Freelancing and Agencies, we are faced with two large problems in our wealth equation:

-> Hourly Rate Limit
-> Billable Hours Limit

In order to make our services Fastlane, we have to cut out our limiting equation of BH & HR. We have to use a different equation where we're not exchanging Time for Money, but something entirely different.

But how? What does this equation look like?

Enter...
Productized Services:
Income = (Subscriptions * Package Price) - Employees (Employee Hourly Rate * Maximum BH)

With Productized Services,
A Customer Purchases a Recurring Subscription to your Services (Pre-Pay) for a flat rate.

As you can see in our new equation, we've completely replaced our
Time-For-Money variable '(Company HR * BH)' with the
Subscriptions variable '(Subscriptions * Package Price).'

So, what does this mean for you?
I'll break it down further:

Freelancers / Agencies:
-> Clients are buying your time in exchange for a service.
-> You only make money when you perform the service.
-> Your upper limit is BH & HR
-> There is a set MAXIMUM revenue you can make per week.

Productized Services:
-> Clients are buying a Subscription in exchange for your
Availability to perform the service if needed.
-> You make money when you perform the service, AND when you don't
-> Technically no upper limit to how many subscriptions you can sell.
-> There is a set MINIMUM you make per week.

Can you begin to see how Services can be made Fastlane by Productizing?

To drive home the validity of Productized Services,
I want to go through a typical week for the Agency and Productized Service.

For the sake of argument, I'm going to set both the Agency and Productized Service at the same Weekly Revenue. The numbers are similar to what I've worked with before.

Agency:
Income =
Number of Employees (Company HR * BH) - Employees (Employee HR * BH)
Income = 10($47.50 * 10) - 10($9.75 * 10)
Income = $4750 - 10($97.50)
Income = $4750 - $975
Income = $3775/week MAXIMUM

Again, when clients are buying your time in exchange for a service, You only make money when you perform the service. Your upper limit is BH & HR, and the MAX you can make as an agency is $3775/week after expenses. Most weeks you're not going to be maxing out your billable hours, so this number is almost ALWAYS going to be less.

Productized Service:
Income =
(Subscriptions * Package Price) - Employees (Employee Hourly Rate * Maximum BH)
Income = (10 * $475) - 10($9.75 * 10)
Income = $4750 - 10($97.50)
Income = $4750 - $975
Income = $3775/week MINIMUM ($4750/week MAXIMUM)

Again, when clients are buying a Subscription in exchange for your Availability (like buying insurance), you make money when you perform the service, AND when you don't. You technically have no upper limit to how many subscriptions you can sell, and there is a set MINIMUM you make per week.

Assuming a ratio of 1:1 (One Employee Supporting One Subscription), you are profiting at least $377.50 per package, with a max profit of $475 per package if your customer never uses the service. With a Productized Service, you are GUARANTEED $3775/week at least, with a maximum of $4750/week.

Mathematically, Productized Services are superior. Even on an even playing field, they WILL ALWAYS outperform Agencies. Even an Agency's BEST week (with billable hours maxed) can't even beat a Productized Service's WORST week (where every client uses their service).

Hopefully this gives the struggling Freelancers here something to think about.
Instead of hopping out of services, why not simply change the equation?

If you'd like to learn more about Productized Services, the Tropical MBA Podcast has several episodes discussing this model:

Productized Service Episodes:
The Rise of Productized Services - http://www.tropicalmba.com/services/
Growing Productized Service Businesses - http://www.tropicalmba.com/scale/
The Power of the Pickle - http://www.tropicalmba.com/pickle/

Additional Helpful Episodes:
Productized #1 - http://www.tropicalmba.com/productized/
Productized #2 - http://www.tropicalmba.com/productized2/
Productized #3 - http://www.tropicalmba.com/productized3/

In the meantime, feel free to drop any questions you have about Productized Services.

In the next few posts, I'll flesh out the decision-making process I went through to select my current Productized Service, and how you can find a service to productize as well.
 
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UnrealCreative

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Before moving on, let's chat about what makes Productized Services sexy,
and if it's right for you:

-> Zero Upfront Costs. When you sell your time (or an employees time), it requires absolutely ZERO cost up front. You cashflow from day one. You don't have to throw down $3,000 on your first overseas shipment to create a scalable business anymore.

-> Monthly Recurring Revenue. The BEST productized services are recurring services. You only have to sell someone on a service ONCE, and you're guaranteed hundreds of dollars monthly (provided you do what you need to do and they continue to use your service!). The LTV of my clients personally are in the thousands.

-> Higher Entry Barrier. The need to create and manage a team creates a higher barrier of entry for a few reasons, namely the necessity to be an exceptional leader of people.

Becoming an Exceptional Leader means becoming an Exceptional Person in general; Someone who owns everything in their existence, makes no excuses, takes responsibility for EVERYTHING and takes ZERO CREDIT for what they've done. An exceptional leader also means being completely vulnerable and open to their staff when they do something wrong.

Most aren't capable of becoming someone that others look up to;
Someone whos staff will follow you through hell and back.

Granted, I'm still learning what it takes to lead my guys.
Being 100% accountable, Holding my feet to the fire for the sake of my guys has been incredibly hard. But it is by far the best personal development path I've been down.

-> Camaraderie. I love my guys. Even though I manage a remote team, we all have very similar personal interests due to the nature of our work, and generally all get along.

-> Personal Meaning & Contribution. You're leading real people with real lives, and the fact they rely on you to supplement their income carries huge implications. You are the bearer of responsibility to put food on their tables, which to me is a huge reward. I have people who work for me who are married and have children, who are able to send their kids to school or buy Christmas Gifts now.

