The Biggest Upsides and Downsides of Productizing Your Agency
19 min read

The Biggest Upsides and Downsides of Productizing Your Agency

Discover The 11 Unspoken Mistakes You Must Know Before Productizing Your Service Business

Overview

The notion of “Thinking Time,” taught to me by my mentor Keith Cunningham (which I hope you can adopt as well?), is a method that I personally uphold and practice weekly. This concept consists of five key areas that you may leverage to make better judgments as you build your service business.

One of the five is known as "2nd Order Consequences," and it refers to the capacity to consider not only the upsides of an action/thought/chess move but also its drawbacks or rarely considered “downsides”.

Unlike product businesses, services businesses such as agencies, consultants, or even freelancers have traditionally experienced only linear income growth.

This is due to the fact that in order to sell more services, you will need to hire more team members or increase your/team hours which will be restricted by time constraints.

Productizing your services thus becomes a key strategic solution to your “scalability” challenges.

However, selling services can literally feel like a maze — a constant feeling of unpredictability, with unforeseen twists and turns in the hope of discovering the right growth path.

There are so many aspects to consider, such as how to establish trust with your customers, how to price a specific service, which service to even pick, how to package one’s knowledge, and how to ensure consistency throughout the entire process.

But you want your service business to flourish, don't you?

There is one stumbling block: time is not on your side.

Simply put, your current service-based model does not allow for expansion. You probably can feel your head already hitting the “time” and “income” ceilings.

Something needs to shift in order to latch onto the rocket ship of growth you desire.

The truth is most service business models are traps. Which I have mentioned before.

But here’s the even better news - you can leverage this concept of packaging up and selling your services just like an eCommerce business does, which is called “productizing” your services.

Just in case you aren’t familiar with the concept, let’s rope you in briefly. If this concept is second nature then skip the next section.


TABLE OF CONTENTS:

What Exactly Is a Productized Service?

23 Considerations You Must Know Before Productizing

The 12 Biggest Upsides:

  1. Easier to Outsource & Automate
  2. Scope Is Defined
  3. Quicker Payments
  4. Customers Have More Clarity
  5. No Need for Hourly Rates
  6. No Need for Proposals
  7. Refined Processes
  8. Scalable Business Model
  9. Increased Sales
  10. Niche Services Abound
  11. Productizing allows you to compete more successfully.
  12. Increases customer confidence and satisfaction

The 11 Biggest Downsides of Productizing Your Service:

  1. Less Personalized Service
  2. Limited Target Market
  3. Large Initial Time Investment
  4. Dissatisfied Existing Customers
  5. It can require significant behavioral change for teams and contractors to fit into.
  6. It takes much forethought, patience, and a process-driven attitude.
  7. Sometimes you can create too much distance between you and the customer.
  8. Mistrust
  9. You have a hammer and every problem is a “nail” mindset.
  10. Heavy Salesforce Required for Customer Acquisition
  11. Less Ownership Pride


Bonuses:

  1. 4 Asymmetrical Growth Strategies
  2. How to exploit the upsides while minimizing the downsides when building
  3. "Haters Going to Hate" Q&A
  4. How Scale Your Productized Service?

What Exactly Is a Productized Service?

A productized service transforms a regular service, such as graphic design, into a store-bought or an off-the-shelf type of solution.

For instance, a personal fitness trainer would be limited in terms of how many customers they can offer their service to. (time constraints + little leverage)
One of the best ways to eliminate this constraint is to turn their services into a productized offer like Lamar did of Precision Lyfe.

This could be in the form of webinars that cater for group training, or pre-recorded video training. The goal is to move into higher “leveraged” offerings as a service provider.

Productized services can also be adopted in the digital marketing space. A content writing agency can provide a number of blog posts per month as a productized service instead of only working with one high-end customer on a retainer, per word, or hourly basis one after another.

Making the decision to productize your business will require you to consider a variety of factors, including money management, customer relations, culture, and the type of work environment you want on a daily basis.

Want to learn more about productizing and scale your digital service business? Check out our Productized Playbook to begin mapping out a strategy to start productizing and turning 6-figure years into 6-figure months. (a must-read)

There are benefits to both a product-based and a service-based business strategy, as well as drawbacks to each. To assist you in assessing the various characteristics we've compiled a list of the most important advantages and often ignored drawbacks to consider while you begin productizing your service business.


