One of the best ways to build a lasting business is with recurring revenue. That steady stream of income will ensure a self sustaining business.
It has helped freelancers overcome the feast-or-famine cycle and it can help you better plan and prepare for the future.
Today you will learn:
- Seven reasons you need to productize a service
- The five essentials to website maintenance plans
- Six common mistakes for freelancers (avoid number three at all costs)
- The five business health metrics you need to be watching
Joe Howard’s Story: Freelancer to Business Owner
Howard started out as a digital marketer. That means he did a bit of everything, but he also learned WordPress. From there he moved to freelance, but Howard didn’t find the success he hoped for.
I found freelancing extremely challenging,” Howard says. “I’d have a good month, then I’d have nothing.”
The feast-or-famine cycle can hit hard. Howard had no problem with the technical aspects of freelancing. He knew WordPress. But it was hard to scale his knowledge and secure consistent income. It’s certainly possible to do it—many people make it work as successful freelance developers.
“But I found a way that worked better for me,” Howard says. Instead of always chasing the one-time project, he shifted to a model where people paid him on an ongoing basis.
Success With a Productized Service
Howard found success by moving from a service company to a productized service company.
The key is to take a service you already offer and package it in a highly systematized way. You can create a product out of that service by putting systems in place to make everything more efficient and deliver a consistent result.
So instead of recreating the wheel for every client, you have a template ready to go where a big chunk of the work is already done. It allows you to scale, bring in more people to do the work, and you’re no longer limited by your own hours.
For Howard, that meant instead of building custom WordPress websites for individual clients, he focused on maintaining WordPress websites for those clients.
Maintenance is an ongoing need, so instead of a single sale to each client, he signs clients up for monthly maintenance plans. Over time, he can earn a lot more income from each client. He’s also able to serve a lot more clients because maintenance isn’t nearly as individualized as building custom websites.
Why Do I Need To Productize My Services?
Why is this approach successful? Here are a few reasons why it works:
Low Barrier To Entry
Unlike creating other products, there’s not a massive amount of work involved to get a minimum viable product. It’s not like software, which requires a ton of time to code the actual product. You’re taking what you already do and turning it into a package or a plan.
Short Runway To Profitability
With systems, you can avoid recreating the wheel. Every client goes through the same process and gets the same services, so you’re not doing individual, customized work that can be so time-consuming. That means it’s a much shorter path to making a profit.
Proven Path To Scalability
This approach scales really well. Once you have a system in place, it’s easy to train others to work that system, and now you can quickly transition from doing the work yourself to being the boss.
Get Paid on Days Off
Thanks to recurring revenue, you’re getting paid even when you’re not working. With typical service work as a freelancer, you only get paid when you do the work. But with a service like this, clients are paying for the plan. You get paid whether they take advantage of it or not.
The Asset Grows in Value Over Time
You’re actually creating an asset—a product you can sell over and over again. This includes the systems you use to set up a maintenance plan and the process you use to push updates through. That’s a business with value that you could sell, as opposed to being a freelancer where every project is a new thing. You have no assets and you’re not building value.
You Can Focus on Growing Your Business
Building customized websites requires your individual attention, but by creating an efficient system to oversee a maintenance plan, you free up your time so can focus on optimizing your system and bring in new clients. Instead of simply doing the work, you can grow your business.
You Can Look to the Big Picture
So many freelancers are stuck in the rut of day-to-day work. They’re down in the trenches trying to get projects done. They never have a chance to step back and get a 30,000-foot view. But with a productized service you have the time to look at the big picture and see trends and things down the road that may impact your business. You can be proactive instead of reactive.
In the end, it’s really surprising that more people don’t look to create a self sustaining business with recurring revenue and a productized service.
If you just build a website, you’re leaving money on the table. You could build that website and offer a maintenance plan, thus doing both and at least having some portion of recurring revenue.
How to Do Website Maintenance Plans
Since Howard’s expertise is in WordPress maintenance plans, he goes into some detail on the specifics of offering that kind of service. Even if you’re not focused on website maintenance, this can still be helpful to see some of the nitty-gritty details you need to focus on for your own productized service.
The Right Tools
Howard shares the list of tools WP Buffs uses to deliver their maintenance plans. Whatever your product, you need to have the right tools to properly systematize what you do.
