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.