At FLF, we're all focused on impacting customer's lives with our businesses.
In services, not only do you have the gift of making a difference in your customer's lives, but also your employees. That's incredibly rewarding.

-> Scalability Challenges. This is the downside. But if you're able to create processes and are an exceptional leader, what was once a challenge becomes an opportunity since nobody else has the guts to lead people. If you can become a great leader, than scale will never become a huge problem.

Now that's out of the way, what qualities make a great Productized Service?

A Solid Productized Service is made up of a few key components:

-> A Customer Purchases a Recurring Subscription to Services, and the level of service is variable. (I'll explain why in the next post)
-> Service is as Simple to Perform as possible
-> Service is Objective as possible

A Good (but not great) Productized Service has these traits:

-> A Customer Purchases a Recurring Subscription to Services, and the level of service is fixed.
-> Service is as Simple to Perform as possible.
-> Service is Objective as possible.

A Poor Productized Service has these traits:

-> A Customer Purchases a One-Time Service, with Upsells to other services or a Recurring Service not part of your core offer. An example of this is a Blog Setup Service where you pay $19.95 to set up your blog, but can be sold hosting for $9.95/month.
-> Service is as Simple to Perform as possible.
-> Service is Objective as possible.

So, what are some examples of Productized Services?
Using our traits from above,
we'll go through a few example Productized Services and examine their health.

AAA (American Automotive Association) - Home
(These are made up btw)

4 Tows within 5 miles -> $49.95/year
4 Tows within 50 miles -> $89.95/year
4 Tows within 100 miles -> $119.95/year

-> A Customer Purchases a Recurring Subscription to Services
Yes. You can get AAA subscriptions on a yearly basis for a fixed service depending on your tier. Most people won't use their AAA subscriptions anyway, which makes it very attractive for infinite scale and the possibility of 100% profit.

-> Service is Objective
Yes. A car owner wants one thing only: for the car to work.

-> Service is Simple to Perform
Yes. How hard is it to tow a car to the nearest mechanic?

WP Curve - https://wpcurve.com/
Unlimited Wordpress Technical Support (Small Bug Fixes) -> $79/month

-> A Customer Purchases a Recurring Subscription to Services
Yes. Monthly Recurring Service with variable service.

-> Service is Objective
Yes. A website owner wants one thing only;
They want their website to work.

-> Service is Simple to Perform
Yes. For an entry level PHP dev, how complex is it to add a semicollin ( ; ) that someone missed? Or, how complex is it to restore a backup of a portion of a website?

Design Pickle - https://designpickle.com/
Unlimited Graphic Design -> $379/month

-> A Customer Purchases a Recurring Subscription to Services
Yes. Monthly Recurring Service. Better yet, their level of service is variable.

-> Service is Objective
Sort of. If a customer wants an event flier for instance, then the customer has an idea of what the finished product will look like. The process to get to the end result may vary, but the end result is mostly objective.

-> Service is Simple to Perform
Sort of. Design Pickle has limited their scope so they only create specific types of designs that follow a specific format. They NEVER do custom design work from scratch (logos, etc), they're in the business of using the creative assets you already have and re-configuring them into simple, predictable end products, such as an Event Flier.

Hopefully this has given some of you more to think about.
In the next few posts, I'll go through the thought process behind creating a profitable Productized Service that makes sense.
 
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Ika

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@UnrealCreative Thank you for creating this thread! Reading your progress thread I was hoping you would do this. You've made some good points in your posts, I'm interested where this is going (Hopefully #Gold).

Good idea to break the business down to an equasion.

(If answering these questions would reveal too much of your private business information, just leave them out)

My biggest takeaway so far is that a Subscription-Business is a Productized-Service-Business, just a really good one. Not sure why, but I've always seen Subscriptions as a different kind of Service Business, and not the same as a Productized Service.


A Poor Productized Service has these traits:
-> A Customer Purchases a One-Time Service, with Upsells to other services or a Recurring Service not part of your core offer.
This is exactly what my definition of any Productized Service Business was: A repeatable Service with a fixed price for all customers.
going through the sliding scale common to Services: Starting with Freelancer, then Agency, then Productized Service.
How much did your service/offering transform during this process?
Do you have the skill to fulfill your business' services, or do you 'just' understand it enough to find the right people to do the job?

How long did you work in your business?
I'm asking because right now I'm at a crossroad: I know I don't need the best skill in my service, as I will hand it off to my team at one point, but also know I need enough skills to engage in the market to find my niche and subscription offering.



The need to create and manage a team creates a higher barrier of entry for a few reasons.
How fast did you take on people?

One thing holding me back from hiring is my fear of loosing control over the process.
Someone once told me to not consistently outsource before I've created my own process. If I don't give the freelancer/employee a process to follow, he will use his own. If the person leaves my business, so does the process. If I were to work with two different people, both would have different processes and make it hard to cooperate.

But recently, I've seen some entrepreneurs build the process with their freelancers together. Instead of going through it alone, multiple people work on the same process and thus accelerate and improve it.

I think Dan Norris talked about this on a podcast: On WP Curve, they don't have a lot of Standard Operating Procedures for the development itself. Because a lot of the tasks are quite complex, and don't appear often, they trust their employees' skills to tackle the problems.
On the administrative and business side there are countless processes though.

Long story short - what's your take on processes & hiring?


- - - - -

Other related topics you could talk about (if you need any more ideas):
  • How to document processes without spending too much time away from the client's project (how to find the balance)
  • Clients vs Customers. I noticed you use "Customers", and most freelancers use "clients".
  • When hiring, do you prefere Employees or Freelancers?
  • How did you transform your freelancing service into a subscription offer?
- - - - -

Thanks for taking the time!

