DigitalMarketingLab.io
In this post, I’m going to share with you how an Agency can ‘productize’ their services to create a business that can more easily scale in size and profitability.
“Hmmmm…’productize’ Mike? Is that a word?”
Yes it is, actually.
It refers to the process of developing or altering a process, idea, skill, or service to make it marketable for sale to the public.
In this case, I’m specifically referring to taking the expertise that you have that makes you a good ‘Agency’ or ‘Consultant’ and turning that expertise into more marketable products.
These products will allow you to stop trading your time for money, and give you a business model that can provide the freedom and independence that you were after when you started your business in the first place – no more being beholden to needy clients that consume every waking hour of your life!
In short, I’m going to share with you the critical lessons I’ve learned about creating what I call “Services that Scale”…productized services that are higher margin, easier to sell, easier to deliver, and more profitable for you.
Just like the assembly line and limiting customer options propelled the success of Ford Motor Company, take a productized approach to your services can create an entirely new level of scalability and success for your Agency.
Before I get into the details of how to create productized services, let me share my history in doing this myself so that you have the context to understand why I know what I’m sharing in this post works, and will work for you if you put it to use.
If you’re already familiar with me and my history, feel free to click this link to skip to the Seven Steps To Create Productized Services At Your Agency.
“Will that scale?”
That’s the question that drove me and my team for years as we built Everon Technology Services into one of the fastest growing companies in the United States…and then eventually solid it for millions of dollars.
That same question drove how we created Kutenda, our digital marketing services business, and allowed us to generate over $300K in monthly recurring revenue within 18 months of starting.
Creating services that scale profitably both in sales and service delivery was our obsession.
Why?
Because experience had proven to us that…
Offering Typical Agency Or Consulting Services To Small Businesses Is A ‘Trap’
I have to admit that I took that ‘trap’ language from another marketer that I saw running ads recently…but I thought it hit the nail on the head.
All ‘client services’ or ‘professional services’ businesses – Agencies, consulting firms, law firms, etc – eventually become traps.
What I mean by a ‘trap’ is that if you are charging by the hour or doing custom project work for small businesses – and you are good enough to be a ‘success’ at it – you are going to generate just enough revenue to keep you going, but you’ll be on an exhausting treadmill where you’ll never get ahead in your business.
In fact…
I Can Predict Your Future…
Here’s How It’s Going To Go:
Step 1: You’ll start offering to help businesses based on your skills and knowledge…
Step 2: You’ll find some clients, because most businesses desperately need help…
Step 3: You’ll realize you aren’t charging nearly enough and/or can’t possibly scale what you are doing because your clients are needy and everyone wants something a little different…
Step 4: If you’re stubborn, you’ll continue like that for years with modest growth, raising your rates and earning more, but spending all of your time and energy building your clients’ businesses instead of your own…
**Here Is Where The Trap Really Gets Set!**
Step 5: You’ll generate enough revenue to keep the lights on and find it very hard to turn away from, but you’ll never really make enough money or create enough systems to be able to truly escape the day-to-day of taking care of clients.
Step 6: You’ll eventually burn out and shut down the business or sell it for way, way less than you thought you were going to get for it.
Does any of this sound familiar?! If it doesn’t now…it will.
It sounds painfully familiar to me, because…
I Was Stuck In The ‘Time-For-Money Trap’ For Years.
My first business was the typical client services model, and I spent two years stuck in traffic in Silicon Valley, trying to reach my clients so I could bill my time.
I was tethered to my phone to respond to needy clients, and I was chronically behind on everything…particularly cash flow.
I was very service-oriented and wanted to work hard for my clients – and I desperately needed the money – so I would do pretty much whatever they asked.
I was completely reactive.
I was hustling to the point of exhaustion.
And I was broke and tired.
It didn’t matter how much I cared for my clients or how hard I worked…I never got ahead.
I got out of that business and went to get my MBA, spending the entire time there studying what the most successful businesses were doing different.
One of the most important things I learned during that process was how important your choice of business model is to your success.
I realized that I needed a business model that produced…
“Customers, Not Clients.”
What’s the difference?
A ‘customer’ buys a product or service for set price and gets a set of pre-defined benefits in return.
A ‘client’ is someone who invests in customized professional services.
BIG DIFFERENCE.
