The Productized Services Business Model Explained
Updated on February 29, 2020
Productized services is still a relatively new buzzword term for some, but it is more than just buzz. The productized services business model is an impressive way to turn freelancing work into an actual company, and thus an asset you can sell (or buy).
A productized service takes a typical service, such as web design, and creates an off-the-shelf style solution.
Productized services can also work in the marketing space. Instead of a search engine optimization (SEO) agency getting one high end retainer client after another, they may instead sell a productized service that gives their clients so many links, or pieces of quality content, per month.
For the personal fitness space, a personal trainer who runs a service business is limited with how many clients they can service by their time. One way to remove this inherent limitation is by turning their personal training services into a productized service, which could be done through “group” training webinars that are recorded in advance for specific goal sets such as weight loss, muscle building, etc.
This kind of model offers a lot of opportunities for people who are operating as freelancers or self-employed online entrepreneurs, and want to remove the limitations on their earning potential by creating something a bit more scalable.
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Examples of Online Businesses With Productized Services
WP Curve is a perfect example of a productized service. Instead of finding a bunch of small paying clients that need WordPress design, WP Curve has made it their sole purpose to give every one of their customers unlimited access to anything WordPress related: design, development, plugin integration, and more.
Design Pickle is similar to WP Curve, in fact, the business was modeled after WP Curve. It markets itself as “The #1 Unlimited Design Service”. In addition to design services, paying members of their subscription also get access to weekly marketing training that can help grow their traffic and customer base.
The Pros of a Productized Services Model
The Ability to Scale
Running a small business as a freelancer can be a full-time venture as there is only one of you in the world. Since your time is literally money, you will always be capped with the amount of cashflow you can generate, unless you raise your prices, which can lead to its own set of issues. This makes it hard to generate passive income as you only really have one income stream.
Using this type of business model, you are able to scale your business to the moon because you remove the individual customized time factor.
Instead of doing a one-on-one hour of personal training with a single client, by using this model, you could be giving fitness training to a thousand or even ten thousand people in the same time frame. With your own podcast, you could educate an even larger audience and promote your brand. These are the types of opportunities available to you in the online business world.
In this way, productized services have a similar scaling benefit that info product business models do. The main difference being that productized services are actually doing a service, whereas info products are about teaching their clients how to perform the service themselves. Since the cost of delivering the actual service becomes a lot easier, you are able to focus on marketing the service more effectively without worrying about your time becoming too crowded.
There are even opportunities to expand into other business models such as e-commerce. If we stick with the personal training example, when your business gets to a certain size, you could set up an e-commerce business and start to sell your own products that relate to the service being offered as a secondary monetization. For example, the personal trainer could sell fitness equipment through e-commerce and make another income stream.
Another type of business that could be built to grow your productized service business, is a content site. Using this content site for content marketing it can act as a mini media company for your original business to help you acquire more market real estate. Content creation is a great way to get your business seen.
Previously Unprofitable Niches Become Profitable
In the fitness example, it would not make sense to ever run Facebook ads in a distant city, much less in an entirely different state or province that you live in. Using a productized service though, you could run Facebook ads internationally if you wanted because you have effectively eliminated your need to be present.
In the marketing world, marketers can target businesses through LinkedIn and other channels that normally couldn’t pay the high retaining fees that agencies need to thrive – businesses such as restaurants or massage therapists for example.
The Implementation of Affiliate Programs Into Your Online Business
If you are just an SEO freelancer or web design freelancer, you could offer a referral bonus through affiliate marketing as a growth strategy, but it will always be tricky, and maybe not the most attractive option for an affiliate blogger because the amount of money they make will always range so drastically based on each person’s individual needs. In addition, an affiliate program attached to traditional freelancing could mean a whole lot less sales because there is no clearly defined sales funnel like what can exist with a productized services. It is hard to make a high converting sales funnel when each client is unique and priced completely different with varying services.
With a productized service, you could implement a real affiliate program that has real income metrics that an affiliate can look at. Like WP Curve’s affiliate program, where they pay an affiliate $10 a month for every customer that stays on their product.
The last three major benefits are something every freelancer would love to have happen in their businesses:
- No need to ever write another proposal that could just get rejected.
- No hourly rate blues, which depresses most freelancers’ pocket books and constrains their billable hours.
- No more work scope creep, where a project that started off simple mutates to the point of unprofitability.
