AI is coming but it can’t replicate the human touch. Stay ahead of technology by setting up your own services industry business.
AI is coming for many jobs, and those most likely to survive are those based on things that machines just can’t replicate. The service industry is one of these safe havens; while people are happy to surrender decision making processes and analysis to robots, they still crave the "human touch" in their daily lives.
There are fewer barriers to entry for setting up your own service business than you might expect, and there’s never been a better time to take the plunge into a new endeavor. To help protect yourself (and your income) from the rise of the machines, follow our guide to setting up your very own service industry business.
What is a service based business?
A service-based business is an entity that sells a service or expertise rather than a specific product or other tangible goods. The difference between the two can be summed up by the old adage of quality versus quantity. A services business focuses on providing a quality experience that has value, whereas product businesses are generally focused on volume or quantity of sales.
Key characteristics of a services business
Zero physical inventory requirements
Services businesses don’t have physical inventory or stockrooms. They don’t provide products or anything otherwise tangible. What you are selling instead is your knowledge, expertise, and experience.
Business model driven by time
In a services business, your revenue is directly proportional to the application of a particular skill rather than the sale of a unit. That means you have to adopt a holistic approach to how your business operates—one that’s agile and adaptable.
Client focused delivery
There’s no point in using a "one size fits all" approach in a service business, as each client will have their own specific needs and requirements. The customer’s experience is paramount, requiring a collaborative approach, empathy, and continuous feedback.
Recurring and project based revenue
A service business often operates under two revenue schemes. Project-based revenue involves high-value, one-off projects with a clear start and end date. Recurring revenue, like monthly or yearly retainers, provides service businesses with more reliable cash flow.
Perishability
This isn’t just a problem for product-based businesses. You’re selling your expertise via your time, which is a finite resource and thus perishable too. A missed appointment or an unbilled hour represents lost revenue to a service-based business.
Example of services based industries
In all honesty there are thousands of types of service-based industries. That’s because you’re selling something based on expertise, which could have general appeal or be targeted at a very specific niche. That being said, there are a few "classic" cases that you’re more than likely familiar with.
Online service industries
This is a very wide field, of course, but things like web design, SEO consulting, online coaching, and copywriting services are all service-based industries. While there is a huge number of specialties on offer in this category—limited only by your imagination, really—they’re all united by their format. You’re an expert in demand online, and you provide your services via the internet, social media, and other digital platforms.
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Local services and consulting
A landscape gardener is in a service-based industry because, while you’re working with tangible objects, the service you provide is what you’re getting paid for—not the tools, plants, or soil that you might use. The same logic applies to jobs like cleaning services, plumbing, and other roles in the handyman fields. Things like personal training and fashion consulting are also included in this field as well.
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B2B services
B2B (business-to-business) services are not usually in the public eye, and they’re also often the most lucrative, as you’ll be dealing with clients who have significantly larger budgets than individuals. You could, for example, set up a marketing firm that helps companies reach new clients. Or, if you’re good with numbers, maybe an accounting services company would appeal more to you. If you’re good with people, how about setting up an HR consulting business?
The pros and cons of running a services business
Businesses that provide services have a lot of advantages, especially for those who want to work for themselves and take charge of their own lives. Of course, nothing’s perfect, and there’s a trade-off that you need to consider first before setting up your own company. Let’s examine some of these in more detail.
Pros
- Low financial barrier to entry: You don’t need seed rounds or venture capitalists to set up a service-based company; in fact,in most cases, you only need a laptop, a plan, specialist skills, and a network of contacts who are willing to invest their time and money in your services.
- Rapid speed to market: For the same reasons, it’s very easy to take your services business from a concept to a viable entity.If you already have the expertise to make it succeed, after all, you can skip much of the research and development required by product-based companies.
- Potentially high profit margins: As you don’t have to worry about the high infrastructure, storage, transportation, and other factors associated with product companies, your profit margins could potentially be high. You will have some overhead,but overall far less than product companies.
- Quick market validation: Meetings with clients will quickly resolve any doubts you have about a specific service you might offer: if they’re interested, they’ll say yes, and if not, they’ll say no. You don’t have to wait for months for market validation as a service-based company.
Cons
- The time for money cap: Service businesses don’t allow you to generate passive income, as you can’t sell units while you sleep; you need to be physically present for each of your client sessions. The only way you can expand is by increasing your pricing or hiring more staff.
- Scaling challenges: Your options for scaling are extremely limited without hiring more staff, mainly for the same reasons as we outlined above. If you do decide to scale, you’ll need to consider things like payroll, culture management, hiring, and quality control, among others.