(If I manage to find answers to any of my questions, I'll follow up with the explanation or link to my progress thread)
 

IlyaP

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@UnrealCreative Thank you for creating this thread! Reading your progress thread I was hoping you would do this. You've made some good points in your posts, I'm interested where this is going (Hopefully #Gold).

Good idea to break the business down to an equasion.

(If answering these questions would reveal too much of your private business information, just leave them out)

My biggest takeaway so far is that a Subscription-Business is a Productized-Service-Business, just a really good one. Not sure why, but I've always seen Subscriptions as a different kind of Service Business, and not the same as a Productized Service.



This is exactly what my definition of any Productized Service Business was: A repeatable Service with a fixed price for all customers.

How much did your service/offering transform during this process?
Do you have the skill to fulfill your business' services, or do you 'just' understand it enough to find the right people to do the job?

How long did you work in your business?
I'm asking because right now I'm at a crossroad: I know I don't need the best skill in my service, as I will hand it off to my team at one point, but also know I need enough skills to engage in the market to find my niche and subscription offering.

How fast did you take on people?

One thing holding me back from hiring is my fear of loosing control over the process.
Someone once told me to not consistently outsource before I've created my own process. If I don't give the freelancer/employee a process to follow, he will use his own. If the person leaves my business, so does the process. If I were to work with two different people, both would have different processes and make it hard to cooperate.

But recently, I've seen some entrepreneurs build the process with their freelancers together. Instead of going through it alone, multiple people work on the same process and thus accelerate and improve it.

I think Dan Norris talked about this on a podcast: On WP Curve, they don't have a lot of Standard Operating Procedures for the development itself. Because a lot of the tasks are quite complex, and don't appear often, they trust their employees' skills to tackle the problems.
On the administrative and business side there are countless processes though.

Long story short - what's your take on processes & hiring?


- - - - -

Other related topics you could talk about (if you need any more ideas):
  • How to document processes without spending too much time away from the client's project (how to find the balance)
  • Clients vs Customers. I noticed you use "Customers", and most freelancers use "clients".
  • When hiring, do you prefere Employees or Freelancers?
  • How did you transform your freelancing service into a subscription offer?
- - - - -

Thanks for taking the time!

(If I manage to find answers to any of my questions, I'll follow up with the explanation or link to my progress thread)
I don't want to hijack the thread, but I have a similar business to Unreal so here's what I've learned so far:

Clients VS Customers
Clients VS Customers comes from a great book called "Built To Sell," or at least that's where I first heard it.

The basic idea is the service businesses call people who buy their stuff clients, but product based businesses usually call them customers. In the early stages of your business that can help lead to a mindset shift in how you treat customers. (Will you change your business to cater to the different needs of every "client," or will you stay within what your model says you do?)

According to the author of the book, if you ever want to sell your business, a product based business is more attractive, hence the language shift.

On Creating Processes
I recently hired 3 fulltime employees, and one part-time, soon to be fulltime one.

I had one fulltime employee previously for this business, but at that point I didn't have:
  • Processes
  • A vision
  • Instructions for new hires
  • An onboarding process
Based on my and my first employee's experience with doing this work, I created a brain dump of "processes" we used. Looked at which ones looked too complicated, streamlined them, and then created guidelines and videos on the processes I use to train my employees.

However, we all know that these processes will change and improve as we learn new things, and as the business grows. I find that if you involve your employees in the process & they're driven to do the work you've hired them for, they'll be eager to improve the processes themselves.

Sure, there will be some natural variation between people and how they work, but as long as they generally stick to the process, I don't have any issues.

My recommendation is creating a process to start off with from what you know, and adjusting from there.
Employees vs Freelancers
Hands down, I prefer employees. Especially full-time.

Why?
  • You can teach them your processes faster
  • They'll be more willing to learn
  • They'll be focused on helping you with your business rather than having many clients at a time
However, if you've never hired anyone before, a freelancer might be a good start, but keep in mind that your experience with a freelancer will likely be very different from a full-time employee.

Going from Freelancing - > Productized Service
I'm still in the process of finetuning this so this might not be the best way of doing it, but here's what I did:
  1. Look at what type of customer was my most popular one, and how hands off/hands on I had to be with them.
  2. Look at what customers needed things created on a monthly basis rather than just one offs
  3. Make an assumption of what a customer would want.
  4. Talk to a couple customers, adjust, and repeat.
My VS my Employees Skills
Funny story.

When I first started my video business, I thought I was pretty good. I was definitely good enough to get customers.

I hired my first employee, and he was about as good as me, but became better than me within a month.

The employees I hired recently got better than me within a week. I created a course to teach them everything I know, and they've worked together to improve from there.

I guess the point I'm trying to make is this: you don't have to be the best when starting out. You just have to be good enough, but only if you're ready to improve or hire people who will do the job better than you.

After all, do you want to be a business owner or an employee? You have to be good enough at your business skill to where you know what you're talking about, but you'll also need to know marketing, sales, management, creating systems, processes, etc.

Is your time better spent on improving those skills & outsourcing the rest, or is it key for you to be one of the best? That's the question you have to answer.
 

UnrealCreative

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Clients VS Customers
Clients VS Customers comes from a great book called "Built To Sell," or at least that's where I first heard it.

The basic idea is the service businesses call people who buy their stuff clients, but product based businesses usually call them customers. In the early stages of your business that can help lead to a mindset shift in how you treat customers. (Will you change your business to cater to the different needs of every "client," or will you stay within what your model says you do?)

According to the author of the book, if you ever want to sell your business, a product based business is more attractive, hence the language shift.
Good way to put it - I use them interchangeably probably to my detriment.
Listen to @IlyaP !

