When I speak with operators of professional services firms, they often have similar goals related to scaling and boosting profitability. Unfortunately, the typical structure of professional services firms are not naturally designed to support either of these goals. So to truly solve them we must get creative.
At the same time, we often speak about their goals related to investing in a software product. Typically they have a limited vision for what this may be for their organization. The interest typically comes from the fact that products are better equipped to naturally solve these challenges.
The good news is that these aren’t your only options. There is another you may not have considered that has gained popularity in recent years and it’s referred to as a productized service.
Let’s take a closer look.
Background
A productized service combines the relative strengths of a service and a product to create something new. It provides your professional services firm with something unique to offer your clients. It also benefits your organization because productized services are designed to be easier to manage.
Productizing your services is a process that may be right for you. If you do it right, it will not only be easier to sell, it will also be easier to scale. This model leverages the advantages of services to be flexible enough to address the needs of your clients and the advantages of products to be repeatable to make it easier to build a tight process around delivering this service making it easier for you to scale your operation.
Sidebar: Before I go too much further, I want you to know more about my productized service experience. As with all of the content I write about, I’ve tested them on businesses of my own. In this case, I’ve built a productized service business called Podcast Chef that offers podcasting as a service and I can’t say enough good things about this model.
Let’s dive deeper into this model so we can see whether or not it is right for your professional services firm.
What the Productized Service Model is all About
Definition
I would define a productized service in rather simple terms:
A productized service is a limited scope service that is marketed and sold like a product.
The first element I mentioned is ‘limited scope’. This means that your productized services cannot be custom. They cannot be ever changing from client to client. If you take that approach, you won’t be successful with this model. A productized service must by definition be limited in scope.
The second element I mentioned is ‘marketed and sold like a product’. This means we are going to advertise your productized service as if it were a product. Think of it like a physical product. For example, compare a coffee mug to a water bottle. Each solves a specific problem. One is used to keep a liquid warm and the other cold. Each product has a specific buyer and the products only solve the problem they were designed to solve. You must design your productized services in the same way.
Advantages over Just Service
Productized services have become increasingly popular because they help to solve some critical problems that professional services firms experience. Namely, scaling and improving profitability. Professional services firms don’t scale and profitability is an ongoing concern because overhead costs are so high to run your operation. Done right, productized services can help to solve both of these problems for your business.
Easier to Sell
Perhaps the most attractive element of offering a productized service is how much easier it can be to sell. Contrary to popular belief, a product is easier to sell because it is more opinionated. The easiest way to visualize this for yourself is to consider my previous example. Personally, I don’t drink coffee. As such, I have no use for a coffee mug. However, I do like to hike and always need to bring water with me. As such, I definitely need a water bottle. See how easy that was? With products, it’s crazy easy to qualify or disqualify prospects. Being opinionated helps tremendously.
This pattern will translate to your productized services if they are designed properly. You will experience a significantly easier process of communicating your value proposition to your target market audience. This will have cascading benefits across your professional services organization.
Scales More Effectively
A less sexy but perhaps even more exciting benefit to offering a productized service is how much easier they are to manage. When you have properly limited the scope of the productized service, then you know what it is and more importantly what it is not. My Podcast Chef productized service offers lead generation and relationship building through podcasting. However, we make you the host and manage your show. We do not get you booked onto other podcasts. We don’t offer that because our current target market doesn’t need it. Requests for that service come from outside our target audience.
Getting opinionated about your productized services means you know exactly what it needs to be and nothing more. This means you can define a tight procedure with clear steps to achieve the goal for your client. Once you’ve accomplished this, you can build a team around this process to keep the quality high and support growth at a greater scale.
More Cost Effective
Unlike your current list of services, productized services are not custom or even customized. This limits your cost significantly. Your current list of services may very well be custom or customized for good reason, but those decisions ultimately add tremendous variability to the extent of the cost for delivering those services.
Since your productized services are limited in scope, you can more easily and consistently track the costs associated with delivering those services. You will see significantly less variability when compared with your current list of services. Knowing this information helps you to build the profit model you really need.
Validating Your Future (Software) Product
This is another one of those topics I wish I could shout from the rooftops to raise more awareness – productized services can help you succeed in building software solutions.
Failure Here is All Too Common
Far too many professional services firms rush into software products without really understanding what they are getting themselves into. Most are typically blinded by the benefits they are hoping to receive because such an investment has been romanticized. Unfortunately, most (9 out of 10) of these ventures are unsuccessful and I know the pain all too well because my first software product failed as well. That’s why my mission is to rid the world of product failure.
