The Productized Services Business Model Explained
5 min read

The Productized Services Business Model Explained

The Productized Services Business Model Explained

Could your service-based business benefit from adopting more of a productized service model? There’s been lots of chatter in recent years about the productized services business model, and in this article, we are going to take a closer look at the advantages of this business model and how it could have the potential to transform how you look at your business.

If you’ve ever said any of the following statements…

  • “We can never predict how much we will make in a month”
  • “All of my customers are on completely custom packages”
  • “It’s difficult to keep track of everything we offering to individual customers”
  • “We still have customers that haven’t paid their invoices”

You are likely struggling with one of the most common problems that service-based businesses face – inconsistency across your entire business model. These challenges vary, from expectations to finance, systems, and operations.

You’re bending over and twisting backward to meet the bespoke needs and requirements of potential customers. Yet things can quickly become rather confusing, making it nearly impossible to grow without ripping your hair out. Suddenly, you have to try and keep track of irregular cash flow, stressed out team members, and broken systems. This can cause massive operational headaches and say yes to everything that comes with hidden strings attached.

We completely understand. You want to be able to pick up as many new customers as possible, and that often involves tweaking and adjusting the pricing and workload to meet their needs. What if there was a way to attract dozens of new customers and have them all pay you the same amount of money for practically identical work? Delivery is smooth, and all your customers pay upfront.

It sounds like a fantasy, right? However, if you can nail the productized service business model, this will quickly become a reality. It’s time to add some much-needed consistency to your service-based business. This model is going to suit certain types of businesses more than others, and we’re going to talk about that more later on. Entertain this as a thought experience and “medicine” for your service business. Try part of it or all of it, and see what benefits it can have.

First, let’s dive into explaining what a productized service is. The basic definition can be broken down into 4 key points:

  1. Selling your service in the form of recurring packages.
  1. Tiered packages to cater to the needs of potential customers.
  1. Systematizing every aspect of your service offering or “Mechanism”.
  1. Customer expectations will be crystal clear, increasing conversions.

These are four game-changing points that could completely transform your business and turn it into a powerhouse that is simply destined for exponential growth. You’re probably looking at these four points and feeling a little daunted about how you might implement these changes, as they may be drastically different from your current model.

Have no fear! With the right guidance, change is possible and achievable. Nothing will happen overnight, and you certainly shouldn’t expect anything to. It’s all about getting the ball rolling, and enabling your business to evolve into an entity that is essentially self-sufficient.

First, what does it mean to productize something?

I like to useAmazon.com as a case in point when describing the business model of a productized service. Imagine you’re browsing through products on Amazon. When you click on an Amazon product, you get to see the price, photos and reviews. This helps to build clarity around the product and increases the value proposition.

Service offerings are often plagued by a lack of clarity. For instance, when you visit the website of a graphic design service, you will rarely see any information on pricing. Typically, the website copy will encourage visitors to contact the company for a quote. The lack of clarity around pricing can turn away many prospective customers.

Don’t play a guessing game with your prospects. From the very beginning, with a productized offering, you can be transparent and provide clarity on the cost of your services. You can also use packages to effectively communicate the value proposition of your services all right on your website.

So, let’s talk about each of the four points that we raised in more detail to help you understand why productizing your services can aid business growth.

Selling your service in the form of recurring packages.

There are five main reasons why you should be selling your service as recurring packages with clear deliverables:

  • You will be able to predict your monthly recurring revenue (MRR) more easily.
  • You can set clearer financial targets for your business.
  • You will have consistent profit margins, with defined COGS (Cost Of Goods Sold).
  • You can spread your time evenly across multiple customers.
  • You will be paid upfront for your services and have a consistent cash flow

Tiered packages to cater to the needs of potential customers.

There are 5 main reasons why you should be implementing tiered pricing into your main service offering:

  • You can cater your offering to different customers without having to develop custom solutions, enabling you to keep your MRR consistent.
  • You will be able to upsell existing customers more easily.
  • Potential customers will be able to see the distinct differences in your offerings. This allows you to leverage price anchoring to push people where you really want.
  • The value proposition of each package will be clear.
  • There will be no confusion over what the potential customer will get.

Systematizing every aspect of your service offering.

There are 5 main reasons why you should be systematizing every aspect of your service offering:

  • Rather than dealing with day-to-day business operations, you can focus on business development and growth. Working “on” vs. “in”.
  • The business will not be dependent on the presence of one person, minimizing disruption when they are missing in action.
  • You can build a team that plays to the strengths of every individual.
  • The operations side of your business will naturally become more efficient.
  • You will be able to scale quicker, with a more streamlined and systematized approach to your operations.

Customer expectations will be crystal clear, increasing conversions.

There are five main reasons why you should be productizing your service to manage customer expectations:

  • You can boost customer retention by establishing a positive relationship from the outset. This is what they will remember most.
  • There will, inevitably, be less back-and-forth between yourself and your customers, saving you time and money.
  • Customer satisfaction is likely to increase if expectations are clear and they know what they are getting from your service.
  • Prospective customers will be more assured around what they will be getting in your productized packages, ultimately increasing conversion rates.
  • You won’t get any unexpected surprises from customers further down the line. For instance, without a productized offering, they may get you to do additional project-based work that wasn’t originally agreed on.

Who should leverage the productized service model?

If you’re a service-based business, there are many productized avenues that you can explore. The first should be to start considering the potential for your services to be morphed into tiered pricing plans or packages. This helps to add a level of consistency to your monthly recurring revenue and enables you to clearly track growth.

The productized service model is not limited to specific industries and can be applied to any service-based business. Sometimes, a monthly subscription-style package simply won’t fit your offering. This isn’t required. For instance, the particular service that you provide may not require repeated transactions, and customers may not be in a constant need for it. Identifying the model that suits your business is, therefore, important.

In this case, you can still use the productized service model and tweak it to appropriately suit the service that you provide. You could always offer yearly retainer packages if your services do not have weekly or monthly repeatability. There’s a lot of options, but fundamentally, it’s all about developing consistency across your customer base.

Final Thoughts

I’m a strong believer in the productized services business model. It can often be challenging to grow a service-based business. However, this model makes scaling considerably easier for the reasons that we’ve discussed in this article.

I hope you have found this useful, and if you have any questions in relation to this model and how it can be applied to your business, please do not hesitate to contact me.