How much did your service/offering transform during this process?
Do you have the skill to fulfill your business' services, or do you 'just' understand it enough to find the right people to do the job?

How long did you work in your business?
I'm asking because right now I'm at a crossroad: I know I don't need the best skill in my service, as I will hand it off to my team at one point, but also know I need enough skills to engage in the market to find my niche and subscription offering.
How much did your service/offering transform during this process?

I'd say initially you're mostly trying to recognize patterns in what customers want; from there you can create a core offer. After that, the core offering stayed about the same, but was refined over time to exclude certain services.

A big part of refining a P.S. to me is cutting out services that aren't profitable, and doubling down on what makes you the most money.

The LAST thing you want as a service is to turn into a "Franken-Agency," a company (or freelancer) that does EVERYTHING for EVERYONE, and in turn are never exceptional at any single service they provide.

Do you have the skill to fulfill your business' services, or do you 'just' understand it enough to find the right people to do the job?

I guess the point I'm trying to make is this: you don't have to be the best when starting out. You just have to be good enough, but only if you're ready to improve or hire people who will do the job better than you.
I'm going to echo @IlyaP 's advice here. Yes, when you start off as a freelancer, you'll need to have the skills to complete the job. Having the ability to handle overflow when needed is helpful as well.

How fast did you take on people?
Not fast enough.

One thing holding me back from hiring is my fear of loosing control over the process.
Someone once told me to not consistently outsource before I've created my own process. If I don't give the freelancer/employee a process to follow, he will use his own. If the person leaves my business, so does the process. If I were to work with two different people, both would have different processes and make it hard to cooperate.
Had the same fear, but the truth is it was miserable running everything myself.
Wish I'd hire sooner - Waking up to the dread of having to tackle all of projects myself threw me into a downward spiral of overworking and overstressing.

It got so bad that projects were consistently getting delivered late to clients, and realized that if I were my own employee, I'd FIRE my a$$ on the spot. At some point you have to fire yourself from some roles in the business.

As for processes, I had the same fear as you.
I mean, what's supposed to come first: People or Processes?

In my experience, I'd start with people. Outsourcing doesn't have to start after you get all of your processes written down, streamlined, and totally perfect. Talk about overwhelming. It can be as simple as identifying the one thing you consistently do that takes up a lot of time, and hiring a freelancer to do it.

Eat the elephant one bite at a time.

As for losing control over some of your business...
If you hire people with experience, you won't have to worry about someone screwing stuff up.

[Will respond to the rest of your questions in future edits of this post once I get the chance today]
 

amp0193

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Was introduced to the productized service after reading Built to Sell last year.

The takeaways apply to physical products as well.


My product could have tons of customizable features and special requests and variations, etc. etc. I'm doing none of that.

A couple of products, and then scaling it as far as it will go.

It streamlines everything.


p.s. Did you mean to put Definitive in the thread title?
 

UnrealCreative

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Next, I want to go through my decision-making process for selecting a solid Productized Service.

p.s. This section partially borrows from my Craigslist Thread, which I'll summarize here.

1: What are your Skills?

If you've been freelancing for a while or just starting,
take a moment to step back and truly examine your skills.
What are you good at?

For sake of simplicity, let's say the only skill you have is you know how to clean a house. (Keep in mind this is hypothetical. I know zero about cleaning).

2: What need can you fill with those skills?

Using your cleaning skillset, let's say you can do 3 different services:

-> Property Vanadlization Cleanup
-> Disaster Cleanup
-> Standard Cleaning

Over time, you'll do these types of gigs and will begin to...

3: Recognize Patterns

Now that you've been in the game for a while,
you'll begin to figure out what kind of service you like to offer the most.

This is where your Productized Service Offering emerges.
Per @Andy Black 's framework, your services go through this lifecycle:

3.1: Ad-hoc (first few times doing jobs as a freelancer).

3.2: Defined (You're doing the same kind of work as a freelancer and are making mental notes of what to do. This is the beginning stages of a Productized Service).

Drawing on your experience, below is the thought process where your ideal service and customer begins to emerge:

-> Property Vandalization Cleanup ->
Tenant/Sublets trashed a property. High margin, but doesn't happen very often. Hard to find people who are willing to do this type of work. Requires specialized equipment that eats into margins.

-> Disaster Cleanup ->
Repairing Fire/Water damage on a property. This is a higher-priced service that happens more frequently than Vandalization, but you're still only in business when disasters happen (Fire, Floods, Tornadoes). Requires specialized equipment and high-skilled workers, which eat into margins. Also more "custom" type of work that will be hard to productize.

-> Standard Cleaning ->
Mopping Floors, Wiping surfaces, Washing Linens, Et Cetera.
Lower-Priced service, but people need cleaning consistently. Easy to find labor, easy to train, requires no specialized equipment. Nothing "custom" about cleaning someone's house; Vacuuming, Dusting, etc are all pretty objective, which makes it easier to productize.

3.3: Documented (Checklists, SOPs for personal use as a freelancer.).

3.4: Repeatable (Checklists, SOPs are simple enough to be used by your subcontractors. This is the moment when you leap from 'freelancer' to 'agency.' When you've standardized your service and limited the scope of the services you offer, you've entered the realm of Productized Service).

4: Refine Your Customer

The service you offer will depend on the customer you serve as well.
The better you know your customer, the better you can double-down on targeting the right people.

Let's say you've cleaned for three different customers:

-> Residential Cleaning (Private Homes, Tenants)
-> Commercial Cleaning (Stores, Warehouses)
-> Rentals Cleaning (Vacation Rentals)

...and want to figure out the best person to target, based on your offer.

