"Let's face it, the billable hour is a great way to get started. It's a great way to estimate. It's a great way to bill your clients. However, service companies cannot scale on the billable hour."
While the billable hour model works well for getting started and can even support growth to thousands of employees, it has inherent limitations when it comes to truly scaling your business. If you want to grow, you need to find more people to pay you more money. Then you find more employees to bill more hours. More billable hours, bigger projects, more clients, more employees. But, that's not how you scale.
Ultimately, if you want to scale your company, you need to start thinking about your service company more like a tech company thinks about a product. Here are three strategic approaches to help your service company scale beyond the traditional billable hour model. 👇
1. Productize your service offering
"How might you productize your current service offering? Meaning how can you look at ways to automate or create major efficiencies in what you do today. Reducing the amount of hours it takes, while still charging a premium rate or a value rate for that service."
Consider these approaches:
- Leverage technology to automate routine tasks
- Create packaged services that can be replicated with minimal customization
- Standardize your delivery process
A perfect example is the design sprint methodology used in consulting. A design sprint is a packaged three to five day process that we do the same way every single time. It can be applied to almost any company. As you get more efficient with it, you actually get better at delivering the service.
Think about construction jobs: "You could definitely have really skilled professional workers go out and hammer every single board and make sure it's all done custom, but you're going to bill in the hour to get that done. Or you could build 60-70 percent of those walls in a factory through machines and then ship the walls to the site, lean them up and fasten them together. And do it a lot more efficient, but still charge that full rate for that construction project."
2. Productize your niche knowledge
The second way to productize your service company is to actually look for how might you productize your knowledge. Your company's expertise is a valuable asset that can be transformed into scalable products. This approach has gained significant traction with the rise of digital learning platforms and social media.
"Knowledge is a great way for you to share your secret sauce, how you do things a little bit different than the competitors. What if you took that knowledge, that secret sauce, and you actually turned it into the product?"
Here's how to get started:
- Document your unique methodologies and approaches
- Convert your internal training materials into client-facing resources
- Create structured learning experiences through courses or workshops
- Package your expertise in different formats (videos, books, online courses)
The best way to approach this is to take an assessment of your company, looking at how you do things differently, and writing it down. Turn it first into a PDF, just noting how you approach these things.
3. Evolve into a tech company
The last way to productize your service company is to think about making your service company a tech company. This often starts with building internal tools to improve your own operations, which can eventually become products for the broader market.
Consider the journey of 37 Signals: "They were a creative agency. They did UX, design, and development and ultimately they moved to a project management solution. That's just easier to use. It's more lightweight and there were solutions that were on the market. Ultimately, they wanted something that was just faster, better, cloud based. And what they created was a tool called Basecamp."
Important considerations for this approach:
- Start by solving your own operational challenges
- Consider whether to maintain both service and product lines
- Be prepared for significant cultural changes
- Think about potentially separating service and product divisions
"When you try to be a tech company and a service company in the same house it can get crowded. They start competing for attention, for focus, and definitely for the culture."
Recap
So we've already explained how you can definitely grow a services company on the billable hour. That's how most services companies grow. And you can get quite large, up to thousands of employees. But if you really want to think about scaling a revenue opportunity, scaling your profit opportunity, scaling your service company, you need to be thinking about these three things.
Remember that you don't need to transform everything at once. Start with one service line or knowledge area, prove the concept, and expand from there. The goal is to build a more scalable and profitable business while maintaining the quality that made your service company successful in the first place.
Ready to scale your service company?
We specialize in helping service companies transform their businesses through productization, knowledge monetization, and technology development. Our team has guided numerous organizations through this transition, helping them achieve sustainable growth beyond the billable hour model.
Want to explore how your service company can scale? Let's talk about your unique challenges and opportunities.
