If you own a service business and want to sell it and cash out someday, you may be in for a rude awakening. What do you think you’re worth? It’s possible that the value you believed you were creating in your company isn’t there. Why isn’t it? There may be several causes for this. Turning your service into a product, however, could be the solution.
Here are a few examples:
Purchasers think you are overly invested in the company.
They are under the impression that the business is too reliant on your personal relationships. Further, they may think that if you go, your clients would follow.
Your revenue depends too much on one client.
It’s typical in the service industry to rely excessively on a single large client. This, however, can be dangerous. When you are ready to sell your business, a buyer will try to figure out just how dependable your revenue stream is. The amount of dependence you have on any given client will be a deciding factor.
In addition, a buyer will take a severe discount on your market price at best, or walk away at worst, if you rely on one customer for 25% or more of your revenue. Your goal, therefore, should be to ensure that no single client accounts for more than 5%–10% of your total revenue. If you do, the impact of losing a single customer is much less.
Service businesses often have difficulty scaling up.
The number of billable hours in a month, day, or year can limit you. Therefore, it’s difficult to scale up without hiring more employees. This can be costly. Furthermore, services encompass many intangible aspects and demand a diverse set of abilities. Therefore, finding appropriate personnel can be difficult. It’s possible that you’ll have to make a lot of hires using trial and error.
Of course, if you have no intention of ever selling your business or turning your service into a product, none of this matters.
However, pay attention if you want to cash out someday to fund your retirement or gain financial independence. Suppose you simply want to try something new. Start immediately to “productize” your services and revolutionize your business.
To productize a service, you must convert it into a product offering. In other words, you place your services as closely as possible to items. As a result, you will create value that a buyer may be willing to pay for.
To turn services into goods, follow these five steps:
1. Find Something You Can Do Over and Over Again
The notion behind a product is that you want to be able to earn money by selling a “thing” rather than your time. Also, if you want to attain operational economies and respectable profitability, you should sell the “same” thing over and over.
Therefore, take a look at what you’re doing. If you’ve been in business for a while, you’ve probably built a process for at least one service that you stick to religiously. You might not even be aware that you have a distinct process until you set out to identify it. Therefore, you have the beginnings of a “product” if that anything is in fair demand.
2. Create a Manufacturing-style Assembly Line for Your Process
Break it down into manageable phases that people can repeat and that you can train for the job. Accurate documentation of such steps will allow you to determine the costs and convey your knowledge.
3. Establish Boundaries for Your Service
For a product, you’ll need the polar opposite: a clear-cut offering. Set boundaries for your offer. This means time constraints, a flat fee price, deliverables included, and a name you may use to refer to your product.
You give it scope, confine it to a specific time frame, assign a price tag, and give it a particular name. For example, assume you’re an image consultant who charges $75 per hour for your services. What if instead, you charge $495 for a ‘One-Day Makeover,’ which includes a color consultation, wardrobe evaluation, and shopping expedition.
4. Use Technology to Process Sales or Provide Your Service
Using technology to process sales or deliver your service adds to the perception that it is a product. Consider how LegalZoom has a website for what are still essentially services. This is solidifying the notion of a product offering.
In addition, the website streamlines and automates functions to a great extent, potentially lowering costs. However, the point is that it appears to be an actual object thanks to technology. Therefore, customers view it as a product.
5. Build a Company
Even if it’s just you, for now, you’ll eventually need to enlist the help of people to produce, sell, and distribute your product. Nobody wants to buy a one-man or one-woman show. Instead, they want to buy a corporation.
Besides, YOU aren’t scalable, therefore it can’t be simply YOU. To “produce” your goods, you’ll need “workers,” or sales agents to sell them. In addition, you need management to oversee operations. Therefore, build a team of people that have the experience and knowledge you need. They must be people who can work without you every day.
If you follow these five stages, you might just end up with something bigger than you ever thought. Furthermore, if you begin by turning your service into a product it might just be something you can sell one day.
Image Credit: Caio; Pexels; Thank you!