Turning service revenue into product revenue

Product potential in the services industry

If you have expertise in a certain domain and you are trading time for money, you can most likely package it in a digital product. The services industry is pre-eminently an industry filled with opportunities for a (partial) product pivot. Whether you are a pure service provider or selling physical goods in combination with a service, it all boils down to converting existing client patterns into a productised offering.

Our partnership with Progressio, a leading European consulting firm in procurement and supply chain, serves as a prime example. With years of consulting experience in the sourcing and tendering industry, we jointly worked towards the tender management platform “Valcori” that allows users to directly tap into Progressio’s industry expertise.

Similarly, we’ve been partnering for over 5 years with a global accounting firm fostering an overall ambition to turn parts of their services business into digital products. By leveraging these digital offerings, they are able to provide clients complementary value-added services.

Why productise your services?

The productised model offers key advantages:

• Scalability. You can scale your business exponentially without the need for a parallel growth in resources.
• Predictability. A productised business model turns your business into a more valuable and predictable model with steady cash flow. Instead of one-off revenue, the monthly recurring revenue (MRR) becomes your most important metric.
• Customer loyalty. Due to the fact that a product continuously offers touch points with users, customers feel more strongly connected to the product and the community around it.
• Data-driven insights. By monitoring user interaction, data-driven insights allow you to continuously enhance your offering.

So when the advantages are so obvious, why isn’t everyone pivoting? Because doing it is hard. It takes focus, patience and a willingness to play the long game.

How to make the pivot

The process follows a set of operating principles that can be repeated across industries and companies. At the very essence, you’ll need: 

• A problem worth solving. It’s key to identify existing company expertise in combination with a customer need that solves a real problem in your industry.
• A product that users love. It’s one thing to solve a problem, it’s another to provide the solution in the most frictionless manner. 
• A different way of thinking. Typical consulting or service revenue depends on the completion of “projects” that run for a certain period. A productised model on the other hand requires a continuous improvement mindset to the benefit of a growing user base. Users determine your road to success.‍
• A dedicated product team. If you are serious about building up product revenue, you should have a dedicated product team. In the long run, the goal should be to replace or supplement one-off service revenue by more sustainable recurring revenue. Embarking on this journey with individuals who are heavily involved in the services business, will create conflicting views and goals. Set up a squad with only one goal: product revenue.
• Patience. Building a recurring revenue stream is a long term play. It requires a strong vision and focus, both operationally and financially. 

If you acquire 1 new customer every day throughout a period of 2 years for a price of €120/month, you’ll have an annual recurring revenue of over €1mio at the end of those two years. In a product business, small daily efforts make all the difference.

Conclusion: setting a strategy

As a service business, you need to constantly reinvent yourself to remain relevant. Setting out a product strategy is therefore one of the reflections every services company should consider. This strategic exercise should focus on the following questions:

• Which part of our existing service expertise can be productised?
• How could we monetize this product?
• How would this impact the business model?
• Which individuals should be driving the initiative?

Ultimately, any traditional business model has the potential to become a productised business. It’s a matter of turning that potential into concrete steps.

How we partner

At Panenco, we turn industry expertise into lovable digital products. We combine the expertise of our partners with our refined product development methodology. Want to discuss how your service business can be turned into a productised model or want to discuss a bold idea? Contact ruben.opdenakker@panenco.com or schedule an introduction call.

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