23 Considerations You Must Know Before Productizing


Let’s first begin with The 12 Biggest Upsides of Productizing Your Service business.

1. Easier to Outsource & Automate

It's tough to automate, outsource, manage, or track your progress when each customer has a highly tailored project or “b-spoke” solution. When you have a consistent solution It becomes easier to develop standard operating procedures (SOPs). Because the scope and “mechanism” of each project are now consistent. It will also be easier to handle numerous projects at once, allowing you to build once, and sell infinitely.

2. Scope Is Defined

Have you ever felt like every project you take on ends up becoming significantly more complex with each customer request? That dilemma is solved by productizing your services.

You are packaging and marketing your service with a specific scope. There will be no more infinite customizations or scope creep. This also helps set expectations and create constraints or what I like to call “bumpers” to prevent you from saying yes to everything.

One of the top three concerns I often hear from soon-to-be productizers is scope creep. Scope creep should be almost non-existent once your services have been productized. There may be occasions when you make an exception, but the days of projects stretching past their specified completion date should be a thing of the past now.

3. Quicker Payments

Productizing a service streamlines the payment process. You don't have to worry about logging hours or invoicing because you've already agreed on the pricing and scope of the job. Best practices allow you to collect payments upfront just as you would buying a product online off Amazon.


4. Customers Now Have More Clarity

Your customers will be much more clear about what they are receiving for their money when you offer productized services. When done correctly you’ll get fewer phone calls, emails, and messages requesting modifications or small favors.

Having a catalog of services and prices makes it apparent that if you wish to add something to your order, it will incur a fee or additional cost. Productizing provides an immense amount of buyer confidence that is invaluable.

5. No Need for Hourly Rates

Working by the hour never seemed to make much sense, did it? You want to optimize your billable hours as a freelancer. As the customer, you want to keep them to a minimum.

Billing by the hour immediately creates a conflict of interest.

When you move to a productized service model, you know precisely what you're going to produce and the customer knows precisely what they're going to pay. Everyone is content. Rather than just being rewarded for being slow, you are rewarded for running a profitable business. It's a win-win situation for everyone.

Remember:  Clients buy your time. Customers buy your products


6. No Need for Proposals

The best advantage of productizing your services is that you will no longer need to submit proposals or bids. Except for some fine-tuning, you're done once you've created extensive descriptions for each service. This alone will save most service businesses many hours each month. No more back and forth negotiating with estimates and approvals.

7. Refined Processes

For most service business owners, the fact that the scope of each assignment changes implies that you never have a chance to enhance or even build your processes. Once you've developed a reliable product, you'll find it much easier to look for opportunities to improve it.

These enhancements will help both your business and your customers unlock more value. When it comes to monitoring the efficiency or profitability of service, the first guideline is to have a controlled version. From there, you can make modest adjustments and track the outcomes. Keep what works and discard what doesn't.

There will be no more time-consuming proposals, and there will be significantly fewer customer interactions. Furthermore, your services will be simpler to automate, outsource, and administer.

8. Scalable Business Model

When you productize your services, you build something scalable. Because your revenues are restricted to the amount of work you can accomplish, service-based business models have little potential for expansion. Products, on the other hand, are physical units that exist independently of you. You may sell as many units as you need and build up your staff in tandem with your sales, or you can outsource excess orders.

Concentrating on a single service helps you to develop the systems, procedures, and support needed to be exceptional. Your service is no longer reliant on your haphazard creative genius. It is now founded on your methodical, repeatable genius.

What you can't replicate, you can't scale.

Consider that for a moment. As an example, Russ Perry is the founder of Design Pickle, a productized graphic design service that managed to scale over $1MM/month in recurring revenue.

9. Increased Sales

By streamlining the customer process, productizing your services may help you land more sales. Rather than going through a lengthy inquiry procedure, drafting proposals, and sending invoices, your customers can go to your services page and see precisely what they can receive and at what price they can have it.

Let's put ourselves in the shoes of a hypothetical customer to see why this helps you close more purchases.