Clients have your cell phone number and call you at night…
Clients expect you to jump when they tell you to…
And clients expect you to treat their business as ‘different’ and ‘unique’ and create solutions to meet their specific needs.
Don’t get me wrong…clients are great IF they can pay you enough to justify their demands.
But the reality is that small business can’t do that…which makes attempting to provide client services a broken business model.
What I Learned From Warren Buffet Changed The Way I Think About The Agency Business…
Warren Buffet is brilliant in the way that he can make things seem so simple with his folksy charm.
Here’s one of my favorite quotes of his:
“When a management team with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.”
Translation: bad business models make even good managers look like fools.
Here’s another one of my favorites from the Oracle of Omaha (Warren Buffet):
“Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.”
Translation: if your business model sucks, find a new business model.
Warren didn’t say that about the Agency business specifically, but trust me, if he were to evaluate the business model of trying to sell hourly or project services of any kind to small businesses, he would tell you the same thing.
Don’t waste time trying to be really good at a bad business model…it’s a chronically leaking boat!
Am I Saying That Offering Services To Small Businesses Is A ‘Chronically Leaking Boat’?
Yes…that’s exactly what I’m saying, if you do it the wrong way.
What’s the wrong way?
The way it’s typically been done:
Hourly services…
Project services…
Services that require custom work…
Services that require a high degree of manual labor to fulfill…
Client services for small businesses is a broken business model.
Because of my position in the industry, I know many Agency owners, and they share their challenges with me.
Even the very best Agencies operating using these models are struggling, their owners are burning out, and they are looking for a way out of their ‘chronically leaking boat’!
I Mean…
Have You Ever Wondered Why So Many Agency Owners End Up Selling Info Products?
It’s simple…
Selling information is dramatically more profitable and simply a much better business model.
They’ve realized they can make more money from a simple product launch than they can from months of putting up with needy clients…so they pivot.
Don’t blame them…learn from them!
Understand they ‘why’ behind their decision, and realize that the typical ‘Agency’ or ‘Consulting’ model is a trap.
You don’t need to get out of the services business altogether, but you do need to adjust your model to address the challenges that the traditional Agency model creates.
I experienced the same challenges and frustrations myself, which is why…
I Knew I Needed A Better Model…
So I set out to create it.
I studied what kinds of products and services could actually be sold, delivered, and scaled fast.
I identified the best practices and I applied them to the IT services industry.
I productized the services into discreet packages with flat-fee prices.
I cut out all driving to clients and only did things using remote control software over the Internet.
And I made our clients agree to pay us a monthly fee.
I was told many, many times that I was nuts and it wouldn’t work.
But it did work…and customers responded to it so well that we grew FAST!
In fact, it worked so well that our model was copied throughout the industry and is now very much the standard for how things are done.
It worked so well that…
Our Service Model Even Became The Subject Of Books On How To Market Services!
The book ‘Professional Services Marketing’ was written by the team at RainGroup, the leading sales training company for professional services and other high-value transactions.
They profiled Everon as an example of how to package services differently, and how that packaging allowed us to sell more effectively.
Our success got us a lot of attention, and that ultimately…
We Were Able To Sell Our Business For A Nice Premium…
Whether or not you think you want to sell your business anytime soon, operating your business as if you are going to sell it should always be the goal.
Typical professional services business are notoriously hard to sell for any decent money…but our model was very attractive to buyers because of they way we structured our services.
And Then I Did It Again – This Time Even Faster – In The Agency Business.
I took the lessons I had learned at Everon and refined our model when creating my Digital Marketing Services business, Kutenda.
And it worked again.
This time we grew CRAZY FAST!
Check out this snippet from our writeup in the Colorado Companies to Watch Business Awards:
36 Employees Just Over One Year Into Building The Business…That’s Rapid Growth!
And I can assure you…
…the way we packaged and sold our services at Kutenda looked NOTHING like the typical Agency model that most struggle with today.
Hopefully, I’ve made my point clear already…
But if not, here it is:
You Must Learn How To Create Services That Scale To Escape The ‘Agency Services Trap’!
Selling services to small businesses IS a great opportunity…but it must be done right.
By productizing your services correctly you’ll experience incredible benefits:
- Your services become easier to sell…
- Your business becomes easier to run…
- You have much more flexibility with your time…
- Your business becomes more profitable…
- And your business can actually be sold!
