Ditching Hourly

Hello and welcome to Ditching Hourly. I'm Jonathan Stark. Today I'm going to talk about how to break the habit of trading time for money using something called productized services. The content for this episode breaks into roughly three sections. First, I will define what a productized service is. Second, I will talk about the pros and cons of productized services. And third, I'll give you some specific steps about how to create a productized service. All right, so what is a productized service? My personal definition of a productized service is that it is a fixed-scope, high-touch service that you publish with a given price on your website. Some examples of this sort of thing would be a website teardown or a mobile usability report, maybe an onboarding analysis for a SaaS or a security audit also of a SaaS or some internal workflow or internal system. You could do database performance audits or an application architecture diagram, cloud migration plans. There are all sorts of things that you can sell as productized services. The things that these examples that I've given have in common is that they occupy a particular section of the four phases of engagement. The four phases of engagement are that you diagnose a problem, you prescribe a therapy for the problem, you apply a therapy for the problem, and you reapply the therapy for the problem. So in the software development world, diagnosing a problem would be, as an example, locating the cause of a website slowdown. So you'd say, somebody contacts you and says, oh, my website's running very slowly. Can you figure it out? Figure out why. And you do some investigation, and you get back to them. You say, yeah, the database is the bottleneck. So you've diagnosed the problem. The phase after that is that you would prescribe a therapy. So you'd say, what you need to do to fix that database bottleneck is to do X, Y, and Z, maybe add some indexes to fields or whatever. Third, application of the therapy would be you actually fixing the database problem. This is the place that developers normally occupy. They normally skip over the first two steps, or they give them away for free, and they just go straight to applying the therapy. Actually, in many cases, the client will come to you with a prescribed therapy and expect you as the developer to just apply the therapy. Other times, you'll collaborate with the client to determine an appropriate therapy, but not charge for that determination, and then get paid to apply the therapy. And then finally, the fourth phase of engagement, the reapplication of the therapy. In the software development world, that is usually something like a support contract or ongoing maintenance, that sort of thing. So you've done the initial, let's say, database performance fix. You've fixed the bottleneck in the database, and they pay you to periodically come back and repair things if they get slower or clean up the database, whatever the main project was, you'd sort of stick around to continue doing related work. Now, of these four phases, diagnosis, prescription, application, and reapplication, the first two have the most value. They usually don't take a long time compared to the application of the therapy, a.k.a. the implementation of the fix, but the value can be very high for these. So when a client has a problem like, let's just keep with that example of the performance bottleneck in the database, it could seem like a major problem to them. They could be losing tons of business. If they're a big e-commerce site, you can imagine that a database slowdown would be costing them lots of money. If they don't know why that problem is there, then they would happily pay someone who they trust to go in to figure out what the problem is and tell them what to do about it. And like I said, if you're an expert in this area, it won't take you a lot of time to do that. You could probably do that pretty quickly. And these two phases, the diagnosis and prescription phases, are the two that the best productized services occupy. That's where you want to focus. You can't focus on phase three, application of the therapy or the implementation phase, because that's a software project, and you can't really create a fixed scope for that sort of thing with most clients or most projects. Projects are an ongoing collaboration between you and a customer. They take a long time, usually at least three months. So if you're working at stage three, it's not really a productized service because you can't have a reasonably fixed scope for any client. You could create a productized

for stage four or phase four reapplication or maintenance or support, but the value is very low there. So creating a productized service around reapplication is probably not the best use of your time. So you want to focus on phases one and two, diagnosis and prescription, to create a productized service. All right. So there are some pros and cons with productized services, as there are with everything. The pros are that productized services are relatively easy to market and sell. They're much easier to market and sell than custom projects are. You don't have to talk to anyone necessarily first. You can just put them on your site at a given price. You can jump straight to the sale. So leads that contact you about a productized service are ready to buy or they wouldn't bother you because they can make a value decision based on the price that you have published and the relative pain that they're experiencing. Productized services are also very conducive to marketing automation. So you can do all sorts of things to automate the marketing and sales of a productized service. It's much easier than ad hoc consulting projects or software projects because in those cases, you have to talk to a customer first to determine if they're a prospect first to determine if they're a good fit and get a sense of what value you could provide to