7 Insider Tips How to Make Use of the Productized Business Model
Sales calls, proposals, invoices, never-ending email chains–this is what most medium and small business owners and entrepreneurs have to deal with on a daily basis. For those feeling stuck in a repetitive cycle, here’s a solution to consider: the productized business model.
If you haven’t heared of the productizing process before, don’t worry! While that buzzword is rather new and not that well established, the idea behind it is not. In simple terms, productization refers to the process of converting services into a packaged service, turning it into an off-the-shelf solution.
Read on to find out what productized services are, and check out the seven tips on how you can use them to your advantage.
The productized service model: an overview
If you’re a freelancer or a traditional agency, most of your work will most likely be project based, or billed by the hour. This way of doing work sadly eliminates the element of predictability, making it hard for agencies to scale, and for freelancers to thrive.
Project or hourly based work takes away the element of predictability, making it hard for agencies to scale.
If we’re looking at productization, there are two perspectives:
For you, the productized service is pre-defined and runs according to your outline. Your input is minimal, which allows you to spend time on more important work.
For your clients, a productized service is a “done for you” offer containing a great value proposition with clear deliverables. The price seems fair, and the package can be easily purchased.
One thing to keep in mind is that switching to a productized business model might eliminate certain clients from your business. Those are usually clients you didn’t say no to although their requests were out of scope. A productized service is a lot more focused, which might not work for certain clients who need very specific tasks done.
The aforementioned focus of a productized service can be seen by some as a disadvantage. However, in the long-term, you’ll be able to automate many tasks by eliminating the need to do custom projects that take a lot of time and effort. You’ll also have a chance to make your business activities and cash flow more predictable, while continuing to deliver high-quality work.
Enough theory, let’s look at seven proven tips to get your productized business off the ground.
1. Identifying a recurring problem & solving it with a service business
Many freelancers and business owners struggle making ends meet because they fell in the trap of selling their services by the hour. While it might work in certain scenarios, it often creates a lot of work for service providers. They have to schedule calls with leads, find out if they’d be a good fit, send a proposal, and hope for the best.
Proposals regularly contain underestimated working hours because it’s not easy to know how much time needs to be invested in a given project. Spending hours every month creating proposals isn’t the best use of your time. Instead, you could let your leads choose predefined packages, and start your work right away.
The hardest part about those packages is coming up with a good value proposition. That is, if you’re a new freelancer or business owner. Established ones can simply take a look at their past projects, and ask themselves: which services have been frequently requested by clients, and why?
Let’s assume you’re a WordPress developer who focuses on custom theme development. Clients might’ve reached out to you about hosting and website speed optimization, but you’ve turned them down because it’s not part of your business.
Instead, you could’ve:
put your clients on your own web hosting plans (charged yearly)
and offered them a monthly recurring maintenance plan.
Optionally, you could pitch a one-time service that checks their website for speed optimization issues, and fix those according to Google’s Core Vitals test.
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Another recurring issue WordPress developers might’ve come across are small tasks that aren’t part of a recurring plan. These are often hard to keep track of and invoice. To handle them, developers could offer their clients a bundle of “dev time” hours. Clients purchase hours in bulk, the developer tracks their time, and deducts the available hours for the client.
As you can see, any simple problem can be turned into a service that both parties benefit from.
2. Spinning off a service as a side business
The previous part explained how it’s crucial to identify problems and offer an off-the-shelf solution for it. However, traditional agencies are often against this type of business model. They’ve been doing things “the old way” for years, and making changes would be too complicated. While that may be true, there’s an alternative to make it work nonetheless.
Many companies have created side businesses to focus on a specific niche. IBM, for instance, spun off its managed infrastructure services business into Kyndryl. Corporate giants aren’t the only ones able to go down this path. Traditional agencies too can allow a part of their team to work on a spin-off online business. The rest keep their current clients happy with the way things are.
Let’s look at a concrete example, a traditional content marketing agency that does everything from content creation to social media management and web design. Their main clients are medium sized companies who book multi-month retainer packages, which are often linked to proposals and lengthy calls with sales teams.
If the company were to look into productizing a part of their business, it could be the content writing service. Instead of targeting medium sized companies, they could offer more affordable packages for small companies:
a few blog posts per month for a corporate blog
SEO included in all packages
entry into the client’s CMS on the highest plan
At first, they could keep things simple and offer three monthly recurring packages to test out the waters. The above example wouldn’t require too much work, and could easily be automated via a lead gen page that directs to an order form, and the use of a client portal. More on that later.
Once the business takes off, and collects data from client requests, they can start offering more services, and add-ons. For instance: an in-house designer could create one-of-a-kind graphics for each blog post (for a monthly fee of course). This could in itself be an optional add-on service that can be purchased together with the monthly blog posts.
3. Focusing on recurring services to generate predictable revenue
I’ve mentioned recurring services multiple times by now. There are many benefits to recurring revenue because it’s highly desirable for agencies and potential investors. Even if you’re not thinking of selling your business today, you might change your mind in the future. In such a case, the buyer will want to know more details about your monthly and annual recurring revenue.
Those dead set on not selling their business should still set up their productized business with predominantly recurring services (about 60%), leaving up the rest to one-time add-ons and other one-time services. The aforementioned website maintenance plans are just one simple example any website developer can offer on a recurring basis. It’s up to them if they want to charge monthly exclusively, or also quarterly and annually (with a slight discount).