-> Commercial Cleaning (Stores, Offices, Warehouses) ->
Maybe They just don't care. A Warehouse and stores will only need to be swept at most, and that can be done by their in-house staff. Commercial Offices is a good choice, but I'm not going to choose it. More on why later.

-> Residential Cleaning (Private Homes, Tenants) ->
One Account = One Property. Fickle, they could do it themselves if they want, and you've lost some accounts because of this.

-> Vacation Rental Cleaning ->
They constantly have people coming in and out of properties, giving the need for recurring service. One Account = Multiple Properties, easier to scale by multiples. Property Owners obviously don't want to do the service themselves and need you as part of their business.

Based on our thought process, we now know we want to perform:

Standard Cleaning for Vacation Rental Properties

and our customers are...

Vacation Rental Property Owners

When examining the options, we're also looking at our three filters from before:

-> A Customer Purchases a Recurring Subscription to Services, and the level of service is variable. (I'll explain why in the next post)
-> Service is as Simple to Perform as possible
-> Service is Objective as possible
-> A Customer Purchases a Recurring Subscription to Services, and the level of service is variable.

The reason we chose Vacation Rental Cleaning is because the service is recurring and variable. Variable services are attractive because customers aren't actually paying you to perform the service; They're paying to be available to perform the service if they need it.

As a subscription, you make more money the less they use your service. So for instance, you're always going to make more when there are less vacation rentals certain months, or when tenants rent for 2-3 weeks at a time.

Even though Commercial Offices are attractive because of MRR, The reason why we didn't choose commercial offices is because there is no possibility for variability. An office will need to be cleaned every weekend like clockwork, which carries zero possibility of more profit from lack of use. The service is fixed.

-> Service is as Simple to Perform as possible.

Yes. It's incredibly simple to Clean Floors, Linens, Windows, Surfaces, etc.
Simplicity also makes it incredibly easy to hire and train employees at entry-level rates.

-> Service is Objective as possible.

Yes, sort of - You can set an objective standard that you strive for when cleaning a property for Vacation Rentals, based on agreed-upon parameters. Only you will know what these are after gaining experience with customers. Not every Productized Service is going to have a 100% Objective final product, but the goal is to be Objective as possible.

Next, we'll go into Standardizing your Offers and Pricing.
 
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@UnrealCreative I'm thoroughly enjoying this thread.

As already mentioned by @amp0193 and @IlyaP, Built to Sell is a great business parable about a dude who starts a productized service. If you combine that with Built to Sell part 2 (Automatic Customer), you get the subscription-based productized service like some of the businesses you mentioned earlier (WP Curve & Design Pickle.)

Another great resource is the free book by the CEO of FreshBooks. You can get it here: https://www.freshbooks.com/assets/other/Breaking-the-Time-Barrier.pdf

Thanks for creating this thread.
 

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Upgraded to NOTABLE, great write up.
 

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-> Camaraderie. I love my guys. Even though I manage a remote team, we all have very similar personal interests due to the nature of our work, and generally all get along.
This is an excellent point. Some people have a natural ability to work harmoniously with others and to do that with with a big team is quite a challenge.

I would like to throw into the ring another method of scaling, but without hijacking this excellent thread.

Regarding scaling via franchising, I suggest checking out this brief thread: How Profitable Are Franchises where I have made a couple of posts that might help.

Walter
 

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Agency:
Income =
Number of Employees (Company HR * BH) - Employees (Employee HR * BH)
Income = 10($47.50 * 10) - 10($9.75 * 10)
Income = $4750 - 10($97.50)
Income = $4750 - $975
Income = $3775/week MAXIMUM
 

KLaw

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Help me understand why an agency can't scale. Why did u max it out ten? For every new client / customer equals profit. Btw, AAA is an agency.
 

addV

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Help me understand why an agency can't scale. Why did u max it out ten? For every new client / customer equals profit. Btw, AAA is an agency.
As I understand it, it is not that an agency can not scale, but that it is more difficult because it normally depends 100% on human resources to deliver. This means that human resources need to scale at the same time than workload, and you need to juggle to accommodate variable billable time, peaks of demand, etc.

Meanwhile, a productized service could potentially be sold multiple times without needing additional human resources.

AAA sells subscriptions that could need delivery or not. Same if you package a service and sell it with minimum customization to many customers.
 

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@Unreal Creative: Thank you for your post. I really enjoyed the clear structure and the insides. It's is not complicated, but not easy.

AAA is a great example. The primary business model is providing road assistance, but they increased their services with car related services such as insurances which is classical subscriptions model. Once you get an insurance, you pay every month the same amount to the insurance company.
 

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Fantastic thread thank you @UnrealCreative!

Currently trying to upgrade from freelancing and was planning on going the regular "custom priced" agency route until I read your thread.

However, I can't seem to figure this out, maybe one of you guys could help me.

What's a variable productized copywriting service?

As a freelancer I've done:
  • Content writing (blog posts, social media posts)
  • Direct sales (cold email, sales pages, ad writing)
  • Web copywriting (rewriting pages on a website, landing pages)
I've been jotting down ideas for a productized service but they all seem fixed in nature.

5 blog posts a month, 10,000 words per month, 100 leads from cold email, 10 meetings booked for your company, and so forth.

With copywriting it's clear if the writing is good, but most people want to measure results by leads generated, words written, meetings booked, etc.

I can't seem to find a variable angle on this service but maybe I'm missing something that's right in front of me lol

Any help would be greatly appreciated, thanks again for making me think differently @UnrealCreative
 

UnrealCreative

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I've been jotting down ideas for a productized service but they all seem fixed in nature.

5 blog posts a month, 10,000 words per month, 100 leads from cold email, 10 meetings booked for your company, and so forth.
Add "Up to" in front of each phrase.