The Good News
The good news is this doesn’t have to happen to you and your productized services can help you in a big way to be successful in building software solutions or software-as-a-service (SaaS) products. The nature of the design of productized services is why it is so helpful to validate the potential of a software solution.
Below, I’m going to list out some of the key reasons why investing in a productized service model will help you validate a potential future software solution.
Faster to Market
When you think SaaS you think about the wonderful world of infinitely scalable business models and crazy high profit margins. What people don’t tell you is how much time, energy and money goes into building software solutions and SaaS products. Building a software product business is incredibly time consuming and expensive with a very high failure rate. One of the reasons the failure rate is so high is because most take entirely too long to bring their products to market so they can properly validate them.
You see, getting a product into the hands of your customers is really the only way to truly validate the value proposition of your software product. As such, the longer you take typically the higher the probability of failure because you aren’t sharing what you’re building with your target market customer. This increases the chances of you building the wrong product.
Productized services on the other hand can be developed very quickly. This is because software isn’t delivering the value, people are. The same team of people you currently have delivering your services can also deliver your productized services. As such, all you need to do is get the process down and train them on how to deliver it.
Better Agility in Testing
To properly validate a value proposition for a software product, you need to get it into the hands of customers. This means you need to finish designing and building it, which is the most time consuming and expensive step of the process. Even when you have delivered the product, if you haven’t quite built what your customer needs (very common) then you will need to make adjustments. This means you need to start the design and build process over again, which means even more time, effort and money. I think you see what I’m getting at here.
Instead, your productized services are delivered through a process, not software. This means you can make adjustments rather easily. All you need to do is adjust the process and tell your team about the change. Since it’s people delivering the value (not software) making changes to the process requires significantly less time and effort. This means you will experience significantly improved agility when testing and validating the value proposition for your product.
There are tremendous benefits to buildinging a productized service for your professional services business. A key element that should not be overlooked is how beneficial it is to invest in a productized service if you also want to invest in a software solution at a later date.
How to Build Your Productized Process
As I’ve mentioned previously, your productized service is going to require a repeatable process to manage delivering value for your clients. As such, we will need to draw lines around the value proposition for your productized service so we can hammer out the clear steps of the process to deliver this value to your client.
Don’t be All Things to All People
Your services are designed to be custom or customized, but your productized services are not. You must make them opinionated so you and your client knows exactly what they are and who they are for. This will help you get specific and targeted with your value proposition.
Think of it this way, your productized service is the coffee mug and your services are the diner.
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Build Clear Steps to Success
Once your value proposition has been nailed down, draw out the steps of the process to achieve the result for your client. For Podcast Chef, we have clear goals to achieve for our clients and steps to achieve those goals. Designing and building their show and getting them up and running with recording episodes. Our procedures lay out each step of the process and our team executes those procedures.
Design the first version of your procedures for your team to execute so they can deliver the value your clients are expecting based on the value proposition you’ve created for your productized service. Then get them out there and start validating your model with your clients.
Assign Team Roles
We’re building a productized service that is expected to scale better than your current services. As such, each step in the process is expected to be carried out by your team members in as cost effective a manner as possible. As such, you will need to determine the skills necessary to properly manage carrying out each step of the process.
Measuring Skill Sets
This will become easier as your productized services evolve, but there are advantages to breaking your process down into smaller and more easily manageable steps. This has the added advantage of making each step a bit easier to manage for your team members. If each step is easier to manage, you can likely delegate this step to a specific resource that is more cost effective.
Evaluate the skills that your team currently has and see who may be a good fit to manage each step in the process. Don’t worry if you don’t yet have a perfect fit between your team and the current list of steps to the process. You can always add team members at a later date to augment your capabilities here.
Keeping Quality High
Critical to the success of your productized service model will be keeping the quality and consistency high. As such, measuring and monitoring this level of quality will be important. You’ll need to dedicate a resource to managing this aspect of the process.
Wherever possible, set clear expectations for deliverables and attention to detail. The more tangible you can get with these expectations the better. That way, it will be easier to determine if that goal has been achieved within the specifications that you’ve designed for the process.
Pricing Your Productized Services
Critical to success for your productized services is pricing them appropriately. You’ll want to ensure you are adequately covering your costs, protecting your profit margin and ensuring that your productized services are priced competitively relative to the value being delivered for your client so they will want to purchase these services from you over and over again.
