You Sell Time. That's the Problem: Scaling a Service Business

But what we generally see is that we're walking through there and it's determined on the crew members that we have, right, in the leadership team and all those kind of things, but it's still based upon hourly billable hours, right? And so you have better technicians who might be able to get a little bit more done, those kind of things. But we're talking about human beings here.

And when a buyer walks in and sees this type of setup, what they're really doing is they're financing a hostage situation. They're hoping these folks stay around. And that doesn't necessarily happen when we transition to a new buyer is people want to leave. And a lot of folks, well, you know, it's recurring-ish, right? We know that this is gonna happen, but that's not recurring, right? Clients come back because they like Daryl or Cindy or Sally.

They have a relationship with them, not your business. So if they leave to somewhere else, because again, paying more, guess who's going with them? Mm-hmm. Right? Those customers, those clients. And the discount is absolutely brutal and real when we do these things, because now we're squashing our margin, and there's no way to make it up because there's only so many hours in the day. So that's not scalable either.

And we did that in the past episode, where we talked about low margins and discounts and how it's not very good. It's the same kind of methodology here, because you have just a set margin that you can deal with. So if we have two different companies with two different pricing models, right, and one is based upon hourly rates and the other one is based on a quote, we're going to have two different sets of profit margins, dependency on people, dependency on the amount of time it takes something to get done.

Right. Gotcha. Yeah, there's a bunch of minefields to navigate just in order to generate more value for your business overall, but if there's a straight link to time, there's a straight link to individuals who provide the services who may move on, have those client ties, then it just, it causes discounts on anybody coming in to purchase your business. Just kind of thinking back. Think about you, right?

Like, I have a financial advisor, right? I like the financial advisor. He gives me good advice, right? You have a long-standing relationship and he moves firms. And then I have somebody else I have no idea who doesn't know my family, doesn't know my history, all that kind of stuff. I'm moving with my financial advisor. I'm not staying with that company I have no idea. No one's ever talked to me before besides that person.

Yeah, exactly. That happens every day. It's a discount, right? It's a risk to somebody coming in and evaluating, purchasing your business. It is time for Ryan's Fun Fact. Right. Fun fact. Billable hour timekeeping was basically invented by lawyers in the mid 1900s. And even the profession that created it now openly admits it's rewarding being slow. So the more inefficient your attorney is, the bigger the bill you get.

The whole model pays you to be poor at your job and take longer. That's awesome. Which is a perfect example of selling your time, right? By getting better and faster at the work, I'm literally earning less. That's a broken scorecard, right? And most owners inherit it and just continue on doing it. So there you go. There you have it, folks. Be worse at your job than you are now.

And charge more time if you're in a time-based model. That's absolutely it. That's where I aspire to, Ryan. You're hitting the nail on the head. All right, now a moment from our sponsors today. The NTC, the New Testament Church up in Massena in the North Country. And it fits this episode more than any sponsor we've had. Because this whole hour is about time. The one thing you can't make more of, NTC is a place built around a bigger question.

What is your time actually for? And quite right, that's the part nobody puts on a scorecard. You can optimize every hour of your business and still have no idea what the hours are in service of. NTC exists for that, not the tactics of a life, the meaning of one, people, faith, purpose, the stuff underneath the calendar. If this episode has you counting your hours, they're a good place to ask what they add up to.

Awesome, New Testament Church, Massena, New York, you can find them at ntcmassena.com. I always have an open door and embrace your faith. I'm happy that there's no phone number to read out. I get a break. We're gonna start singing. One hundred five gone. Yes, we're gonna start singing phone numbers. I had an epiphany earlier on today. We're gonna take turns, we're gonna sing it. Okay, remember folks, we do have these segment breaks where you can just skip over.

All right, back to it. Let's get on to the fix. How do you break the link between hours worked and dollars earned? Let's talk about some mechanisms here. So I think this is the whole game, is that you have to create value that keeps earning after the hour is over, right? And I think there's five ways to do it. One is price the outcome, not the hour, right? A fixed price for a defined result. But getting faster makes you more, not less. So your efficiency becomes your margin. So I'd like to give an example of an HVAC shop that sends two techs for $145 an hour plus whatever we find, right?