The Cons of the Productized Services Business Model
While there are a lot of benefits to this model, there are also some downsides that you should take into account before rushing off and figuring out how to turn your freelancer work into a productized service.
Less 1-to-1 Profit
These kind of online businesses work best when you scale to the moon and start converting loads of potential customers into paying customers. Eventually this goes away as the business becomes more successful, because you will be servicing more customers than you could ever service back in a traditional client model. Still, it is important to take this into account.
A Less Intimate Experience For Your Clients
There is also going to be a far less intimate experience on your client’s’ side with this type of business. Depending on if you already have a bunch of clients or not, some of them may not appreciate this. Do not let this stop you, though, as many of potential customers are looking for off the shelf services.
Even with a less intimate relationship, you will likely still need to talk to new prospects to sell them on the service at first. As your name gets bigger, this will happen less frequently. Remember, with less intimacy also comes less loyalty and you might experience a higher turnover rate because of it.
Time
The biggest con of starting a productized services model is time.
You first have to think how you can productize your service, then you need to learn how to price it appropriately, where you can make profit, and if it still makes sense for the potential customers you will be targeting. There are funnels to be set up, marketing campaigns to be initiated through Google ads, or Facebook ads, LinkedIn ads, or whatever adnetwork/social media platform works for your business – it will likely take some testing. Also, there’s the SEO work that needs to be done to help your site rank in Google and attract more potential customers, which includes adding backlinks into your content, etc. As well as this, the upsells need to be figured out and, of course, how you will actually deliver the productized service.
All of this takes a ton of time, resources, and skill to get it up and going properly. Honestly, it is what kills the majority of productized service businesses before they even start to really make money.
What Buyers Need to Know About This Business Model
One thing that is really nice about these businesses is that they can transfer over to the new buyer a lot easier than a client or info product model.
Often these other business models have a bit of a personality branding issue going on. The appeal of a productized service is that it can run with whomever is executing the service. The merchant accounts become a lot easier to switch, and there is no need to reach out to clients to renegotiate contracts, as most of these businesses offer a one time product or just a simple monthly subscription model.
Another big bonus for buyers with productized service businesses is that the actual buyer does not necessarily need the skill sets to do what the actual product does, since the service already has its deliverability infrastructure in place. If a buyer was looking at a productized web design business for instance, they might not need to know how to do web design to make this business successful, as there are already resources such as software as a service (SaaS) tools in place delivering these services on semi-autopilot. Or if they were running a SaaS business they would likely need to have some development skills to run the business successfully.
Obviously, with any business you will want to do your due diligence.
If you do not have the skill sets needed to create more products (or even one product) in this niche, you should ask yourself how you will find someone to do that — or make sure that by buying this type of business, there is also a well trained employee that can take over these kind of roles for you.
What Sellers Need to Know About This Business Model
The beauty of this business is that it allows freelancers to package up their skillsets into a real asset that can be sold for a big payday. Because of the way it is structured, these businesses will be a lot more attractive than a typical agency or freelancer business model to a buyer.
This means you will have a much larger buyer audience that will be intrigued by your online business.
Make sure everything is correct, have your P&L ready to show the prospective buyer, and build out a swipe file of any Google ad or Facebook ad, or any other campaigns that have been working successfully for your online business. These will interest a potential buyer even more, knowing that the product and the marketing side of the business are as plug and play as possible ready for when they become the new business owner.
What Buyer Persona Best Fits the Productized Services Business Model?
Portfolio Paul
These kind of businesses are very good diversification for a portfolio builder. While they are not nearly as hands off as an Adsense or Amazon affiliate business, they offer a unique set of benefits to a portfolio builder. For one, they aren’t reliant on any program. You will never have to worry about Adsense or Amazon banning your account, because it is a product you own from start to finish.
It also allows you to split test the entire sales funnel, unlike an Amazon FBA business where you are again adherent to Amazon’s policies.
Strategic Sally
For someone looking to corner their niche market, having a productized service is a fantastic way to expand an ever growing empire of sites and related businesses. For example, if you own a dropshipping business or e-commerce store in the fitness niche, you could leverage the email list you are building right into the productized service business you just bought in the personal training niche as a way to boost both businesses through email marketing – since the customers of the productized service will likely soon hear about your great products in the health niche.
