Recently at NinjaOutreach we started offering business services (if you’d like to learn more about what we offer, fill out this form).
I think for some people, this was a bit surprising:
Afterall, we’re a software business and a services component might seem a bit out of place.
I wanted to discuss the strategy behind that decision and make the case for not only why we needed to start offering services, but why virtually all software companies should too.
Not Everyone Likes To Use Software
Chances are there’s a sizeable amount of the target market you’re going after that has more money than time. They don’t want to dedicate the time it takes to learn a new software and use it, they’d rather just pay for the results.
It’s for this reason that I honestly think offering services doesn’t really cannibalize potential software sales. It appeals to a different class of user within the same target market.
Virtually everyone that has responded to our service inquiry is not a customer of ours.
Even better, they tend to be more upmarket customers, because they don’t have the time to invest in software.
The Margins Are Great
Software, especially low market software, is a long grind. You put in all this effort to acquire a customer, simply to have him pay you $19 per month. It can take that customer up to a year to actually pay you back the acquisition costs. Before that, you’re actually in the red. To make things worse, many customers don’t last a year – they churn off
In fact that’s why so many software companies are netting a negative, because they haven’t realized the full value of their newly acquired customers. Hubspot, for example, lost 34 million last year.
You need to grow, and growth requires resources.
Where are those resources going to come from?
An obvious choice is to get funding, and that’s what many people do.
However, an alternative to that might be to offer services. Frankly, you can charge a lot for services because it’s your time, not their time, that’s required. And there’s a general understanding that things that require peoples’ time cost a lot.
This is not to say that services are easy money, but it’s arguably more money than you can get from software sales early on, and that can help fuel growth, while you’re waiting for customers to pay you back.
It Puts You In The Customer’s Seat
We use our tool for our own outreach campaigns. We also listen to customer feedback. It’s safe to say we’re reasonably aware of what our software does well, and what it doesn’t.
But not everyone is a user of their own tool (we just happen to be our very own target market). In that case, you might not be as in the loop.
However, when you start providing services for your customers – things change. You start to see where the software isn’t pulling its weight. You also get a better understanding of the general environment – what else might a company be struggling with that isn’t necessarily related to the software, but perhaps could be addressed?
All of this helps to build a better product and keeps you more informed to make your customers successful, which is really the end goal of any software company.
It Can Make Current Customers Stickier
I mentioned before that the services business appeals to a different market, and for the most part I think that’s true.
But it’s also the case that people using the software could be interested in some kind of service, if it’s positioned and priced right. Remember, services is a broad term.
For a customer to get value out of a software, chances are there are a lot of things that need to happen. Take NinjaOutreach for example. After a customer signs up, in order to really get value out of it, they need to:
- Curate a list of relevant bloggers
- Write a pitch
- Email them
- Get posts published
That’s a simplified version and it’s still 4, relatively meaty steps.
What if we offered a service that handled one of them (for example, the pitch writing). On the one hand, it doesn’t cannibalize software usage because you still need the software for the other parts. On the other hand, it removes friction for the group of users who feel comfortable with 3 out of 4 tasks, but simply aren’t good at writing pitches that drive results.
Another example I saw of this was from Rob Walling’s speech about how he 10Xed Hittails revenue in 15 months. Hittail is a keyword research tool that integrates with your Google Analytics account and recommends keywords for you.
But how do you really get value out of keywords? It isn’t from just knowing them – it’s from writing articles focused on those keywords and increasing your organic traffic as a result.
Therefore, Rob started offering article writing as a service. This not only increased his revenue directly from the orders, but actually made customers stickier.
What Kind Of Services Can I Offer?
OK – so you’re onboard with services, but what do you offer? Every business is different, but here are some ideas:
Break Up The Steps And Offer One Of Them
Remember my example of pitch writing? That’s the perfect example of extracting one of the key steps in the value chain and turning it into a service. These types of services work well because they appeal specifically to users of the software and can make them stickier by removing friction. It’s also an upsell that extracts more value out of them.
Additionally, depending on what it is, it can be relatively easy to outsource. Often individual steps in the chain can be very manual, and therefore executed by an assistant. It’s pulling them all together and making sense of it that requires a higher level of thinking (and thus, not as easy to outsource).
The downside is that this is rarely going to be a big sale, because it’s still only a fraction of what needs to be done to get value.
Offer The Entirely Done For You Service
This is more in line with the big ticket item – just offer to do for them exactly what they would use your software to do. For something like this you could easily charge 10x your average monthly plan.
In fact, you probably should, because it’s going to be difficult to outsource this and can eat up a lot of your time (hence why so many people hate client work).
Another class of services fall into the bucket of advice. Help people get more value out of your software by giving them custom advice. You see a lot of enterprise customers charge a mandatory onboarding fee. See how Hubspot offers a bunch of services for each package, but onboarding is required:
It’s not sure about getting more money out of the business upfront, but also about reducing churn and the need for customer support by turning regular users into power users with hands-on training.
How Do You Go About Offering Services?
I’ll be honest – I was tempted to just write up a 3 – tiered proposal including prices and send it out to our email list. If you were interested, you could order.
But I decided to slow play it a bit more and start with a survey. My goal was to find out what people were interested in and what their budget was so that I could potentially design services packages that would fit what people were actually willing to pay and what they actually wanted to pay for.
I recommend this more customer-centric approach to launching a services component. You’ll be able to identify an overlap in what people are asking for, and turn those into standard proposals.
So there you have it – the reason behind services. For us, we’ve closed thousands of dollars worth of deals by adding services to our set of offers. It’s earning us more money upfront, which will allow us to grow/scale faster, and makes the business more attractive as a whole.