Well, what if we just started selling a flat rate at $850 for a diagnostic service call, those kind of things, right? Now there's no cap. If I finish it in 15 minutes, if I finish it in five hours, it's one flat rate, here you go. Get the yes before you leave the schedule the text. Two, productize, right? Turn your custom service into a named repeatable package with a fixed scope and price. And we talked about that, Jon, in your marketing. So an example would be in manufacturing, a fab shop that sorts two years of orders by configurations, three clusters covering most of its volume, and turns them into three named models with a published price and lead time. There you have it. You know, they used to call them custom jobs. Now they have a name for it. Three, build recurring. And what I mean by that is convert one-off work into a retainer or subscription. This is going to be revenue that shows up whether or not the phone

is ringing. So example again, an HVAC shop is, you know, selling a service agreement at the end of the completed repair. You get two visits, priority dispatch, billed monthly by ACH, helps pay your payroll in January. Four, create leverage in delivery. We're talking systems, templates, tools, but junior people able to deliver senior design work, that's the expertise in the system. And so that's the example of an attorney who takes you on as a client, the paralegal does most of the work, the attorney reviews it for a couple hours, they charge you as if the attorney was doing the work.

That's how you build the margin through that. The fifth is turn knowledge into a product. You've got training, IP, software, of course, a license method. Those are things that sell while you're asleep. So yeah, for example, an equipment builder that bolts on a sensor kit to every machine but sells the uptime dashboard monthly per machine. So you have a hardware business selling software revenue. And some of the work that you're doing is genuinely custom.

But I bet you you can find 70% of it that isn't, that every single unit you're doing needs, every single service that you're doing needs, and then customize it 30%. But you can get a lot of revenue out of that 70%. Awesome, awesome. A number of steps there. One, price the outcome, not the hour. Two, productize. Three, build recurring services. Four, create leverage in delivery. And five, turn your knowledge into a product.

You got it. Just wanted to summarize there. Yeah, and your example of coming in and doing an assessment for 850 versus, oh, there's a call out fee for an hour and then we think the job's gonna take two hours. It might, you know, we might have to send two men, et cetera, et cetera. It provides certainty. So if people know there's a hard price, that's awesome. And you can be creative with how you present that price as well.

So it could be, hey, I'm gonna charge you 850 and then if you proceed with the work from us, you get an X amount discount off the job as well. So I mean, there are tons of marketing ideas that spring to mind for me of how to leverage that and disconnect those hours. So awesome. So one of the things, Jon, that a lot of our listeners, all three of them, probably have is they send over a tech or somebody over there, you know, and the homeowner or the business owner says, well, why are you billing me for seven hours and you guys were only here for five, right?

They didn't take into consideration the time from one job to another or that they had to go to the supply shop to get this certain fitting that's only unique to them, you know, those kind of things. So you stop the haggling, say, you know what? It's 850 bucks for us to come out there and diagnose it and fix everything that we see, excluding X, Y, and Z.

Yeah, really good point. Those service areas, stuff, hidden charges, like really piss people off. Like those are the big complainers, right? Oh, you quoted me this price, where you quoted me an hourly, and then I got this bill, and they're the ones that jump onto your Google reviews and complain. And that's the worst thing you need, because that affects your inbound business coming in. So everything that you can put up front should be put up front, makes a ton of sense.

Let's keep going on productizing, because this is, I think, is the area most people struggle with. How do they turn custom services into actual products? So easy exercise, I think. Find your most repeated job. The thing that you sell over and over again that has very little or small variations, that's the product you should focus on. The first thing you do is name it. A name to offer feels like a product, not a favor.

The 90-day turnaround, or meet Wally, or whatever you want to call it, right? It's a name. It creates something in the mind. And then scope it. Define exactly what's in and what's out. How many times has scope creep come in to play? Well, can you just do this? Or I know you came here for this, but can you just look at this for a second and fix that?

Literally, time is money at that point, because you've been middling by the hour. So make sure that you're guarding the edges. And if it is a scope creep, be forthcoming. Be assertive. And then price it on value. Fix price based on the outcome's worth, not your estimated hours. What is completion to these folks? What does it make them feel like at the end? Not how long it took you, what does it look like at the end?

And then systematize it. This way, you have a document, you have a process, you have a delivery method so that everybody is trained on that. We always talk about writing a process followed by all. And that way, we can send a junior tech, a senior tech, whatever it needs to be. Everyone's doing it the same way every single time. And that's the way that you do it.

And I know it feels generic and backwards, but what you're doing is you're solving problems for your clients and you're getting there in a different billing route. And this is also gonna help you, and more importantly is protect your margins. Now it's not that head count revenue, right? Now I can have somebody who's getting paid a lot less, do the same job as two people or three senior people, whatever, now my margins increasing without having to add that head count.

