Consumer expectations have shifted significantly in the world of purchasing services. While we all experience professionals (e.g lawyers) and tradesmen (e.g. electricians) who expect to do work and just let the meter run, some are thinking differently about how they charge for what they do. Doctors offer concierge setups where patients pay a flat monthly fee and get as much attention as they want. Automobiles are selling with 10-year warranties and even law firms are being squeezed by their corporate clients to offer flat fees for a set amount of service or piece work rates for routine work.
Much of this is driven by the desire for consistency and predictability. Folks are willing to pay a premium to avoid surprises, as evidenced by the revenue generated by Radio Shack and Best Buy via the extended warranties they offer on products.
Additionally, most technology products sold need a service “wrapper” to be effective. In my work with early stage companies selling cloud based products to SME and SMB customers, my clients often identify a market for services bundled with their software.
Let’s look at some of the things to keep in mind when delivering a service as a product (SaaP).
Think Like A Customer
Ok, I know that it is a cliché, but putting yourself in your customer’s shoes will help you understand how to productize your service offering. Think through what services, if offered competitively, would:
- Make life easier for your customer
- Take care of some obvious pain
- Make your offering more sticky
- Be easy to buy
- Increase customer loyalty and satisfaction
Also, think through how your customers naturally segment, and where you see the delineation between the amount and types of services they need.
Understand Your Offering Variables
The next step is to understand the variables that drive profitability in your service offering. What does it actually cost to provide a specific service? Which components of those costs are variable? Which are fixed? What items are “margin destroyers?” For example, a restaurant offering all-you-can-eat bread will be less exposed to loss than one offering all-you-can-eat caviar. What “extras” can you throw in to enhance your offering that will not cost you too much?
Most importantly, figure out what fixed rate you would have to charge for a service or bundle of services to make money, and what commitment length these figures are tied to. You might have one price for “cancel anytime” and another, discounted figure for an annual contract.
Finally, think through how your offering falls naturally into bundles, how you can offer it efficiently (i.e. simply) in tiers.
Design Your Offering
Now take what you have learned in the first two exercises and design the SaaP with which you will go to market. As you do this, think through the scope of each tier and its underlying service levels clearly. Items that are highly variable and expensive to offer may have to be quarantined, although you want to minimize how often you do this, as it undermines the simplicity and certainty that a SaaP offering is meant to provide to its customers.
You should have between three and five tiers. Less than three, and you will forego revenue by excluding some of your potential customers. More than five and you may confuse your target customers. Define your deliverables for each tier clearly and succinctly. Your highest tier may well be a custom offering (“Call for quote”), so that you can capture the big, hairy deal that does not fit within your SaaP setup.
Your marketing material and sales pitch must be very clear about what you are offering at a particular level and what is and is not included at that level. You need to manage expectations from your first interaction with a prospect through to service delivery. Make the service levels you commit to very clear.
Get Out There and Sell!
If your sales team has been used to selling your service on a variable basis (e.g. hiring a plumber or lawyer by the hour), you’ll need to train them on how to sell your new SaaP. Doing so requires quite a different way of thinking. In fact, you will likely need to reconfigure your sales team, with more junior reps closing more (smaller) deals, using the tiers you have put in place.