I Spent Years Learning How To Create Services That Can Scale
And it was worth it!
Productized, scalable services are the only kinds of services I offer any more.
I haven’t had a ‘client’ in years…only customers.
Once you realize that doing it this way creates a business that is easier to run, more profitable, AND can be sold…you’ll never do it another way.
There’s just no point in trying to salvage a ‘chronically leaking boat’ when you could have a speedboat instead!
But you get a shortcut:
I’ve boiled down the key steps from my experience creating scalable, productized services in the rest of this post.
The Seven Steps To Create Productized Services For Your Agency
Without further delay…here are the seven steps:
Step #1: Stop Seeing Your Business As An ‘Agency’
The Agency model is a professional services model…we’re shedding that baggage!
Start thinking of your business as a ‘Marketing Services Provider’ instead.
You may think that that’s a small distinction right now, but I promise you this shift in mindset is what drives everything else.
The decision to sell packaged services that are based on value, instead of being based on access to your knowledge and time, is the most critical first step of this process, and it will drive how you structure your business model going forward.
Let me share a company that’s really active right now that will show you exactly what I mean.
Bench.co does bookkeeping services for small businesses.
Prior to companies like Bench existing, you had to hire an accountant or a CPA that was providing these services using a traditional professional services model (like an Agency).
There are tens of thousands of accountants and CPAs out there selling their time to clients and almost none of them have scaled into a real business that has created real wealth for the CPA.
They are on the client services treadmill for their entire career (Yuck! Like most Agencies!).
What Bench has done, instead, is to create package services that are not based on time or access to a specific person.
Bench got out of the professional services model and simplified what they offer, have clear boundaries around the scope of their service, and have simple flat-fee pricing.
They also leverage technology to deliver their services with as little manual labor as possible.
This combination of changes has allowed them to scale up to thousands and thousands of customers in very short order even though they’re selling to very small businesses…something no CPA has been able to do.
This is a perfect example of going from a professional services provider (CPA) to a ‘provider of bookkeeping services’.
That’s an incredibly important distinction!
Step #2: Identify Your Specific Target Customer
The key here is to get specific.
When you’re selling a professional service based on your time and hustle, having a broad definition of your target customer is ok because you can easily flex the service you are going to deliver to meet a broad range of needs.
But when you’re selling a productized service, you need to get really clear about who the target buyer of your service is so you can design it very specifically to meet their needs.
Remember, we aren’t going to customize our services for every customer we come across, so the needs of the specific buyer we are targeting need to be very clear, and our service needs to be designed to really meet those needs.
As an example, let’s say your selling social media services to dentists.
Simply defining your target market as ‘dentists’ may be fine if you are providing typical Agency services, where each client is going to get a service customized to their demands.
But if you are selling a really efficient productized service, you may need to define your target market as:
Cosmetic dentists that see the value of consistently posting on social media, but that don’t want to pay for customized management services.
That’s significantly more specific, and it gives you much clearer direction in regards to what exactly you need to include in your service package.
Step #3: Identify the ‘Jobs To Be Done’
The ‘Jobs to be Done’ Framework is a really smart way of identifying what exactly your service need to accomplish for your customers.
It’s being used by just about everyone in Silicon Valley to help clarify the value proposition of new SaaS companies, but it works perfectly for us to help create our productized services.
In short, the framework says that customers aren’t buying the features of your product, but rather the ‘jobs’ that will get done by your product (they don’t buy the drill bit…they buy the hole it creates).
It then clarifies that there are specific steps in completing every ‘job’, and that there are opportunities to optimize and innovate to create value for your customer.
Geting into the details of how to to do this is beyond the scope of this blog post, but you get the idea:
You need to clearly identify exactly what ‘jobs’ your service is going to perform.
Step #4: Analyze The Value Propositions Of Your Competition
Your competition is already selling a service that has a mix of features and benefits to accomplish the ‘jobs to be done’ for your target customer – you need to analyze it so you know how to differentiate your service.
The easiest way to do this is by using a Strategy Canvas from Blue Ocean Strategy. This is one of the simplest and most useful tools I’ve ever found!
