The Definite Guide to Productized Services

[ZeroTo100]

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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[GuestUser4aMPs1]

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.

 

[GuestUser4aMPs1]

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]

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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[Bru]

Amazing thread, thanks a lot @UnrealCreative


I ve replicate this for Social media marketing.

 

[Lorenzo1]

Amazing thread, thanks a lot @UnrealCreative


I ve replicate this for Social media marketing.

Hi @Bru,
I was also thinking of something like this:
what types of services do you offer and how much do you pay for your packages?

Thank u

 

[Bru]

Hi @Bru,
I was also thinking of something like this:
what types of services do you offer and how much do you pay for your packages?

Thank u

Hi Lorenzo
for the moment I work with white label SEO and social media agencies to which I outsource some part of my customer's project (for the moment I still keep a close eyes on it for the purpose of learning and define the best in class approaches).

basically I charge my customer approx 949 USD for 1 month of social media management (about 40 posts per months on 2 social media) and pay between 300 to 450 USD to my agency.
The customer is happy cause it provides a good return on investment and this is much cheaper than having In-house person to manage social media.

 

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[Louisv]

Productized services are a lot easier to sell compared to agency-based services.

Hiring a company to write you 15 articles per month, in a subscription type deal? Easy to understand.

Hiring an agency to write articles for you? Harder to sell to companies, because the value-proposition is super unfocused.

Most CEO's I've met prefer to just buy subscriptions for classical agency services because they have no time to go around having long meetings with regular agencies.

 

[Val Okafor]

Good, write up, totally enjoyed your insights and practical tips. I a Mobile App developer dying to get out of the employee trap. I have made modest Freelancer income from Upwork(screenshot attached). No matter how I dice up my opportunities these are what keep starring at me:

1. Full time freelancing - aka Upwork
2. Agency
3. App Publishing

Would you have any tips on how to productize mobile app development?

 

[Armen9]

When checking empire flippers stumbled upon this listing:

Listing ID # 48370 For Sale - Empire Flippers

This listing is for a service business created in August 2018 in the business, SEO, and information niches. The business offers a specific writing ...

empireflippers.com

The seller talks about how she turned her service from freelance gig into productized service.
Now it's making $15,965 / month.

 

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[focusedlife]

What if instead of guaranteeing X amount of customers a month or Y amount of deliverables per month, you simply made a bet offer?

What if you make an agreement to charge based on how many additional sales you make in a quantifiable period, tracked by channel?

Another way I've been taught to get high pay compensation with very little resistance from those willing to partake.

 

[GuestUser4aMPs1]

What if instead of guaranteeing X amount of customers a month or Y amount of deliverables per month, you simply made a bet offer?

What if you make an agreement to charge based on how many additional sales you make in a quantifiable period, tracked by channel?

Another way I've been taught to get high pay compensation with very little resistance from those willing to partake.

You certainly could. My current business is completely performance based. I now can ask for some base compensation now that I have a track record.

It really just depends on how much risk you want to take, and if you think you have an angle to exploit.

Productized services are more applicable to packaging services into repeatable and scalable offerings, as opposed to "packaging" sales. Although "sales-as-a-service" exists too: B2B Sales Outsourcing Services Pricing | SalesHive

 

[caradee]

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 - TMBA 227: The Rise Of Productized Services - Tropical MBA Podcast
Growing Productized Service Businesses - TMBA266: Growing Productized Services Businesses - Tropical MBA Podcast
The Power of the Pickle - TMBA337: The Power of the Pickle - Tropical MBA Podcast

Additional Helpful Episodes:
Productized #1 - TMBA307: The One Where a Business Starts on the Show - Tropical MBA Podcast
Productized #2 - TMBA311: Productized Part II : "Putting Yourself Out There Can Hurt" - Tropical MBA Podcast
Productized #3 - TMBA321: Productized #3 - An Expert's Advice - Tropical MBA Podcast

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.

I would like to open a sauna/cold bath studio and provide educational seminars sold as tickets, along with other healing modalities. Can this be productized by offering monthly memberships? I know a product is the ideal way to the fast lane but I love the idea of bringing a healing value to my community and bringing community together. I want to add a product eventually but until I can come up with something, I will pursue this. I just want it to be lucrative. Any thoughts or advice would be greatly appreciated.

 

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