What if you could triple your bottom-line profit? Sounds too good to be true, right? I thought so too, honestly, but it’s not. Some service-led partners are already outperforming their peers by 3x. What’s their secret? I sat down with Paul Dippell, CEO of Service Leadership, Inc., for a look into the performance and methods of these high-performing companies in a recent webinar.
What does services-led mean?
Paul Dippell defines being “services-led” as still a predominantly product-centric business that approaches the marketplace and the sales process with the service offering at the forefront of the discussion.
It is the most profitable and differentiated form of the product-centric business model moving you from a transactional product-based relationship to a value-added services relationship that yields more traction, pricing power, and stickiness with your customer base.
Dippell made the following distinction: You are product-centric when your product resale revenue is greater than 60% of your total revenue. The services-led dimension can still apply, but:
- Not all product-centric firms are services-led
Picture this as a spectrum. A product-centric firm with little to no revenue from services is on the far end of product-centric spectrum.
- Not all product-centric organizations have services that are profitable
As with any other product you sell, providing services profitably is a delicate balance of revenue vs cost to provide the service. To be profitable you need to take into account all costs including time spent. The temptation to “give services away” to get the product deal, is a bad habit that needs to be broken.
- Not all product-centric companies are equal in their ability to drive growth, differentiation and above all, profit
Customers can get the same products and likely similar, if not the same, services you are providing elsewhere. You need to provide unique value to the customer to truly stand apart from the competition.
- Offering more services does not equal more profit
It’s not about how many services you are offering but how well you can bundle products and services together.
Should all product-centric companies switch to a services-centric model?
There’s huge potential in perfecting a services-led product centric business model. The average Product-Centric firm is 8 times bigger than the average MSP. Successful services-led product centric firms sell managed services to more mid-market accounts, so each sale for a product centric organization is exponentially larger.
I thought this was a valuable nuance in thinking about serving VARS, and other product-centric technology solution providers (TSPs). The goal should be to become “services-led” as opposed to “services-centric”. At ConnectWise, we work hard to consider both the very obvious, and sometimes subtle, differences between MSP, CSP, VAR as it relates to our product offerings. Many VARs are attracted to ConnectWise for our ability to work with them on their services strategy.
It’s not how much service you sell, it’s HOW you sell product and service.
How to be successfully services-led
This is the million-dollar question, how do you pull off the 3x level of success already being seen by others? Is it possible for you too? It is and it’s not as elusive to achieve as you might think.
The differences in growth and profitability of the top quartile solution providers have nothing to do with where you are, how big or small you are, how young or old your company is (or you are), what customer segment you choose, or which vendors and tools you use.
Success is therefore not predetermined and can be learned. With determination, attention to detail and careful application of the recommended best practices you too can join the ranks of successful services-led product centric companies. True success with this business model comes from perfecting the bundling of products and services – carefully select the products you’ll sell and support.
In the webinar we touched on the importance of sales and marketing. Figuring out the sales model is critical to growing and it should have a strong marketing component. Product centric companies thrive on their business pipeline and that means generating demand.
In our upcoming modules we'll be diving deeper into the recipe for services-led success. Click on the links below to register for a session.
- Scaling Principal-Led Selling
Higher performing solution providers have sales engineers that report to the service arm of the business and their cost is 100% in Service, even though 90% of their time is with Sales and aren’t billable.
- Sales Incentive Compensation
Faster-growing, higher-profit solution providers pay lower commission rates on product than service and they reduce payouts on old offerings until new ones are sold.
- Developing Offerings
Higher-performing solution providers don’t add a new offering until they’ve understood and committed to a range of success factors, which often means decommissioning an existing offering.