Measuring Costs
Once you’ve got the process hammered out and you’re delivering the productized services to your clients, begin tracking the time invested by your team to complete each step of the process. This will obviously be directly related to the cost incurred to deliver the value you are offering through the productized service.
Once you have a better handle on how much time it is taking to deliver the service, you can measure cost-effectiveness and important ratios. I typically recommend that you aim to keep your cost of goods sold or COGS to ⅓ or less to ensure there is adequate profit margin and capital available to further invest in sales and marketing to grow your business.
Pricing Competitively
Another advantage of having a productized service is that you can price it competitively. You already have high ticket services available that can do just about anything when it comes to helping your clients so your productized services can help you in other key areas that matter.
Once you better understand what it costs to deliver a particular productized service, you’ll know what you can sell it for after keeping your financial ratios within a healthy range. Typically, I’d recommend multiplying your cost by 3 to set a minimum for the cost of your productized service. This doesn’t mean you have to stop there, just that you should start there as a minimum.
Better understanding how much room there is to grow the margin for your productized service will depend upon the value and return on investment (ROI) that your clients are reporting to you. That’s why it’s key to measure the effectiveness of your productized service with them once you start delivering it.
Positioning With Your Current Services
You do NOT want to cannibalize your current list of services. As such, it’s very important to ensure that your productized services and your current list of existing services are positioned well with one another.
Remember, your current services are expected to be priced higher because they can solve big and complex problems. Your productized services are expected to solve specific problems in a more direct way. This should mean that your productized services will typically be offered at a lower price point than your current list of services.
An added advantage here is that you will now have something to offer a potentially larger pool of clients because you’ve got a solid model that scales to deliver value at a lower price point.
Validating Your Productized Model
Ensuring that your productized services are delivering on your value proposition is critical to them reaching success at scale. Once they are being consumed by your clients, you’ll want to monitor them closely to measure effectiveness.
Monitoring Your Engagements
Pay particularly close attention to the first engagements you deliver through your productized service model. These are key opportunities to measure the effectiveness of the model you’ve designed. This is also where you will have opportunities to make adjustments on the fly to ensure success for you and your clients.
Learning Where to Make Improvements
From these lessons learned, you will know where your model can stand to be improved. Can your value proposition be strengthened? Can you remove unnecessary steps in the process to speed everything up? The answers to these questions are in the data you need to get from measuring the effectiveness of these first engagements.
For example, when I first built Podcast Chef I expected to offer a service where we booked guests for our hosts. Originally, it was expected to be an upsell and wasn’t included by default. Then, I realized it wasn’t being purchased and was holding the experience back from being even more valuable for our clients. As such, I decided to include it as a key part of the process from the beginning. Since, our retention has improved and client satisfaction has skyrocketed.
These improvements will help your productized service model reach greater scale.
Scaling Your Productized Service Model
I’ve encouraged you to invest in a productized service model because it scales more effectively than your current service model. I want to talk more about how you can take this model even further than what we’ve already discussed in this article.
Further Automation
If you’ve designed the model well, then each step is being carried out by a cost-effective team member at a high level of quality. However, there is always room for improvement. Another round of discovery into your model will help you identify areas to automate the process even further. The biggest impact during this phase will likely come from automation through software.
Find opportunities to fully automate steps of the process and look for existing tools you can connect to your process to do so. This has the added benefit of getting you even one step closer to developing your own software solution.
Sharing Social Proof
If you’ve followed my process and built a great productized service business then the positive results will start to accumulate. You’ll want to capture these as testimonials from current clients so you can share these with prospects that are interested in purchasing your productized services as well.
Social proof goes a long way to convince people to get off the bench and into the game. The more you can help them understand how your productized service can solve their problems the higher your conversion rate will be. Don’t overlook opportunities to share the success you’ve been able to help your clients achieve with other future clients of your productized services.
Getting Started
There’s a lot to do when considering building a productized service model for your professional services business. However, the best place to start is to identify how you can offer your clients a limited scope version of your current services to deliver value that is very important to them. This is by far the best place to start with discovery.
Hiring Help
I’ve built productized service businesses of my own, such as Podcast Chef, which means I can help you.
My specialty is product and I offer help through service so I know both worlds. I can help you achieve greater scalability and profitability for your professional services business.
Reach out to learn more by emailing me at sean@nxtstep.io or booking time to speak with me about the needs of your business.
