Can You Overcome the Pricing-Profit Divide by Productizing Services?

profitHave you been reading a lot lately about the idea that services companies should ‘productize’ their services. This means that a services company- lawyers, educators, specialty consultants, designers, architects, CPAS, and tech services companies– should package their services into ‘products’ they can sell off the shelf.

There are three problems with this:

1) A product is the sum of its components or inputs. You have to find buyers who want that exact list of inputs.

2) As soon as a service is marketed as an off-the-shelf product, it is subject to price competition. The next company will offer the same package for less money. Then what does your company do? Suddenly your knowledge and expertise become undifferentiated, and they lose the unique value only your firm can offer.

3) You lose the opportunity to offer customization, which is the single biggest differentiator of high value, high priced services.

Differentiation and no risk of price competition are THE KEYS to increasing profits. 

What are the rationales for productization of services?

I interviewed a few services company firm executives about their reasoning.

  • “We are tired of writing proposals and having to negotiate to win business. With products, the client or prospect knows what they get and how much it will cost.
  • “We have trouble figuring out what value we deliver. With products its clear what people get.”
  • “Everyone else in this industry offers productized services for a fixed fee.”
  • “We can easily create profit centers for each product and track our sales, costs and profit.”
  • “Products save time and are easier to market.”

My Perspective

My company, Trivers Consulting Group (TCG), has been offering our services using value based pricing for more than 12 years. We’ve served over 300 clients and customers in that time. I can tell you that not one prospect who chose not to work with us did so because of our value based pricing model. There are reasons that make some companies and TCG a poor fit, but the pricing model is not one of them.

If you’re tired of writing proposals that you then have to negotiate, look for the causes.  It is most likely that you haven’t taken the time to build a relationship with the prospective client, you aren’t aligned with their buying journey, and you’re not demonstrating value commensurate with the proposed fee.

Study Past Engagements

If you have trouble figuring out the value your work delivers, go back and study client engagements for the past twelve months. Make a table/spreadsheet with the client name, the work done, and the fee paid. Force yourself to answer the question “What was the value to the client of this work?” You can articulate both quantitative and qualitative value. Write these down on your table. Do not rush this process, it will be the foundation of your future revenue and profits.

When you deeply understand the value you deliver to clients, you’ll be able to:

  • Develop relationships with future prospects,
  • Be aligned with their buying journey, and
  • Offer them services for a value based fee that makes sense to them.

Let me be truly clear: you should always offer different levels of value for different fees, so the buyer has a choice. We do not advocate for a take it or leave it approach.

Over the years I have found that the biggest obstacle to value based pricing is the mindset of the provider’s executive team and Owner. Work on your thinking about this and you’ll be able to increase profits without productization.

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