While yearly plans are almost always preferred from a business owner’s perspective, they do come with a few issues:
clients might want to cancel and ask for a refund
if you don’t want to issue refunds, you’ll need to make this clear early
some clients will still force a refund via chargebacks
An important advantage of recurring services to keep in mind is the growth factor. Regardless of the fact that you’re just starting an agency business or are established and looking to scale: a recurring revenue stream helps you plan ahead. You are aware of your income stream month over month (or even year over year), and can hire staff when necessary. Keeping up with the demand will ensure that your customers are happy, projects done on time, and new requests handled promptly.
Should you decide to sell your business, you can generate reports with your recurring revenue, client growth, internal new hires, and more. The data can be used to evaluate your businesses current value, expected growth year over year, and potential value five years from now.
4. Enabling customers to self-serve their needs with a client portal
I briefly mentioned the client portal earlier, and want to dive deep into why it’s a great idea to invest in one at some point. Agencies, especially new ones, often make the mistake to go all in when it comes to their business. They spend thousands on the perfect setup, only to run out of funds in a few months because they couldn’t find enough clients.
So, when’s the right time to invest in a client portal? Well, it depends! Ideally, you should’ve reached a point that no longer allows you to manage your tasks effortlessly. You’re juggling emails, spreadsheets, Slack conversations–it’s simply not efficient. This usually happens when you have more than 20 clients per month, and a lot of task related projects. Another breaking point might be if your business requires input from your client, as it’s the case with the aforementioned content writing business.
Imagine this: you send your client an invoice for 8 blog posts per month, they pay it, and you get started with the writing. You now need to
keep track of the content production each month,
do topic & keyword research,
assign writers via email,
handle the content introduction into the CMS,
rinse and repeat.
On top of that, you need to deal with client login details for their CMS, extra requests because the client wants only seven blog posts this month–do you see the problem?
With a client portal, they just subscribe to your monthly recurring service, fill out an intake form for each blog post (asking about the topic, keywords, etc.), and wait for you to do the rest. You receive all the data you need, assign it to your team, and let them handle the rest.
Not only does a client portal make your job easier, there’s less friction for your clients as well. The time saved due to automations (thanks to email reminders, automatic payments, etc.) can be invested in finding new leads, and scaling the business.
5. Helping your team work efficiently to help scale your agency
As the previous part demonstrated, a client portal is an absolute must-have for the productized business model. Depending on the services offered, and the productized service software chosen, you might need additional software to scale your agency.
Once an agency reaches a certain size (20+ members), it quickly becomes hard to juggle the communication between different teams and their members. On top of the internal communication, sales and success teams also need to be in touch with clients.
While remote communication has become easier over the years, asking clients to use your client portal software you rely on often creates friction. Downloads and software incompatibility quickly become issues that lead to lost sales.
Let’s assume that your agency requires an onboarding call to show the new client around your agency portal. You could show a call link to schedule a call on the onboarding page. Once the client onboarding is over, you can access the recording, and upload it to your client portal so that the client can re-watch it at any time.
This simple flow reduces follow-up questions and support requests as your client has everything they need in one place.
6. Extending the customer lifetime value with upsells & add-ons
Now that your team is properly set up and able to work efficiently, let’s look at a way of increasing the customer lifetime value without too much of your own input. It should be clear by now that the productized business model allows you to step away from your well-oiled machine, and let it work on its own–at least mostly.
For your productized business to work, you need recurring revenue (which we talked about already), and ways of keeping your clients long-term. Depending on your service offering, some clients might cancel their subscription at some point.
Let’s look at marketing agencies offering lead generation services: sooner or later, they’ll exhaust all resources to find new leads, which increases the chance of losing customers. The good news is that there are ways to reduce the churn rate by upselling clients (either when they subscribe the first time, or later).
To find the right services that you can upsell, take a look at your client’s frequently asked questions or requests. Can you spot a recurring pattern? If so, it might be worth productizing. Let’s go back to the agency selling lead generation services, what could they sell as an add-on? For one, email newsletter copywriting. They are masters of writing email copy after all!
If their lead generation marketing services come to a natural end, they could offer their clients to continue nurturing the leads with targeted email campaigns, or re-activate churned clients–we’ve now come full circle.
7. Adding an affiliate program to your service
The final tip in this blog post is to make use of an affiliate or referral program to grow your productized service business. Word of mouth continues to be a powerful tool that is many times cheaper than spending your budget on ads.
Business owners can use different tactics to grow their client base, for example:
locate your strongest clients and turn them into brand ambassadors
start an affiliate program that anyone can participate in
let any client become an affiliate to see if they will refer business partners
You’ll have to experiment with the rewards too because the B2B landscape is quite different from B2C.
While consumers might refer you easily to friends and family, business owners aren’t always that interested if the incentive is just reward money. A more suitable reward might be to feature them in a case study, do a webinar, have them join your podcast, or to give them free add-on services.
Referral programs can be especially useful for consultants, who often rely on word of mouth to find new leads. We’ve written extensively about productizing professional services such as consulting, so feel free to read that blog post for more information.
Closing thoughts
Regardless if you’re toying with the idea of starting your own business, or run a successful SaaS that you want to spin-off a side business from: productized services can help solve many solutions without falling into the scope creep trap. By concentrating your efforts on the type of service you do best, you’ll be able to deliver high-quality work for your clients, hire new talent, and grow your business.