them via having a wide conversation, which I've talked about in a previous episode. Productized services are also conducive to optimization and refinement. So as you do these things over and over, you can optimize them. You can automate certain aspects of the delivery and sales or follow-up. You can remove things that are very tedious or labor-intensive on your part that customers don't value that much. So over time, you can make them much more profitable by decreasing the amount of effort that it takes for you to sell and deliver these sorts of services. And the final benefit is that productized services offer you a relatively low risk way for a customer to engage with you, which allows you to create trust based on a financial arrangement, you know, financial relationship. And once that's over, it's much more likely that they would be open to hiring you to do an implementation. Okay, so productized services also have some cons, some downsides. The first one is that there's potential to leave money on the table. Since you're publishing a price for the service, you know, you're describing the scope, you publish the price, you say, here's how to contact me to take the next step. Small clients and big clients pay the same amount. Usually, big clients benefit far more from a service than a small client will. It's almost certain. So if you start to have really large clients buying your productized services, then you're probably leaving money on the table because their value, the benefit to them is so much higher than it would be to smaller people, smaller clients that you could have charged them more had you had a value conversation with them first, a wide conversation. So that's one thing. Another thing is that it can take time to make them profitable. The first time you deliver a productized service, you're going to be the worst at it. It's going to be the least optimized. It's going to be the least automated. So your costs are going to be at a maximum. Also, you're not going to know exactly which pieces of it are the most valuable to your customers. But over time, after you deliver one of these things four, five, six times, you're going to start to know which things are a real pain to do. And you're going to have ways, you're going to have found ways to automate certain aspects. And you're going to find out what customers find the most valuable. And with all of that information and groundwork, you can make it much easier to deliver the service. So your cost effectively goes down. So even if you don't raise the price, you can increase your profit because you're still selling something at say $1,000, but now it only takes you an hour to deliver it instead of 10 hours. The other thing that you can do over time is just raise the price. So if you sell something for $200 one day and you get four sales almost immediately, you know the price is too low or that you can probably sell it for more. And one approach is to just simply raise the price by some percentage every time you sell it, maybe 50%, whatever you think. Over time, you can decrease your costs and increase your price, which makes it more and more profitable, makes it almost exponentially more profitable. But it can take time for this to happen. So that's a downside. Another downside is that productized services are usually not recurring.

monthly retainer or some sort of monthly service contract. It's usually a one-time thing. It may lead to a recurring thing, but they on their own are usually not recurring, which is a downside for some people. And then finally, the last con of productized services is that they can require discipline to ward off scope creep and customization. You will probably find yourself getting requests from prospects to do the productized service but with this, or we like the idea of the productized service but can you change this about it or that about it. And you really have to say no to these things. It's really better to say no to customers like that because it'll make it more difficult for you to optimize the service. You're really doing a custom service if someone does that. So if somebody called you or contacted you and said, hey, we like the looks of this productized service but we'd like to add X, Y, and Z, then just jump on the phone with them and do something custom and price it custom and don't pollute the productized service by customizing it for individuals because it'll make it harder. It'll sort of exacerbate the problem of making it more profitable if you're changing it every time. You don't get any benefit of automation or optimization. All right, so how do you create a productized service? Ideally, you'd base a productized service on past experience with clients or with research that you've done in a particular area. So you probably have some skill set. Let's say that you're good at responsive web design and you're familiar with some target market that just commonly has very bad websites on mobile phones. So their websites usually are very unfriendly on mobile. It could be something like restaurants or credit unions or whatever. So you either have clients in this area or you have done research in this area of this target market and you know that they have this common problem and that it's costing them money or stress or time. Once you're aware of this problem or expensive problem as I typically call them, then what you would do is draft a description for your productized service. This isn't a sales page or anything like that. It's just a private document that you would use to think through the service delivery lifecycle. So it would be something like, you'd think about, okay, I'm talking to this pizza place and they want my responsive retrofit teardown or my mobile onboarding or mobile usability study, whatever it is. And you think, okay, let's say Papa John said, yeah, we want this. What you want to do in this description is create an internal document