Service as a Service is not a new concept just because we now have Internet shopping and cloud-based services.
Consider these long-standing examples. You decide to send your child to a private school. You pay a monthly tuition fee over a year long period. You subscribe to a magazine. You pay an annual subscription price, and it is delivered to your mailbox every month.
In fact, service as a service is also called subscription-based service. And this business model is not just for services.
Consider the success of Dollar Shave, a company founded in 2011 that is now generating close to $100 million in annual revenue with its “Dollar Shave Club.” Or the Honest Company, a startup that delivers a monthly supply of diapers. Honest is now estimated to have a worth of $1 billion.
Businesses that sell consumable products that are replaced on a regular basis have an opportunity here to take advantage of consumers who want convenience, and regular delivery is certainly a huge convenience.
Service as a Service Model for Service Industries
The other huge trend is in the services industry. Just as consumers want convenience of shopping, you, as a business owner, want convenience and stability of having certain functions and operations conducted on a regular basis. And you want those functions efficient and easy.
The traditional project-based model is quickly becoming outdated.
The traditional project-based model is becoming outdated. Here's why service as a service model leads the gameClick To Tweet
Suppose, for example, that a HR department needs to improve its functions and needs new software. They call in a project developer who designs and installs new software. Two years later, new needs arise. Now, they have to call the project developer back to revise again.
Comprehensive HR cloud-based software is now available for all HR functions, through such companies as People Strategy and Zenefits. Subscription-based CRM company, Salesforce, had sales of $5.37 billion in 2014. Clearly there is money to be made, and business buyers are “biting” on these new, more effective methods for streamlining their operations.
Software as a service (SaaS) businesses are clearly ahead of the game in this new business model, but other professional service industries need to get on board if they intend to survive.
Benefits of a Service as a Service Model
The beauty of this model is in its value to both the customer and to the company.
Customers have the huge value of convenience.
- As long as there is an Internet connection, access to services is fast.
- As well, the flat rate fee allows for stable budgeting.
- The other huge benefit is the “pick-and-choose” aspect of what services are currently necessary and the ease with which other services can be added or discarded.
- There is also the aspect of bundling services in a one-price-for-all environment.
For businesses, the predictability of revenue is a great benefit.
- Because recurring sales are automatic, focus can be moved to acquiring new clients.
- And for a business looking for investors, recurring income makes the business far more attractive than a project-based one in which revenue can be highly sporadic.
- Another benefit is that a business can determine the lifetime values of its customers and can allot its long-term relationship maintenance based upon that.
- Businesses can better evaluate how customers are using their services, something that can drive their own enhancements and give them the data to push updates to current customers.
It’s Time for Service Businesses to Get On Board
Subscription-based services are not going away. In fact, they are expanding at an amazing rate. Already, legal services, like LegalZoom are enjoying a huge clientele, so much so, in fact, that private law firms are copying the model and offering unlimited legal services for a flat-rate monthly fee, as opposed to retainers.
Online education has jumped on board, forcing traditional universities to offer similar models. The way consumers listen to music or watch movies is now all subscription based (Netflix, iTunes, etc.). Businesses that do not look to changing their models will be left in the dust.
Changing the Model – How It Is Done
Certainly, changing a business model from project or retainer-based to subscription-based has its challenges, and there are important steps you should take in the process.
Evaluate the services you currently offer and what you are currently charging for them individually. Put together an all-in-one pricing plan that will be more cost-effective and allow flexibility for clients to add and delete services. Some service businesses offer plan options with bundles of services within each package.
Offer ease for clients to switch from one subscription plan to another, with a simple click.
Develop secure methods of payment that include automatic withdrawal from the clients’ account. Do not fail to do this!
Educating existing clients may perhaps be the biggest challenge of all. People tend to be suspicious of change. Some businesses have solved this problem by maintaining both their traditional models and their new subscription-based model, allowing current clients to choose.
At WP Site Updates we’ve opted for subscription-based model from Day 1. No regrets so far. Especially, when remembering those days when I used to hustle on a per project basis and never knew what workflow to expect in the next month.
Make sure that your site has a “How it Works” section with a very simple explanation for how to sign up and another page that provides all of the details of each package.
5 Steps To Switch Your Business To a Subscription-based ModelClick To Tweet
Success of Service-as-a-Service Comes from Its Positive Impact
Chuck Longanecker, founder of Digital Telepathy, made the successful switch from project and retainer models to a subscription-only model.
He states that, at first his current clients were confused, but experience with his new structure caught on, and his rates of retention exploded. In an article he wrote for Entrepreneur, he speaks to all what this new model has done for his business.
It has brought great flexibility for the client. If they want to change features, it’s easy because there is no defined scope of a project, as there was under the old model. Clients can now change their focuses and have immediate access to the services that will meet those needs.
Scalability. The client is in charge of changing out the services he/she wants – scaling up or down, even if it means changing bundles. If they develop other priorities and want to scale down a specific project, they can do so by changing package and then ramping it back up later. Likewise the business can scale services up or down dependent upon analysis of client needs.
Relationship-Building. When a client enters into a subscription-based relationship with a company, a long-term relationship is forged. A project-based model means that the business completes a project and moves on to another client. There is no communication unless that client returns for another project. The new model focuses on providing value to a client over time and allows for natural and normal initiation of conversation with clients. They feel more important and valued. The service provided becomes a remote member of their team, so to speak.
Subscription-Based (Service-as-a-Service) Really Can Work
When Netflix launched, Blockbuster was a thriving business. Today, Blockbuster is dead. Here is what happened. Netflix saw an opportunity to be a service-as-a-service business, offering subscription-based movie viewing.
While Blockbuster continued to sell a product by the piece (one movie at a time and a single price for each movie), along comes a service provider offering unlimited movie viewing via a TV or a digital device. Had Blockbuster jumped on this model, it might have sustained itself. It had the brand recognition – it just had to change its model. Blockbuster gambled and lost.
Lots of companies offer help with business digital issues.
There are web design companies and web designers and developers who operate on a freelance basis. They operate on a project basis, seeking clients, completing projects, and continuing that cycle. When clients have issues, they must go back to the designer/developer, wait until that individual is available and then get questions answered, changes made (with additional fees), and issues resolved. And when a change in the website is wanted, it has to go through the process again. It’s a vicious cycle that never ends.
Smarter digital service companies are now realizing that subscription-based service is more streamlined, efficient, and results in a “known” income.
One Medical offers memberships in 7 major U.S. cities. The annual subscription fee result in one-day appointments, and access to doctors when they are not in their offices. Other individual doctors have gotten on board with this model by offering “concierge” services Patients pay an annual fee and have unlimited office visits and the doctor on call at any time.
What’s your current business model? Have you considered how you ever considered a switch to “service as service” business model? What’s stopping you? Share your thoughts in the comments section.