Up to 5 Blog Posts a Month
Up to 10,000 Words Per Month

You've added a ceiling of what you're capable of fulfilling over a time frame, but you will inevitably have customers who don't need all 5 blog posts or all 10,000 words.

AAA makes more money when customers don't need a tow.
Same concept applies.

For the other two...
Honestly I'm wary of guaranteeing performance. But if I were, I'd add "or more"

100 Leads or more Per Month
10 Meetings or more Per Month

This gives you a floor; The minimum you can deliver.
Provided an email campaign does well for example, then it's gravy on top.

Hope this gives you some ideas on how to package your services.
 

Mike Kaliska

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Add "Up to" in front of each phrase.

Up to 5 Blog Posts a Month
Up to 10,000 Words Per Month
Wow...

You're totally right. Adding "Up to" in front of any idea I wrote down turns the whole equation around.

I agree with you about guaranteeing performance being something to avoid with this concept but I do like the "or more" bit you added.

Already found a copywriting site offering "up to" services right after reading your reply. There are some clear ways I can improve their offer and win over possible customers.

Thanks again! I'll update later with how this goes :)
 

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Edwin Fernandez

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Thanks for the great write up Unreal. This productized service idea is similar to an insurance model. You really make the most money when they do NOT use your service, what a shift in mindset.

Thanks for the links to tropical mba podcast, I listened to Dan Norris' voicemail from one the episodes and he said the two major failure points when starting these types of productized service businesses are:

1. "Not focused on solving a really painful problem, they're more focused on doing one thing repeatedly."

2. "Not getting focused enough, i.e. not saying no to custom work, or projects are not standardized enough.", and not sticking to target customers, thereby becoming a service that does it all, for everyone.

Gotta find that really painful problem for a biz owner...
 
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PizzaOnTheRoof

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I'm struggling to find a way to apply these concepts to Adwords lead generation.

With AAA or copywriting, there is a deliverable. Even though AAA is technically a service, in the end they deliver a single desired outcome.

Tow request > pick up car > drop off car > collect payment

However, Adwords is a constant service, there is no defined start and end to the service. There is also the issue of ad spend being paid and lead cost can fluctuate.

It would be difficult to offer a package of say, 50 leads/month, since that package may cost you $10 or $100...and then comes the question of lead quality also...if you can even generate the leads in the first place.

Of course, you could offer a monthly package (which most agencies do), but I don't want an agency long term, I want to SCALE.

I'm at a loss.:bored:
 

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I'm struggling to find a way to apply these concepts to Adwords lead generation.

With AAA or copywriting, there is a deliverable. Even though AAA is technically a service, in the end they deliver a single desired outcome.

Tow request > pick up car > drop off car > collect payment

However, Adwords is a constant service, there is no defined start and end to the service. There is also the issue of ad spend being paid and lead cost can fluctuate.

It would be difficult to offer a package of say, 50 leads/month, since that package may cost you $10 or $100...and then comes the question of lead quality also...if you can even generate the leads in the first place.

Of course, you could offer a monthly package (which most agencies do), but I don't want an agency long term, I want to SCALE.

I'm at a loss.:bored:
I charge flat monthly fee. I also rent out a landing page. If the fees are low enough and they get enough leads then they’re happy it keeps plodding along for them.

I think it’s a pretty low maintenance MRR stream once setup.

Charge €5k a month though and you’re playing a different game. Now you’re likely consulting and doing bespoke work.

Listen to the two Tropical MBA podcasts in the Services vs Products thread.
 

clickninja

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However, Adwords is a constant service, there is no defined start and end to the service. There is also the issue of ad spend being paid and lead cost can fluctuate.

It would be difficult to offer a package of say, 50 leads/month, since that package may cost you $10 or $100...and then comes the question of lead quality also...if you can even generate the leads in the first place.
Since you can't control the variable (traffic qualify) it's hard to scale on services of Adwords / Fb Ads.
What I see as a productized service around these platforms is something like an app that optimizes the ad spent, or a landing page app (too late to start this game though - tons already exist and it's too hard to build a better one from scratch and still be profitable) or a call center app (that measures the number of calls they get from their Ad Spent...

I think offering Campaign Management/Setup is hardly scalable.
 

Andy Black

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Since you can't control the variable (traffic qualify) it's hard to scale on services of Adwords / Fb Ads.
What I see as a productized service around these platforms is something like an app that optimizes the ad spent, or a landing page app (too late to start this game though - tons already exist and it's too hard to build a better one from scratch and still be profitable) or a call center app (that measures the number of calls they get from their Ad Spent...

I think offering Campaign Management/Setup is hardly scalable.
I think management/setup is scalable. How many plumbers in the world? Funeral directors? Electricians? Roofers? Limo drivers? Anyway, that’s what I’m working on.
 

PizzaOnTheRoof

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I charge flat monthly fee. I also rent out a landing page. If the fees are low enough and they get enough leads then they’re happy it keeps plodding along for them.

I think it’s a pretty low maintenance MRR stream once setup.

Charge €5k a month though and you’re playing a different game. Now you’re likely consulting and doing bespoke work.

Listen to the two Tropical MBA podcasts in the Services vs Products thread.
I think in this circumstance lower prices can definitely be an advantage. Like you said, if you’re charging $5k/mo then the client will expect way more out of you.

Charging only $250/mo lowers expectations yet increases the relative value of your service + your income is diversified rather than dependant on only a few big clients.

Since you can't control the variable (traffic qualify) it's hard to scale on services of Adwords / Fb Ads.
What I see as a productized service around these platforms is something like an app that optimizes the ad spent, or a landing page app (too late to start this game though - tons already exist and it's too hard to build a better one from scratch and still be profitable) or a call center app (that measures the number of calls they get from their Ad Spent...