just for yourself with no marketing mumbo-jumbo or anything like that and just list everything that you would do from the point that the customer says, yes, here's my money, go ahead and do it, all the way through the delivery and post delivery and any follow-up that you might do. So this is just almost like a timeline of what you would do and when and any points where the client would need to be involved to give you access to maybe some of their employees to ask questions or access to their code base or their database or whatever it is that they need to do. But you have a full timeline of the project engagement, or I should say the service delivery. It's not really a project. And the benefit of this is it allows you to really think through what your costs are going to be. And of course, once you finally do sell one, you'll have information for exactly what needs to happen and when that you can communicate to the client in a little bit more, probably in a more refined way, but this is the draft of that. This is the early stage of that. So once you've got this description, you'll have a pretty good idea of what your costs are. And in fact, your costs for the first time you ever do sell this and the first time you ever do deliver it, your costs are going to be at a maximum. Like I said before, over time, your costs will go down and your profits will go up. And in fact, maybe your price will go up as well. But initially, you're going to have to set a price and you probably want to set it right around the break even point. So right around the point where you're like, oh man, that was barely worth doing. It was harder than I thought. I thought I was going to do okay, but it was harder than I thought. And I feel like I didn't really make that much money on it. I almost would have rather not done it. So you want to set your price right around there for the first delivery. Now, idealistically, what you do is set your price by thinking about who's your ideal client, talking to your ideal client, finding out what their expensive problems are, figuring out how expensive their problems are to them. And like I said, think about your cost of delivery. So figure out exactly everything that's involved for you and really how much of a pain it's going to be. Now that's idealistically. Pragmatically, in terms of pricing, you're probably going to start...

Into high three figures for a productized service. So you might have to sort of reverse engineer the description of what the product is and the delivery of the product is. You might have to reverse engineer it to get it into a place worth mid to high three figures feels comfortable, feels like a break-even point for you. Then what you'll do, as I alluded to earlier, is increase the price every time you sell it because you know you're starting low, just to get some sales, get some feedback, get some understanding of how hard it is to deliver and what you can optimize. And ultimately, you're probably gonna land with a final price somewhere in the low four figures, somewhere in the thousand to $2,000 range. It depends on the client, but if you go too much higher than that, they're probably gonna want to talk to you at length on the phone and you run the risk of it turning into a custom engagement. So instead of benefiting from all the optimization and marketing bonuses of having a product, a productized service, you'll end up with a more protracted sales cycle that's more similar to a custom consulting engagement. So you wanna keep the price low enough so that someone will pull the trigger without having a long conversation with you. It's okay if maybe they send you an email and ask a couple of questions, that sort of thing, but if they feel the need to, if the price is really high, it's more likely that folks are gonna feel the need to get on a conference call with you, maybe with some other people, and really kick the tires before they make a buying decision. So you wanna stay away from that sort of thing. And you can do that very profitably by making sure that your scope is reasonable so that your scope is small enough so that a low four figures, say one to $2,000, is really profitable for what you're delivering. Okay, so to kind of wrap that all up, today we're talking about productized services, and the reason why I think productized services are an interesting topic for folks who are interested in ditching hourly is that productized services break the connection between your price and how much time it takes you to do something. So your price is your price, and over time, as you deliver a particular productized service, you can decrease the amount of time that it takes you to deliver, and therefore increasing your price. So this isn't value pricing per se, but it is another way to ditch hourly billing. That's it for today. I'm Jonathan Stark, and this is Ditching Hourly. See you next time. If you bill by the hour and would like to learn how to significantly increase your income, please go to valuepricingbootcamp.com to sign up for my free email course. Again, that URL is valuepricingbootcamp.com. Hey, Jonathan again. Do you have questions about how to improve your business? Things like value pricing your work instead of billing for your time, or positioning yourself as the go-to person in your space, or maybe productizing your services so you never have to have another awkward sales call or spend hours writing another custom proposal. Book a one-on-one coaching call with me and get answers to these questions and others in the time it takes you to get ready for work in the morning. Best of all, you're covered by my 100% satisfaction guarantee. If at the end of the call you don't feel like it was worth it, just say the word and I'll refund your purchase in full. To book your one-on-one coaching call, go to jonathanstark.com slash call, C-A-L-L. That URL again is jonathanstark.com slash call. Hope to see you there.