Assume you're seeking to engage a content writing service to write a few blog posts for your business. You're busy, so you'd want things to be as hands-off as possible.

You go to the websites of two content agencies to compare their offerings. Here's what each of their price pages states:

Which agency do you think you'll contact next?

That one where you have to fill out a form and wait for who knows how long simply to obtain a price estimate? Or the agency that has told you all you need to know upfront so you can just pay and get to work?

I already know which one I'd pick. A big part of productizing is again making the buying process super simple and enhancing buyer confidence.

10. Niche Services Abound

Productization entails a form of 'niching down’. You're offering a precise solution to a specific problem and a final product that closely meets your customer's requirements. This type of expertise will help you stand out from the crowd.

11. Productizing allows you to compete more successfully.

As you are surely aware, there are contractors that can outbid you for comparable services. How do you compete without engaging in price wars?

To win, you must alter the game's dynamics. Productization does this by creating a new paradigm that allows you to compete on the value/outcome of the product rather than the price of individual resources. You can create your own “moat” around your offer both by niching down and creating unique combinations of solutions for someone very specific.

Your customers are price-conscious. However, searching for "solution fit," quality, predictability of results, and lesser risks. You can win every price war if you strike the correct balance of cost, risk, and quality. Productizing will go a long way toward achieving a winning equilibrium.

12. Increases customer confidence and satisfaction

Many people are prepared to spend top cash for a service that they are convinced will offer consistent results. Customers will have more confidence when your services are packaged.

Customers want to know the value of the solution—what they're getting and how it will address their problems—upfront and in an easy-to-understand format. This is exactly what people receive from a shopping experience for productized services.
To stand out from the crowd, package your services in a way that displays their intrinsic worth to your prospects. A substantial majority of prospects would prefer to pay a greater amount for an agency's services if they knew it would be better equipped to meet their demands.

By productizing services, you move the conversation's focus away from pricing and onto the value your customers desire. This is where you can boost customer satisfaction and overall confidence when a purchase is made.


The 11 Biggest Downsides of Productizing Your Service


1. Less Personalized Service

When you productize your service, your customers will have a far less personal 1:1 experience. A bespoke offering will naturally require many calls, meetings, and 1:1 personal touchpoints with customers.

Depending on whether or not you already have a large number of customers, some of them may not enjoy this. However, don't let this deter you because many potential customers are seeking off-the-shelf services. Keep in mind you can still bridge the gap and create amazing customer experiences while still productizing.

2. Limited Target Market

When you limit your services to something that can be packaged and marketed as a product, your field of prospective customers becomes less as well. Some customers will always want the flexibility and customization that comes with a bespoke service-based approach, and these customers will have to search elsewhere until you’re able to broaden your value ladder of productized offerings.

Saying no to potential customers and niching down will feel like taking a few steps back before you’re able to take leaps forward.

3. Large Initial Time Investment

The most significant disadvantage of launching a productized services business is time.

Furthermore, productizing necessitates a significant amount of initial labor. It takes a lot of time, work, and thinking to create packages that aren't just lucrative, valuable, but also needed. You'll most likely end up producing multiple distinct versions and depending on customer feedback, adjust along the process.

You must first consider how to productize your service, then determine how to price them correctly, understand where you can make a profit, and whether it still makes sense for the prospective customers you will be targeting. There are funnels to be created, marketing campaigns to be launched, and this will most likely require some initial trial and error.

In addition, the upsells and, of course, how you will deliver the productized service must be determined.

To get it up and running effectively, all of this needs a significant amount of time, resources, and talent. To be honest, that is what kills the vast majority of productized service businesses before they ever begin to generate a profit. Understanding this can help you mentally prepare for the journey ahead. I’m all about launching lean and building out an MVP to start. Then adjusting/enhancing over time.

4. Dissatisfied Existing Customers

For one thing, your current or previous customer base may object to the notion of productization. If you've taught your customers through the years that everything can be tweaked and personalized to their hearts' content, you may be in for an uphill struggle.

Changing expectations drastically can cause a lot of friction. You need to choose how flexible you wish to be with these past customers.

This may create a divide in your service offerings until you can transition away from the custom work. This transition can be as fast or as gradual as you want. I advise transitioning slowly to not completely disrupting your cash flow. Once your productized revenue exceeds your custom bespoke revenue you can decide if you want to start cutting and phasing out that custom work.