Love it, love it. Something I like as well is coverage. Coverage on things, say if it's a plumber's plumbing business, and just giving a monthly fee, and you get a certain discount on the call out, so people get their money back, and they get a discount on the job as well. That separates as well some of the hourly. So like you say, pick your number one service and productize it, but then also think about ongoing, recurring services that you can charge, just bring an extra 10, 20, 30% into the business.

And again, you're not connected to hours at that point as well. All right, M-TOW, marketing tip of the week. Still haven't found a name for it, huh? You haven't named it. No, I think M-TOW's unique. All five of our listeners. Yes. Yeah, it just went increased to two. We just got two more in that segment there. That must have been a good segment. Holy crap. Okay, this one pairs perfectly with productizing because when you're packaging up your offer, when you're presenting it on your marketing materials, your website, et cetera, et cetera, give one clear call to action, one next step.

So often we've got call us, email us, fill out the form, book a call, follow us, do this, do this. And it gives so many people different choices that they just kind of freeze and do nothing. And the last thing you want is them is spending one of your advertising, getting them into properties, and then decision paralysis, because it kills more conversations than a bad offer does.

So pick one, one offer, one button. So the single action of the week is go to something like your website, webpage, or look at your marketing materials you're sending out, count the calls to action. If there's more than one primary one, cut it all down to one single obvious step, and then watch what it does to your conversion. Good stuff, Jon. It leads us into our second sponsor.

One more moment with our partner NTC in Massena, New York. We spent today teaching people to stop trading your hours away, but that raises the harder question NTC actually deals with. Once you get the hours back, what are you gonna do with them? What are you gonna fill them with? Freeing up time is a finance problem. Knowing what it's for is a soul problem, S-O-U-L. And a business podcast is generally not equipped for the second one, the community of faith is.

That's right, that is the honest version of it. NTC is people wrestling with meaning, marriage, purpose and faith together week after week, the depth stuff, the part that doesn't fit on a scorecard or in a podcast. And I know you have thoughts about the community up north. Of course, as a Canadian, I'll just say the healthiest people I've ever known were the ones who belong to something bigger than the work, congregation, a town, a ring full of people, of course, who would notice if you stopped showing up.

That belonging is not a small thing, and that's my one. That's your one, and it's a good one this time. NTC, Massena, New York, ntcmassena.com, go find what the hours are for. Invent a phone number and sing it. All right, so it's not just the owner's hours that the owner's hours that we're talking about though, as the owner hires a bunch of people, he's selling those hours, spends a lot of time selling those, et cetera.

But even with a big team, you can get stuck. How does this trap, this hours trap survive scale? So you can have 50, 100 people, right? But if every dollar of revenue still requires a proportional dollar of labor, you didn't escape the trap. Right. Right? And so if your revenue goes up 20%, but your staffing goes up 20%, right? Now your margin is stuck together. Mm-hmm. Real leverage means the business earns more per person over time, not just more in total.

So per revenue dollar per employee continues to increase. That's where efficiency comes into play. That's where this modeling comes into play because that's what we should be seeing. And where we can really leverage the team, like you said, is making sure that there are systems in place. There's cross training in that respect. So everyone can go on vacation. They don't get burnt out. And it doesn't matter who's going to go and do that service call.

They're going to do it the same way because it's systematized. So I want to be very, very clear here. Hiring isn't the enemy. But hiring the one-to-one revenue to staff ratio is. And that's the trap that you'll be caught in. We want good employees, we want efficient employees, we want to reward them when they make a direct impact in our business, on the bottom line. That's all the good stuff.

But what we have to think about here is that if our output per person is not increasing because of the revenue, because revenue is the same amount, then we're stuck in the revenue trap. Not a system. We're not quoting $1,000, we're saying, okay, it's $100 per hour. And I think that's where we have to talk about is, you know, operations and marketing can meet together if we have a systemized delivery with a packaged offer that's named that creates the value to the customer. And it's perceived value, right? That's why Ferrari can charge more than a BMW. It's because of that perception.

