Professional services firms have a clear competitive advantage; their specialized expertise allows for a very lucrative business model.
But there’s also a downside. If professional services firms want to increase their profits, they must also increase staff. This mean that the consultancies, law firms, design agencies, and other types of service firms are also going to have higher overhead.
According to Harvard Business Review, this reality leaves firms struggling to nudge gross profit margins above 40% as they scale. Product companies, however, enjoy a 60%-90% profit margin.
How can service firms combat this challenge?
By becoming a product-service hybrid.
Adopting a Product-Service Hybrid Business Model
This transformation from a services firm to a product company begins by identifying an opportunity for product development. Product companies develop new offerings based on client needs, however, the process for service firms is slightly different. To succeed at product, they must evaluate internal operations to pinpoint inefficiencies, annoyances, and time-intensive tasks. In taking this first step, your firm may discover a manual process that is draining valuable time and resources. So, you’re inspired to build a product that boosts internal efficiency and enables employees to be more productive. Whatever the opportunity, once identified, service firms can collaborate with technology partners to develop custom software to solve the problem.
By developing a propriety software product, service firms will not only solve inefficiencies by automating and streamlining processes, but also add value to their existing offerings.
All of this could lead to an unexpected opportunity: you may be able to sell the customer software application to a firm facing the same challenge. Monetizing the product will add a recurring revenue component to your business, solving the predicament many service firms face of how to increase profits as they scale.
Further, by becoming a product-service hybrid, firms can set off a chain reaction that ultimately creates a culture of innovation. Employees will begin to proactively evaluate internal problems and opportunities with the goal to productize (and monetize). New product ideas will spark between internal stakeholders, clients and business partners.
We’ve seen this drive to innovate:
- Heighten competitive advantage;
- Differentiate the services firm in the marketplace, and;
- Add tremendous value to clients through newly developed product offerings.
Ready to explore the product-service hybrid business model? Contact AWH to learn how we can help your firm develop custom software to drive competitive advantage.
Caitlin Zucal is the Marketing Coordinator at AWH. A graduate of The Ohio State University, she received her degree in International Studies with a concentration in Public Relations and Business. Caitlin is a passionate storyteller and enjoys combining creativity and analytical skills for the enhancement of marketing and product development.