5. It can require significant behavioral change for teams and contractors to fit into

Not all employees and contractors will have experience plugging into the productized model especially if they are used to custom agency work. A lot of time and training will be required for this type of mental shift for contractors and team members.

6. It takes much forethought, patience, and a process-driven attitude.

Even in the case of productized services, initial customer engagement is critical. Online businesses frequently believe that all they need is a website or a product, and then a buy button. This is completely false. You will still discover that the great majority of customers want human contact with you before they are prepared to make a commitment.

Productization does not imply that your sales are on autopilot. Depending on your price points you may still need a human sales touchpoint.

7. Sometimes you can create too much distance between you and the customer.

Bespoke services are very 1:1. They require a lot of hand-holding and custom-made services. Sometimes when you productize you automate and create too much distance between you and the customer. This can hurt the overall experience and cause customers to leave.

Remember that less closeness equals less opportunity to create and build relationships, which may lead to a high churn rate. Don’t rely too much on technology and automation here.

8. Mistrust

Potential customers are more prone to mistrust service providers in many circumstances based on past experiences. In most circumstances, if a customer purchases a product that he is dissatisfied with, he may simply return it. This is much harder with services as you can’t return someone's time.

However, in the case of services, the harm has already been done. In addition to making it more difficult to recover money for a poorly performed service, most services, such as a bad haircut or a badly managed advertising campaign, are irreversible. While selling a service, you must presume that the potential customer believes you are trying to defraud them. You must work to gain trust and have a strong USP, brand promise around each productized service you offer, and ample social proof.

9. You have a hammer and every problem is a “nail” mindset.

If you only have a hammer you’ll be inclined to try to fix everything with a hammer —literally, every problem looks like a nail. It’s easy to have blinders on without even considering other alternatives but yours. We prefer to make do with what we have rather than seek better options. You will have to learn to say no to potential customers who just aren’t the best fit.

You will find potential customers will respect and value your services, even more, when you stay strong and in your lane of expertise.

10. Heavy Salesforce Required for Customer Acquisition

Let’s say you have 12 customers as a bespoke service business, but if you want to productize, you’ll need substantially more (depending on your average order value). You will almost certainly require a sales team. That is sales management. Because of your decreased margins and volume, your team culture must shift from one of invention to one of efficiency. You must become a systems expert. You no longer recruit high-priced crazy creative individuals because the magic is in the product and processes, no longer in the individuals.

Because of the absence of customization, the sales cycle in a productized business is typically shorter. A productized service business may have numerous salespeople, necessitating more complex sales management as you look to grow.

11. Less Ownership Pride

You may begin to feel like you're operating a factory rather than a one-of-a-kind marketing, creative, and/or development business. For some agency owners, this is unimportant (particularly if things are going well financially); for others, it is.
As a result of productization, the customer foregoes personalization (perfect fit) in exchange for a reduced price. In return for volume, you give up margin (not in all cases).

As a result, if you standardize your items and pricing, you must aim for scalability. Your business's team culture must transition to a focus on scalability at the expense of personalization. (There are blends of business models here that can still touch on both).

In addition, the team may become bored. If your staff wants creative diversity, you may have issues with employee morale and retention since they are performing the same thing over and over. Of course, the value of "variety" varies.

Keep in mind, “Systems can kill creativity”. To keep team members churn low, work to combat this and still allow for creative flow where you can.


Bonuses:

4 Asymmetrical Growth Strategies

Now, how can you exploit the upsides while minimizing the downsides when building a productized service business?

Service businesses might find a way out of their difficulty, thanks to advances in technology and market shifts.

A number of innovative businesses, such as Design Pickle, Scribe Media, Lead Cookie, Rev.com, etc: are discovering that by harnessing the benefits of algorithm-driven automation and data analytics to "productize" aspects of their work, they can increase margins as they grow while providing customers with better service at prices that competitors cannot match.

As productized services take over high-volume jobs and enhance judgment-driven processes, productivity improves, efficiencies rise, and nonlinear scale becomes viable. This frees up highly compensated individuals to focus on duties that demand more sophistication—and hence add more value to the business.