What you’re going to do is simply plot out the various factors your competitors are competing with on the horizontal axis, then plot their degree of commitment to those factors on the vertical axis.
Do this for your major competitors, then connect the dots using a different color for eachcompetitor, and you’ll quickly have a nice visualization of the competitive landscape in your market.
You can see the Strategy Canvas of the Short Haul Airline Industry below as an example:
The red line indicates how the majority of airlines were operating in their market when they started (almost all competitors will compete in nearly the exact same way…which is why none of them really breakout as leaders).
The green line indicates the value proposition of a car, which was the alternative that people were turning to because the value proposition of the airline industry wasn’t meeting their needs.
The blue line is the value proposition of Southwest Airlines, which you can easily see is very different from both the majority of airlines and a car – which is why Southwest Airlines was able to grow so quickly.
Differentiation is critical!
Which is why Step #5 below is so important:
Step #5: Identify Which ‘Jobs’ You Can E.R.R.C. To Create A New Value Proposition
Once you’ve plotted the current competitive landscape, it’s your job to look for gaps in the market where you could create a service with a different value proposition.
You do that using another framework from Blue Ocean Strategy that challenges you to brainstorm which factors you could eliminate, reduce, raise, or create (E.R.R.C.) to generate a different value proposition in the marketplace.
Successful, Scalable Service Businesses Almost Always Do Less
Say what?!
It’s true! Just look at service businesses that have scaled successfully and you’ll see that almost all of them do less.
Doing ‘more’ is almost completely counter to trying to scale…’more’ kills your ability to scale.
So I highly recommend that you focus on the ‘Eliminate’ and ‘Reduce’ options when using this framework…I’ve found that they produce the real winners when it comes to scaling services.
WARNING: Don’t Evaluate While You Brainstorm!
This is really, really important: you are very likely going to have fight your tendency to evaluate the ideas you come up with too early and too harshly.
My experience is that most people tend to think that the only way to create more value with their services is to simply do ‘more’.
So when you start brainstorming things that you could eliminate or reduce, your natural reaction my be to think “my clients would never go for that”!
Well, maybe…or maybe not.
Perhaps your current clients aren’t who you should be selling too if you want to scale…think about that!
So let the ideas fly! Get a little crazy with your brainstorming and do the evaluation phase later.
For now, put every idea you can think of out there, even if you don’t really know how you’d pull it off – this is where the best ideas come from!
Which brings us to the next step…
Step #6: Create Your Productized Offer
As you do an evaulation of your E.R.R.C. brainstorming results, you’ll start to eliminate some ideas and see potential in others.
I’ve developed a set of criteria over the years to help me evaluate the potential of opportunities, and these three stand out:
You must be able to generate recurring revenue and have strong gross margins (a bare minimum of 60%) to fuel your business – those are pretty self-explanatory.
But what do I mean by ‘Auto-magic’?
By ‘Auto-magic’, I mean that you should focus on offering services that you can deliver using operational leverage, technology, and automation, rather than hustle and manual labor.
They don’t necessarily need to be fully automated, but they shouldn’t require soley manual effort either.
Manual effort doesn’t scale!
When you design your services with these criteria in mind, then match them up with sales and marketing best practices…
…you end up with a dramatically better, more profitable business model AND you get your time and life back from the demands of ‘clients’!
You escape the ‘Agency trap’!
Restaurant Engine Sells Productized Websites for Restaurants
But they don’t do custom design, which is a horribly unscalable model that creates awful operational dynamics that reduce profitability and freedom of time.
There are countless website designers out there who have tried to make a living by selling websites that have been caught in that trap of having to do custom design for every single customer, even though those customers can’t or won’t pay enough to justify it.
They’ve been pulled into the the typical client services trap of doing ‘more’!
But not Restaurant Engine.
They got smart and said, “You know what, the typical restaurant owner can’t pay enough to justify all of those customizations, so we need to create a service that eliminates almost all custom work, delivers a great website, and can do it at a much lower price.”
Yes, they say that ‘Design Customization’ is included, but the reality is that it’s very minor fill-in-the-blank customizations…not truly custom work.
They offer a limited number of core templates that their customers can choose from, then do just enough customization of the template to make a nice, if not completely original, site for their customers.
I offered this exact service at my marketing services business, and it was one of the most popular services we offered.