I think offering Campaign Management/Setup is hardly scalable.
I thought about starting a landing page design service before I settled on Adwords. Maybe I'll end up offering Adwords as a compliment to a productized service rather than my bread and butter.

After all, I'm only doing AdWords now to replace my current income. The skill will still be valuable no matter what business I settle on later.
 

clickninja

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I think management/setup is scalable
Yes Andy, you can offer the same setup.
For example: pay $1000 and we setup a quiz Ads campaign on Facebook Ads.
What I always found difficult is results predictability.
Hence, without predictable results, it's hard to keep that client.
 

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I think in this circumstance lower prices can definitely be an advantage. Like you said, if you’re charging $5k/mo then the client will expect way more out of you.

Charging only $250/mo lowers expectations yet increases the relative value of your service + your income is diversified rather than dependant on only a few big clients.


I thought about starting a landing page design service before I settled on Adwords. Maybe I'll end up offering Adwords as a compliment to a productized service rather than my bread and butter.

After all, I'm only doing AdWords now to replace my current income. The skill will still be valuable no matter what business I settle on later.
Listen to the calls in thread “Services vs Products”. At a certain price point ROI is not the selling point. People already want it. It’s been my experience. I’ve a plumber paying €250/mth to “rent” my Google Ads campaign. He pays the ad spend direct to Google.

...

And his ads have been off for months.



He just wants the ability to turn them on when he chooses.
 

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In the spirit of @LightHouse 's challenge during the summit to reach NOTABLE or GOLD on at least one thread this year (2018), I want to introduce this thread. Also, special thanks to @Andy Black for posting so much about Productized Services and exposing me to the concept in general.

A bit of background...

Over the past year, I've run a Service Business, going through the sliding scale common to Services: Starting with Freelancer, then Agency, then Productized Service.

This thread is for the Freelancers who are doing okay, but are either struggling to scale your services or are trying to get out of services altogether. My observation was there weren't many service business owners at the summit, and understandably so. After all, services are inherently harder to scale, which to some extent violates the Commandment of Scale.

But...

What if I told you that services CAN be Fastlane?

To illustrate this possibility, I'd like to go through the math on the 3 different service business models mentioned earlier: Freelancing, Agency, and Productized Services. If you look at the math from the Freelancing and Agency Models, you can see how they can't be made Fastlane, and how Productized Services can be made Fastlane:

Freelancing: Income = Hourly Rate * Billable Hours
As a freelancer, your upper limit of Billable Hours (BH) is ~12h/day tops, and even as a high-paid freelancer, there is still an upper limit to Hourly Rate (HR)

Agency: Income = Number of Employees (Company Hourly Rate * Billable Hours) - Employees (Employee Hourly Rate * Billable Hours)
As an agency, it's essentially the same equation as a freelancer, multipliable by employees. You still deal with a cap for BH & HR.

In both Freelancing and Agencies, we are faced with two large problems in our wealth equation:

-> Hourly Rate Limit
-> Billable Hours Limit

In order to make our services Fastlane, we have to cut out our limiting equation of BH & HR. We have to use a different equation where we're not exchanging Time for Money, but something entirely different.

But how? What does this equation look like?

Enter...
Productized Services:
Income = (Subscriptions * Package Price) - Employees (Employee Hourly Rate * Maximum BH)

With Productized Services,
A Customer Purchases a Recurring Subscription to your Services (Pre-Pay) for a flat rate.

As you can see in our new equation, we've completely replaced our
Time-For-Money variable '(Company HR * BH)' with the
Subscriptions variable '(Subscriptions * Package Price).'

So, what does this mean for you?
I'll break it down further:

Freelancers / Agencies:
-> Clients are buying your time in exchange for a service.
-> You only make money when you perform the service.
-> Your upper limit is BH & HR
-> There is a set MAXIMUM revenue you can make per week.

Productized Services:
-> Clients are buying a Subscription in exchange for your
Availability to perform the service if needed.
-> You make money when you perform the service, AND when you don't
-> Technically no upper limit to how many subscriptions you can sell.
-> There is a set MINIMUM you make per week.

Can you begin to see how Services can be made Fastlane by Productizing?

To drive home the validity of Productized Services,
I want to go through a typical week for the Agency and Productized Service.

For the sake of argument, I'm going to set both the Agency and Productized Service at the same Weekly Revenue. The numbers are similar to what I've worked with before.

Agency:
Income =
Number of Employees (Company HR * BH) - Employees (Employee HR * BH)
Income = 10($47.50 * 10) - 10($9.75 * 10)
Income = $4750 - 10($97.50)
Income = $4750 - $975
Income = $3775/week MAXIMUM

Again, when clients are buying your time in exchange for a service, You only make money when you perform the service. Your upper limit is BH & HR, and the MAX you can make as an agency is $3775/week after expenses. Most weeks you're not going to be maxing out your billable hours, so this number is almost ALWAYS going to be less.

Productized Service:
Income =
(Subscriptions * Package Price) - Employees (Employee Hourly Rate * Maximum BH)
Income = (10 * $475) - 10($9.75 * 10)
Income = $4750 - 10($97.50)
Income = $4750 - $975
Income = $3775/week MINIMUM ($4750/week MAXIMUM)

Again, when clients are buying a Subscription in exchange for your Availability (like buying insurance), you make money when you perform the service, AND when you don't. You technically have no upper limit to how many subscriptions you can sell, and there is a set MINIMUM you make per week.

