Productized Services: Why & How Custom Digital Services Firms Should Adopt Them
Productized services are packaged service offerings that digital services firms and consultancies can resell in a repeatable, standardized way. These packaged offerings are common in production companies that bundle deliverables and deliver them for a fixed cost on a set timeline using the same roles for each project.
For example, a digital marketing agency may have a productized search engine marketing (SEM) package. Every client that chooses this package gets the roughly same thing for around the same price: A discovery session, 3-page documented SEM strategy, 10 Google Ad campaigns, a certain number of campaign management hours, a 1-hour monthly analytics review and campaign refinement, and a 30-minute weekly touch base. The agency has run these campaigns so often that it knows precisely what and how long it will take and which roles it will require to deliver the service successfully.
At the highest level, the business benefits of productized services are that you can serve more customers without the expense of time spent determining the correct scope, timing, pricing, and team required for each project. As a result, your margins are higher, expectations are clearer with your clients and across your teams, and you can deliver good work predictably and repeatedly. According to Service Performance Insight, a leader in Professional Service Market Research, the use of productized services is a leading indicator of more mature pro services companies, and best-in-class professional services organizations generate nearly 80% of their revenue through productized service offerings.
Too custom to productize your services?
Unfortunately, it’s a common misconception that custom firms and software development shops can’t productize their services. Clients typically approach these custom shops with high-level business challenges unique to their organizations — situations that almost always make it impossible to standardize and predict what, exactly, each client will receive in the end.
However, there are opportunities for custom firms and development shops to productize their services to reap the many business benefits of doing so. It just requires a new way of thinking.
First, custom firms have many opportunities to develop value-add services that are standardized, predictable, and repeatable. Examples could include packages for website security audits or accessibility updates. This à la carte work is the work that’s easy, repeatable, and high margin for your firm. The output is always the same, and you can do it really well because you’ve done it so many times before.
Then there are the big, challenging, and ambiguous projects. A client has a significant business challenge, and you know your team can solve it using its insights, experience, and unique methods. But you’re not sure what the exact outputs of the project will be. When your firm doesn’t know the specific deliverables (the outputs) that will result at the project’s end, it needs to productize what it knows will remain the same — the inputs.
Inputs include your firm’s principles, methodology, process, team, tools, and artifacts. These inputs, shaped by how your team thinks and its experience, set you apart from other firms. Custom shops that productize these inputs can scale their differentiated value in ways they haven’t been able to otherwise — marketing, selling, and delivering their services more consistently and profitably.
A new approach: Is the value in the inputs or outputs?
When starting a new project, you should first ask whether the value of the project is in the inputs or outputs. In most cases, it makes sense to have some services productized on their outputs and others on their inputs.
However, you run the risk of becoming commoditized if you only productize your outputs. (“You get a new website that includes deliverables X, Y, and Z for $50k.”) Prospects will compare your price and list of deliverables against the other proposals they receive. If you’re the higher price and haven’t demonstrated why you’re worth it (your unique value), we can almost always guarantee that the prospect will choose the lower-cost firm.
So, how can a firm or custom agency effectively productize its inputs to protect and communicate its differentiated value? Let’s consider an example.
A global food and drink company approached a custom creative agency for an innovation project to develop a new food brand. All of the other agencies this one was competing against delivered proposals that included project plans with a slew of deliverables. The creative agency knew it would waste valuable (and expensive) time if it took the same approach. The agency didn’t know without first going through discovery and an innovation process what the exact outputs of the project would be. How could they possibly create a project plan and promise specific deliverables?
Instead of following the pack, the creative agency pitched the food and drink company on how their agency works and the methodology it had developed over time, through relevant experience, to help clients navigate innovation. The agency took the stance that innovation isn’t about following a project plan. It’s about the discovery process, methodology, and principles used to uncover insights to drive the project forward in the right way.
The creative agency won the work. 🏆
The agencies that competed against the creative agency likely went through rounds and rounds of revisions to develop their proposed project plans, deliverables, and price. The time spent ate into their margins. (And they didn’t even win the work.)
The creative agency, meanwhile, had productized how it approaches innovation projects. It structured its discovery phase and methodology, demonstrated why its team was the right one for the job, and shared what tools it would use to deliver the project successfully. The agency could then use a similar version of that proposal over and over again with other clients seeking innovation projects.
The agency effectively: saved time, protected their profit margin, demonstrated their unique value, set clear expectations for the client and project team, and ultimately won the work. They also eventually won more high-dollar innovation projects using the same proposal and approach.
Business benefits of productized services
It takes time and thoughtful planning to turn your firm’s inputs into productized services and determine when it makes sense to productize your outputs. But the business benefits you gain justify the effort. Here are just a few of the biggest benefits your agency can expect from productized services.
- Higher margins from less time estimating, scoping, and selling work. There’s a lot of upfront work that goes into selling custom projects. Often this requires ongoing discovery sessions with the client to figure out what they are asking the firm to do or build, plus various rounds of estimates and scopes that require collaboration between many internal teams. If you haven’t productized this phase of the process, you aren’t getting paid for the time, and it’s a margin loss.
Firms that standardize their inputs — including the discovery phase — can charge for this time, shorten their sales process, and increase their margins. For example, instead of spending 4-8 weeks drafting various scopes and estimates and attempting to define the project deliverables (that will almost certainly change by the project’s end), the firm can create standard proposals that showcase their approach and methodology. Then, they can more quickly close the deal and get paid to do the heavy-lifting and discovery.
- Optimized service offerings because you can compare them to each other. It’s difficult, if not impossible, for agencies to compare their services against each other when they approach each project as entirely new and custom. Different teams do the work at different rates, and there’s often a lot of nuance to each project. As a result, comparing the health and margins of each custom project is challenging at best.
Firms that productize their services can better compare their projects’ performance against each other because offerings are more defined and repeatable. For example, let’s say a firm has two productized service offerings. One is a 2-week discovery phase, and the other is a 4-week website audit and security project. When both services are productized, you can compare their profitability, on-time delivery, on-budget delivery, customer demand, and how effectively each leads to additional business. These insights can inform whether either service needs adjustments or which the firm might promote more with clients.
- Greater value delivered to clients. Productized services allow for more predictable client relationships because you set clear expectations with clients upfront. They understand your approach and methodology because you documented it in detail to sell the work. What’s more, your team operates more efficiently and effectively because you’ve done the work before, and everyone knows which process to follow. The repeatable nature of productized work leads to more on-time and on-budget delivery and happier teams.
Are you ready to productize your services? We’d love to show you how Parallax, a professional services automation platform built for digital firms and consultancies, helps our customers launch, run, analyze, and optimize their productized services. Together, we’ll get your firm operating smarter, healthier, and happier.