Most of us don’t go through a single week without buying some type of service product. The increased prevalence of service industries over the last two decades has made this the fastest expanding sector of the economy. The service sector, as defined here, includes the major industry groupings of trade, finance, insurance, communications, public utilities, transportation, and government, as well as business and personal services. And it accounts for almost three-fourths of the Nation's employment.
The very nature of “service” involves a larger degree of personal interaction. When I purchase a book from, say, Amazon.com, I am buying a tangible product. When I pay someone to cut my hair or do my taxes, I am buying a service. It is this heightened level of personal attention and relationship that sets a service business apart from a manufacturer or retailer of tangible goods. And it is typically that lack of a tangible product that presents one of the greatest challenges for developing and marketing a service business.
Putting the “Service” into Business Planning
A number of my clients are service providers and one of the challenges they often face is in determining where their “service” ends and “customer service” begins. One client, a financial planner, came to the realization that the two are, in fact, quite integrated in the minds of his customers. When we began to talk about his delivery process, it was quickly evident that how he delivered his “product” (his financial planning services) was part and parcel of not only the service itself, but his customer service process and approach as well.
In developing a service business, as opposed to a product-based business, there are a number of considerations. How you market your service business, how you “produce” and deliver your service, and what you need to charge for your service – these are all areas that must be strategically thought out – and all of which can differ considerably from a product-based business.
Counting the Cost
While many of the financial considerations of a service business are no different than that of a product-based business, there are some unique aspects to take into account. While a product has to be made, shipped, stored, packaged, delivered, etc. this is not true with a service. So some costs associated with the business making and/or selling tangible products simply don’t exist for the service business. On the other hand, “soft” costs such as additional employee hours, training, and staff support may be greater for the service-based business owner.
For example, one of my CPA clients was struggling with the need to determine her cost of services (COS) which is the equivalent of cost of goods sold (COGS). How should she price her service in order to not only cover the actual cost of generating the sale, but the actual cost of performing the service? We worked with her financial statements to define exactly what constituted costs incurred with the actual performance, or delivery, of her company’s service as well as the lead generation and lead conversion costs that were tied directly to the service. Having calculated the actual costs associated with delivering her service to a client, we were able to determine a “break even” amount that she would need to charge for her services. From there she was able to calculate a reasonable fee that would provide her with a healthy gross profit to cover her fixed expenses and give her a net profit she could grow with.
If You Build It Will They Come?
One of the biggest dilemmas for all service businesses is simply marketing their service effectively. As Harry Beckwith states in his seminal work, Selling the Invisible, “Services are invisible; services are just promises that somebody will do something.” He goes on to say, “The first step of service marketing is your service.” The greatest advertising and flashiest website won’t last long if your service is flawed or subpar. By the same token, you can provide the greatest service in your industry, but if your lead generation (often referred to as “marketing”) is ineffective or non-existent you won’t have anyone to provide your great service to!
Despite the plethora of advice, programs and gurus, many business owners still balk at the prospect of figuring out how to best market and promote their business. And this is equally true for purveyors of services. The hallmarks of truly successful service businesses are value and quality. Leveraging these in your marketing efforts is one of the keys to breaking through the noise and clutter of the marketplace and reaching your ideal clients and customers. The author of Duct Tape Marketing, John Jantsch, has defined marketing as simply, “Getting people with a need to know you, like you, and trust you.” As a service-based business you have many advantages over the product business in that your range of “touch-points” with your prospective customer is often far greater. So you have more opportunities to appeal to and attract those customers and get them coming back again and again.
Up Your Game!
Aside from cost and availability, your greatest asset and competitive advantage is how well you do what you do. It is here that your service business will be made. It is the quality and the excellence of what you do, and how well you do it, which will determine if you can generate repeat business, word of mouth, and enthusiastic referrals. And it is here that your greatest challenge will be found. Whereas a consumer of a product typically has a tangible item in hand after their purchase, your customers often have only a passing experience and a memory. But this is the very thing that can be an advantage for the service business owner, as well.
Whereas the producer of the tangible product cannot make substantial improvements or adjustment to their product without considerable cost and effort, it can be a relatively simple and cost-effective effort on the part of the service business owner. Listening to your clients, making adjustments, improvements, and innovations as a result – this should be an ongoing process in any service business. And keep in mind the axiom that “service” is at the heart of a successful service business.
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By Michael Gerber
About the Author: Michael Gerber
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