Assuming a ratio of 1:1 (One Employee Supporting One Subscription), you are profiting at least $377.50 per package, with a max profit of $475 per package if your customer never uses the service. With a Productized Service, you are GUARANTEED $3775/week at least, with a maximum of $4750/week.

Mathematically, Productized Services are superior. Even on an even playing field, they WILL ALWAYS outperform Agencies. Even an Agency's BEST week (with billable hours maxed) can't even beat a Productized Service's WORST week (where every client uses their service).

Hopefully this gives the struggling Freelancers here something to think about.
Instead of hopping out of services, why not simply change the equation?

If you'd like to learn more about Productized Services, the Tropical MBA Podcast has several episodes discussing this model:

Productized Service Episodes:
The Rise of Productized Services - http://www.tropicalmba.com/services/
Growing Productized Service Businesses - http://www.tropicalmba.com/scale/
The Power of the Pickle - http://www.tropicalmba.com/pickle/

Additional Helpful Episodes:
Productized #1 - http://www.tropicalmba.com/productized/
Productized #2 - http://www.tropicalmba.com/productized2/
Productized #3 - http://www.tropicalmba.com/productized3/

In the meantime, feel free to drop any questions you have about Productized Services.

In the next few posts, I'll flesh out the decision-making process I went through to select my current Productized Service, and how you can find a service to productize as well.
Listen to the calls in thread “Services vs Products”. At a certain price point ROI is not the selling point. People already want it. It’s been my experience. I’ve a plumber paying €250/mth to “rent” my Google Ads campaign. He pays the ad spend direct to Google.

...

And his ads have been off for months.



He just wants the ability to run them on when he chooses.

Just listened to both the tropical mba recordings.

Most of the content was geared towards B2B productized services. Lot of great insight there.

I started thinking about consumer based productized services but couldn’t think of any. I must be getting old or the scotch is getting to me lol.

Thanks for sharing
 

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Sorry for getting back late to this @PizzaOnTheRoof + @Andy Black ...

I think at the end of the day, it's important to realize that not every business will work as a productized service, insurance-style. But you can always think of ways to spin it.

@PizzaOnTheRoof something that came to mind is offering a baseline number of leads per month (*200 Leads for month for $899!*) at a flat rate.

To your point, although CPL is ultimately out of your control I've personally seen lead costs go down as we optimize our campaigns more over time. So even though you may profit less in the first few months (Say $899 flat to client while you spend $600 for those 200 leads), you'll be able to juice it more with time and as the Google gods you more favor with less actual maintenance (So in 3 months you can still deliver 200 leads at $899 charged to the client and $300 actual lead cost).

Don't know how that'd really work, but it's a way to spin the lead gen model without confusing customers I think. The pitch going "At the end of the day we're going to use what we know to deliver 200 leads to you per month at $899." It's always going to cost you less than $899 to get those leads, but the work needed to maintain campaigns on your end is variable, although you deliver a fixed service to your customer.

Of course I could be completely off my f'n rocker. Who knows.

EDIT: Think the point I'm trying to make is that's how you create a business model that is billed at a fixed rate to a customer, while the cost to deliver on your promise is variable. So you just optimize for keeping costs as low as possible while still delivering on your promise. If you can create a campaign that does that and you just let it ride...you're gold.
 
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UnrealCreative

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and then comes the question of lead quality also...if you can even generate the leads in the first place.
That's certainly a factor, but it's not your responsibility to ensure those leads convert. That's up to the business' sales department. The only time you'll get bad leads is if it's in front of the wrong people. If your campaigns are in front of the right audience, you'll get the right leads.
 

PizzaOnTheRoof

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Sorry for getting back late to this @PizzaOnTheRoof + @Andy Black ...

I think at the end of the day, it's important to realize that not every business will work as a productized service, insurance-style. But you can always think of ways to spin it.

@PizzaOnTheRoof something that came to mind is offering a baseline number of leads per month (*200 Leads for month for $899!*) at a flat rate.

To your point, although CPL is ultimately out of your control I've personally seen lead costs go down as we optimize our campaigns more over time. So even though you may profit less in the first few months (Say $899 flat to client while you spend $600 for those 200 leads), you'll be able to juice it more with time and as the Google gods you more favor with less actual maintenance (So in 3 months you can still deliver 200 leads at $899 charged to the client and $300 actual lead cost).

Don't know how that'd really work, but it's a way to spin the lead gen model without confusing customers I think. The pitch going "At the end of the day we're going to use what we know to deliver 200 leads to you per month at $899." It's always going to cost you less than $899 to get those leads, but the work needed to maintain campaigns on your end is variable, although you deliver a fixed service to your customer.

Of course I could be completely off my f'n rocker. Who knows.

EDIT: Think the point I'm trying to make is that's how you create a business model that is billed at a fixed rate to a customer, while the cost to deliver on your promise is variable. So you just optimize for keeping costs as low as possible while still delivering on your promise. If you can create a campaign that does that and you just let it ride...you're gold.
I've also thought about it this way too. The only issues I see with a flat rate is guaranteeing the number of leads or results each month. With PPL they only pay when they get a lead...but I would like to receive upfront payment...

Another model I came across was having the customers pay upfront for packs of leads, so you credit them to their account then debit them as they use them.

Less accounting work than PPL and is paid upfront like the fixed-fee model.

I could also be off my rocker too lol

At the end of the day, the best model is whichever one works best for the customer I think.

That's certainly a factor, but it's not your responsibility to ensure those leads convert. That's up to the business' sales department. The only time you'll get bad leads is if it's in front of the wrong people. If your campaigns are in front of the right audience, you'll get the right leads.
Good point and definitely one to mention in the sales meeting.

"We can't guarantee you'll convert the leads, but we can guarantee the quality of them."
 

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