Investor Ivan
For an investor, these kind of business models offer a great opportunity. A person who is willing to be the money in the business can buy one of these models and hire experts to craft and create new products. Because an investor is likely to have a lot more capital to grow these businesses, they make a great fit for when a productized service business is ready to be scaled aggressively but the current business owner doesn’t have the advertising capital to launch Facebook ads, Google ads, LinkedIn ads, and/or other marketing efforts.
For an investor and the future business owner, it is very important that they know the business already has proven advertising that is generating customers at a profit.
Growth Strategies For Productized Services
There are several avenues you can go down to grow a business like this.
The most obvious is to add new products, whether they are info products related to the services, or flat out new services.
Another method is to upsell your current customers on higher end customized solutions. This would be similar to the client or freelancer model, but with the difference that these people are already paying customers before they even see these customization options. Plus, the customization options can be limited in scope to give you the same benefits of your core product.
The next step is to explore new marketing channels. Is the business highly Facebook ad centric? You could use the knowledge of what is working with your Facebook ads to try out a new demographic on Facebook, or take your knowledge of the highest converting demographic and apply it across the board to other channels and ad networks such as Youtube, Twitter, Pinterest, Google, LinkedIn, and so on.
Obviously, you should be split testing pricing all the time. Find out which pricing converts the best. You might be able to earn as much as three times more for every customer just by doing this, or cut down the cost of customer acquisition significantly by finding the perfect pricing structure that appeals to the most amount of people. Pricing is important, but remember to split test every aspect of the funnel – from sales copy, to even the checkout cart design that you are using.
Since you control every inch of this space, it should be something that you are testing as much as possible to find the highest converting funnel for your particular target market.
Resources To Learn More About The Productized Service Business Model
The productized services business is still a relatively new idea in the online world. There is no one grand thought leader on the subject, but there are many people out there publishing their own experiments, successes, and failures with this business model.
One business I highly recommend following is WP Curve, which has taken the WordPress development niche by storm with its productized service.
Here is a good article to get you started.
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Or maybe you didn’t realize just how attractive these businesses really are to potential buyers and want to cash out on the gold mine you have built with your own business? In that case, click here to learn how you can sell your business with Empire Flippers for a big payday.
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Discussion
Great post, Greg. One thing I noticed is that it’s not very easy to sell highly priced services. A buy button looks really daunting when a service costs $4,000 a month. It seems like those still need some sort of sales pipeline (consultation call + sales team) before you can hook the customers into your business. Once they are subscribed, you could sell them lower-priced packages though.
Hey Deian,
Very true 🙂
Though, don’t be intimidated by using a high priced buy button. We also thought the same when we added a buy button to our listings that ranged between $20,000 to $100,000. Surprisingly, we had people actually use that button and buy businesses from us without them barely even speaking to us.
You are right though, selling a service business is incredibly difficult. You need a really good exit plan to make it go well, and even then it is often a challenging endeavor!
I think the key takeaway I had from my research is that there isn’t an explicit line between products and services. It’s more of a continuum, and even items that we think of as pure products (cars, boats, houses) are often sold a bit like services and items that we think of as pure services (cable, bug extermination, accounting) do borrow a bit from services.
Absolutely. It is a weird hybrid, but one that can be incredibly successful when done right. Productized services biggest hurdle is the scaling portion – how do you keep a steady line of skilled employees to fulfill the service as your business goes through hypergrowth? If you can figure that out, you’re going to be in a GREAT position, as this is the biggest challenge most entrepreneurs face in this business model
While I’ve been in a service-based business (which slowly morphed into an agency), it was always hard to manage projects, clients, and the monstrous complexity that an agency business really is.
So, for a productized service, I slapped an ecommerce layer to a perfectly produtized business where I create landing page templates and Pop-ups (lead generation tools) for businesses.
Businesses buy templates directly and customize them or they purchase a custom funnel, a pop-up or landing page.
What do you think?
Hey Ash!
I think this is a fantastic idea. We’ve sold templated-style businesse before, and we love them. They take out so many issues that agencies can run into like:
1. Not being able to scale traffic due to long sales cycles (i.e much easier to run facebook ads to a business selling templates than web design)
2. No scope creep. The template prevents that by the very nature of what it is.
3. It is easier to fulfill. If you ever do the sell business, a new owner can see themselves fulfilling the actual service way easier vs a customized design project every time they acquire a new client.