However, there are significant problems in building goods to integrate into services. This means that service providers must adopt a new strategy for developing, maintaining, and monetizing their value.

There are various paths you can take to expand your current service business. I always like to ask, “How might I maximize my upside while minimizing the potential downsides?”

This is what asymmetrical growth is all about. Below are 4 ideas to start brainstorming this idea:

1. The most apparent is to introduce new goods, whether they be information goods connected to services or entirely new services. Consider what levers to pull and how to leverage what you do throughout your value ladder.

2. Another strategy is to upsell higher-end bespoke solutions to your present customers. This is comparable to the customer or freelancer model, except that these folks are already paying customers before they see the customization possibilities. Furthermore, the customization possibilities might be limited in scope in order to provide you with the same benefits as your primary product. Consider positioning productized services earlier in your value ladder that will then lead to more custom bespoke solutions at much higher price points I’ve seen work really well.

3. Pricing.
You need to figure out how to price your productized service. Here are a few tips to make sure you aren’t shooting yourself in the foot with your pricing:

  • Don't give customers too many alternatives or pricing. If you offer three distinct services and three tiers for each service, the customer has nine alternatives to select from. According to well-known research, buyers who were given six alternatives purchased ten times more frequently than those who were given 24 options. Customers who were presented with additional options were frequently overwhelmed and departed without purchasing.
  • However, tiered choices should be used sparingly. When given a choice between three prices (low, middle, and high), most individuals choose the intermediate option, with some opting for the higher one. Most individuals don't want to feel "cheap," but they also want to know they're spending wisely, and the middle choice seems to meet both of those desires. You may encourage customers to select the middle, greater dollar value choice rather than the lowest price by creating three levels.
  • When you focus on benefits rather than features, you can frequently justify a higher price. Focusing on features reduces your service to the status of a commodity, and in a commodity market, the lowest price typically prevails.

And, as I've said before while setting your pricing, don't forget to verify and double-check your time estimations.

It should be noted that this growth needs both time and trust. To build a suitable price structure at any of these stages, you must be mature and experienced with the process. And, before attempting to convert your customers to a new pricing plan, you must first establish trust with them. In practice, this procedure might take years.

It's critical to perform your calculations when transitioning from billable hours to transaction-based pricing. Consider your income in terms of a time-and-materials model, then assess how your expenses and margins will change the outcome of automation and alter your rates appropriately. Performing these calculations will save you from charging your service too high and resulting in a disgruntled customer, or pricing it too cheap and ending up with substandard profits.

Finally, it is beneficial to test your product and new pricing model with customers with whom you have established a trust connection and who are willing to engage in the trial. Assure them that you will be spreading out the product and new pricing plan to more customers.

4. Processes and People.
More than simply a solid procedure is required for successfully building items to integrate into a service. The culture of a business, as well as the mentality of its team members, must evolve. The business structure does as well. Here are three things you must have in order to succeed:

  • A division devoted to product development.

In the same manner that product businesses establish innovation units to nurture ideas, service businesses should establish internal product, development teams. It is critical to provide such a team some autonomy; it must have its own budget, personnel, goals, and KPIs.

However, keep it tied to the business divisions because that is where product ideas will emerge. Create a two-way communication in which business divisions may bring ideas to the product team and vice versa, while the team is empowered to nurture those ideas.

  • A multidisciplinary approach.
    People with experience in three areas should be included on the product development team: the business domain, information technology, and price. Domain specialists are required to give a direct understanding of customers, job processes, and business trends. IT specialists are required to provide intelligence and automation to your services while also ensuring that the product can interface with current systems. You also want business analysts who can accurately price your services.
  • A distinct dashboard.
    Customer-facing divisions in the service business analyze their performance and budgets on a daily basis. Product-management businesses cannot function in this manner, and it is critical to persuade the business to place a high priority on long-term goals, as the advantages of product-enabled services may take time to manifest.

Service businesses must adjust their definition of success in order to assess the performance of a product. Rather than relying on traditional service-based measurements (such as customer happiness or process efficiency), consider employing product-based measurements (such as ideas generated, or level of automation achieved).

You may boost your profitability and acquire a competitive edge by following the methods indicated in this guide.


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