And there are very strict boundaries that will result in a “No, we don’t offer that service” if a customer requests them.
“No” Is The Most Profitable Word In A Service Business
The idea of saying no to a customer that wants to pay you may seem shocking, but it’s a critical lesson about service businesses that are able to scale.
Refer back to the first example I gave in this post, Bench.
Bench doesn’t do everything a CPA does. They don’t do audits, they don’t do your estate planning, and they don’t prepare budgets for you.
They do bookkeeping and tax prep. Period.
Less!
This allows them to reduce or eliminate:
- Doing proposals
- Hiring experienced, expensive CPAs
- The majority of the time necessary to deliver the service
- The majority of the meetings with their customers that custom work requires
And it allows them to raise or create:
- Carefully-designed processes for streamlining their service
- Technology to automate much of those processes
Those changes create a significantly lower cost structure for their service, which they can pass along in much lower prices to their customers, while still having enough margin to be very profitable.
Even though their customers are getting much less service than a CPA can provide, they are still getting great value from Bench because they get most of the utility of a CPA (not all of the utility because they will still have to use a CPA for some services throughout the year), but at prices that are much, much more attractive.
If you ask for custom services from Bench, will you get thm?
No!
Is this service right for every business?
No!
Boundaries Create Scale
Learning that it’s ok to say “No” is one of the most profitable skills you can develop as an entrepreneur.
Clearly define the boundaries of your services and stick to your guns – fight the instinct to say “yes” to everything because you think it will win business.
By packaging your services with firm boundaries, you will lose some customers, but you will also create an offer that is extremely attractive to the right customer.
Losing the wrong customer is a good thing…trying to please everyone is a recipe for disaster.
What If Most of Your Customers Ask For Something Out-of-Bounds?
Well, then perhaps you need to adjust your packages.
But the overwhelming tendency I’ve seen from helping many entrepreneur productize their services is to make this decision too quickly, after a very limited number of requests.
So instead of jumping the gun, try this instead: offer to do out-of-bounds work as an hourly upcharge if the customer insists on it.
You’ll very quickly find out if they want it bad enough to pay for it or not. If most of them do, you may want to change your package.
But my experience is that most of them will decide to pass on the additional charges and buy your service as-is.
Step #7: Price To Sell Fast…And With Recurring Revenue
As you can see, both Bench and Restaurant Engines have price points that are very attractive for a small business owner.
This is critical: you must price your services in a manner that will reduce the time and expense of closing your customers.
Your sales process is the most expensive process in your business, so by packaging and pricing your services at a price that is designed to sell fast, you eliminate much of your costs:
- No more proposals
- No more multi-meeting sales processes
- And no more expensive salespeople with expense accounts!
But this only works if your services are packaged to be easy to understand and priced to sell.
You Must Make It Recurring
You must have a recurring source of revenue – it’s almost impossible to make your business work any other way.
Bench is entirely recurring.
Restaurant Engines has a hosting and maintenance component to their business that is recurring as well.
The way they’ve positioned their ‘Setup & Launch’ service is to automatically include their recurring ‘Service Plan’.
You must do something similar.
In fact, I recommend that you don’t ever sell a service as a ‘one-time’ project unless it’s specifically designed to feed your customer into your recurring revenue product, just like Restaurant Engines has done.
Your goal should be 100% focused on selling your recurring revenue service – that’s the only way you’ll build a business that gives your freedom and develops real equity value.
That’s It! You’ve Escaped The ‘Agency’ Trap!
I’ve seen first-hand how having a productized service can change your business and change your life.
If you’ve been trapped in the traditional Agency model and have been struggling to get ahead, I’m telling you it’s not your fault – you have a broken business model.
Another one of my favorite quotes from Warren buffet is, “you don’t get any extra credit in business for a high degree of difficulty.”
In other words, there is no reward for operating your business with a harder model.
No matter how hard you work with a traditional professional services Agency model, you will struggle.
It’s a broken business model.
Commit to a better business model.
I hope this post will help guide you in the right direction to create your own productized service so you can stop doing custom work and trading time for money – and build a scalable business instead.
All the best,
Mike Cooch
DigitalMarketingLab.io
PS – I made six shifts in my approach to building my business that allowed to grow quickly and stop trading my time for money. You can learn them here. 👇🏻