Don’t Reinvent The Wheel
Do some competitor research and see what else is out there. You don’t need to come up with everything on your own. You might find some ideas to borrow, and you might see some things you want to stay away from.
Partner With Other Companies
You don’t have to build software to do this. In the WordPress maintenance space, there are a lot of other companies that have already created software to do the heavy lifting.
Optimize Your Funnel
You should always be working to improve your marketing funnel (how you move people from initial prospects to clients). You’ll want to do some thinking about how the process should best work before you set it up, but be prepared to experiment to see what works best.
Important Questions You Need To Ask
Will Your Plan Be 24/7?
This is a big question for maintenance and service plans. It can definitely help with sales to offer round-the-clock service, but you also have to deliver. Clients will take advantage of it.
What About Hosting?
Offering hosting can be a major part of your plan. It can also be a major headache. This is a big recurring expense, so you need to figure out if you’ll resell hosting or partner with a hosting company.
How Will You Differentiate Yourself?
There are more companies offering WordPress maintenance these days, so you need to figure out how you’ll set yourself apart. It could be 24/7 service, premium plugins, targeting a specific customer, offering a white-label package, focusing on Gutenberg, or something else.
Mistakes To Avoid Along the Way
As helpful as it is to hear Howard’s enthusiasm about creating a self sustaining business, perhaps the best part is hearing him fess up to mistakes he made along the way.
Too often there’s a lot of hype from so-called experts, and it can be a bit intimidating. But everyone is trying to figure this out and everyone makes mistakes.
Taking time to review your business every year can be a good way to gather lessons, whether you made mistakes or had some wins (or both). Howard points to his 2018 annual review for some helpful lessons.
Hiring The Right People
For WP Buffs, Howard wanted people with good technical skills who would also be a good cultural fit. But he overlooked the skill of thinking about systems. More than people with technical chops, he needed people who could think critically about his systems and help refine them.
Pricing Too Low
This is a common mistake for freelancers and the same thing happens when you try to price a productized service. Howard looked at the software-as-a-service model and offered a 30-day free trial. That was a massive mistake. Remember that you’re not selling a simple software tool for $10 a month. This is a service plan so you need to focus on the value and be sure you’re targeting the right customer.
Delegation and Oversight
A good boss needs to delegate but also keep an eye on how the work is getting done. Especially when people are starting out you need to keep them on a short leash. Check in on them often and course-correct as necessary. As they get the hang of it, give them more freedom. It’s a difficult balance to strike.
Focus on the Big Picture
The boss also needs to focus on growing the business. Howard found himself getting dragged into the day-to-day and answering emails when he should have been working on the big picture.
Have Hard Conversations
Howard started out too nice and avoided the difficult conversations. He had to fire some people, and that probably could have been avoided if he held people accountable from the beginning by having those hard conversations. Ultimately it’s showing people respect when you have those tough conversations, so don’t shy away from them.
Important Metrics to Follow
Data doesn’t tell the whole story, but it can give a good picture of the overall health of your company. Here are some of the numbers Howard follows for his business:
- Monthly Recurring Revenue (MRR): Add up the dollar value of all your active customers.
- Average Revenue Per User (ARPU): Divide your MRR by active customers.
- User Churn: How many people do you lose? Divide your canceled customers by your active customers over a specific period of time.
- Revenue Churn: How much money are you losing from churn? This is MRR lost to downgrades and cancellations divided by total MRR in a given time period.
- Lifetime Value (LTV): How much are you earning over the life of a client? Divide the ARPU by the user churn rate.
So what really determines success? Good MRR growth rate, low church, and solid profit margins.
But here’s a secret: These numbers don’t matter much when you’re starting out.
When you only have five clients, you don’t have enough data to make any real judgments. You need to wait until you have at least 25-30 clients before the numbers will mean anything.
If you want to learn more about metrics, Howard has a podcast that explores growth metrics.
Build Your Self Sustaining Business
Stop taking on any project just to keep the lights on. Start focusing on what you do and who you do it for. Then streamline, systematize, and automate it to run itself so you’re free to focus on the bigger picture.” -Brian Casel
More than anything, building a self sustaining business is about moving from the freelance project hustle to building a consistent, steady stream of revenue that you can rely on month to month. That ongoing stream of revenue puts an end to the feast-or-famine cycle.