It's the espresso as well. First is the sauerkraut. Everybody loves espresso more than sauerkraut. Unless you're German. Well, true. Actually, I prefer sauerkraut. It's much better for the gut. Don't drive a German car. Random. Okay, so back to hiring though. I just want to dig in on something because you said hiring is a challenge and all you're doing if you're hiring is just replicating the hourly. But, like, for service firms, isn't that the way they literally grow? Like, if you don't have the people, you can't grow your business. So isn't hiring more people, like, exactly how service firms grow? Well, that's how everybody grows, right? Because we're growing into the growth. The thing is, is that are we growing, and this will be a different episode, profitably. So yeah, we need to service techs, two more service techs because we have the demand, it doesn't mean that we're charging $250 per crew.

It means that we're quoting at $1,000 when our cost would be the same at the $250 an hour. Right. And that's where we build in that margin buffer. Gotcha. Which allows us to market more, which allows us to hire better, which allows us to continue to grow. It's enhanced productivity that that additional hire provides is what you're saying. Right. And if our junior people can do senior level things because we're systematized, we have processes that are being followed, everyone's trained, right?

That's how that works. Got it. Good stuff. Okay, as per usual, owners driving home, they've realized they've been selling time for 15 years. What is the one thing they do this week? This week, take the one job you do most often, write it down, name it, put a fixed price package. One product, one page, one service, one page, then quote it the way the very next prospect who it fits.

You named it. You got a quote instead of hours plus material, whatever that might be. That's what it is. Then wait for the feedback. Did they take it? Did they not take it? Try it for a month. Let it marinate. Same thing over and again. I need X. Here you go. Here's X. And you know, you're getting a lot of no's. Maybe it's too big, it's packaged too big, we gotta shrink it a little bit, right?

You shouldn't be winning every single quote out there or else you're under priced. And that's another tell, right? And then I want you to write down your revenue per employee. And then you package this thing up, and what's your revenue per employee now? Has it increased? Or is it on the same trajectory, right? If it's on the same trajectory, we're falling into that trap again, right? We need to quote it higher.

And I think that the stuff that you can do in your sleep, the stuff that is most popular, give it a shot. Because remember in previous episodes, we might be pricing ourselves too cheaply, so we don't need all those price shoppers, right? We get this quote out there, we can do less work with more margin. Awesome, I love that analysis of how much does each individual employee make you, because that's gonna give you line of sight into how your business can be productized and be more efficient.

I'm gonna reiterate that challenge there. Write down one thing to Dana. Dana knows who he is, so do it. I'm gonna test you next time we're on a call. You give me lots of feedback, so this is your test. Let's chat about that. Awesome, we are ready for the takeaway, Ryan. All right, well, we might as well name the other two subscribers to this podcast if you're gonna call people up.

Well, David's not a service business. He's got product. So he's got product and service. Yeah, and my dad just grows tomatoes, so that's all you got. Don't price by tomato debt. So if your revenue is welded to hours you built a job, not an asset. It caps your income, flattens your margin and hands a buyer a company that only works when specific people show up, which is why it either sells at a steep discount or it doesn't sell at all. Right, we are at a key employee risk or hostage taking.

The way out is not to work more or higher faster, right? It's be less efficient, right? Like the attorneys that we talked about. But you need to change what you sell. Price the outcome instead of the hour, right? Productize your most repeated work. Build recurring revenue. And put your expertise into systems instead of into the hands. Do that, get better, faster, and you will be rewarded by your clients because they will be paying you more, your margins will expand, and you'll own something that earns whether or not you are in the room.

So stop selling your time and start selling what your time produces. Awesome. Happiness. That's what your time produces, Ryan. Happiness. And you can't put a price on that, Jon, but I will. Free. Free happiness in the form of a podcast. That's right. You're welcome, everybody. And coming up on our future episode is your best year was a trap. That sounds intriguing. Yeah, that's called Cliffhanger. Oh, okay. I see what you're doing now.

I'm just gonna... Maybe they have us in Canada. Yeah, yeah, I do. Just gonna keep quiet and go eat some sauerkraut and espresso. Sounds good. I wouldn't want to be in the same room. That's true. Alrighty, over and out. Thanks a bunch, Ryan. See you next time. See you guys. That's it for this episode of From Burnt Out to Bought Out. If there's something we said today hit home, don't just nod in agreement.

Pick one thing. The number you've been avoiding, the process that only lives in your head, the conversation you've been putting off for six months. Do that one thing this week. That's how it starts. And if you're not sure which one thing to pick, drop us a line. We'll happily point you in the right direction. New episodes drop every week. Until next time, stop burning the treadmill and start building something you can actually sell.