- Increased risk of burnout: Everything is on you; there’s no product for you to fall back on, and in most cases, there aren’t any members of staff who hold the same level of expertise as you. This means that your risk of burnout is increased, so make sure you set firm boundaries and stick to them.
- Financial management challenges: Some months you’ll have consistent work with well-paying clients, and then the next month you might have little to no business at all. This inconsistent revenue stream can be difficult to manage; you’ll need to have something in place to manage your accounts properly.
Are service businesses profitable?
Very much so, don’t let some of the disadvantages we outlined put you off! Everything always has its drawbacks, after all, and there’s considerable opportunity for profit if you set up your own company.
There are four profitability models that service businesses use, and most of them are likely to use a combination of these systems in some way or another.
- Hourly pricing, where you charge a rate per hour
- Project pricing, where you are paid to complete a specific project for a flat-rate fee
- Value-based pricing, where you are paid a certain amount or percentage based upon a pre-agreed metric—for example, a percentage of increased sales
- Retainer pricing, where a company or individual pays you a certain amount a month to retain your services
Each of these profitability models has its advantages, and you will want to experiment to discover which one is going to work best for you. However, we would recommend to starters that you start with hourly pricing to demonstrate your worth, and then move up to project and value-based pricing when you’ve built up the experience required with customers.
That’s because clients aren’t going to see you as a worthwhile investment unless you’ve already demonstrated your ability in the cheaper hourly rate tier. Once you’ve done that, however, the snowball effect kicks in as your clients will recommend you to their contacts, who’ll do the same with theirs etc, and then you’ll be able to charge retainers to guarantee more stable income.
How to start a service based industry
Now it’s the time for our step-by-step guide to getting started. This is based on our interactions with Calday clients, many of whom use our scheduling software at their own service businesses. Follow these steps, and setting up a company where you’re the boss shouldn’t pose too much of a challenge.
1. Choose a viable service
If you want to provide an esoteric balloon-tying service, then by all means go ahead, but don’t expect to get many customers. Be realistic with yourself and choose a service which you’ll still love but is also commercially valuable. Try to also identify a specific market niche or pain point you can target.
2. Identify your target market
Once you’ve decided on what you want to do, you need to consider whom you’re wanting to target. Ideally, do both step one and two as part of the same process, as there’s no point settling on a niche if there isn’t market demand for it. Just remember to be specific; don’t go for mass appeal.
3. Validate consumer demand
Before you build a fancy new website, ask yourself: is this how you’re going to attract clients to you? If yes, then go ahead, especially if you’re working in an online industry like SEO. If not, then validate consumer demand by going to where your clients are—for example, LinkedIn if your company is a B2B service.
4. Choose your price model and prices
The prices you set will be determined by your industry, so make sure you do plenty of research while making your decision. As for the price model, we recommend that you start with the hourly rate system and work your way up from there. Be patient, set reasonable prices, and you’ll make progress.
5. Register your business entity
Finally, you should set up and register your services company as an official business. There are many legal structures to choose from, and you should consult local legislation in your area before making a decision. You may also want to get legal advice about which structure will work for you.
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Common mistakes to avoid while setting up your service business
Setting up a business always comes with an element of risk, which shouldn’t put you off. After all, it’s part of the learning and adaptation process. When you’re setting up your own services company, try to avoid these common mistakes.
Underselling yourself
It’s not unusual for new service business owners to use the same hourly wage they previously worked for as their new hourly rate. Don’t; you’ve got more overhead and responsibilities now, so make sure you’re getting paid fairly.
Being a generalist
You may think that casting a wide net will allow you to reel in the maximum number of clients, but you’re far better off using a line to niche markets instead. Remember, you’re paid for expertise, and specialist knowledge is far more valuable than generalities.
No internal systems
You absolutely have to have an internal system to process all your clients, whether that be for finances, sales, scheduling, etc. The backend can’t be tailor-made for each customer; you must have a standard system in place.
Relying on one client
It’s nice to have a client that pays well and regularly, and you might be tempted to focus entirely on working with them. Avoid this, because if they go, you’ll have absolutely zero revenue coming in. Diversify and continuously look for new potential clients.
Ignoring marketing
Following on from that point, the ideal way to attract new customers is to have consistent and effective marketing. In particular, don’t forget your marketing when you’re busy; you must maintain consistency for it to be effective.
Use Calday for stress free services scheduling
Setting up a services-based business is a highly rewarding process, allowing you to work for yourself, set your own hours, and reach major life goals like financial security. That doesn’t mean that it’s an easy process; it can be stressful, especially if you have lots of clients to manage, so make the scheduling easy, at least, by using Calday.
Calday makes scheduling simple with a high degree of customization for appointments and booking links, multiple third-party app integrations, and a user-friendly interface. Plus, with a free basic plan and a premium version for just $9.99 with unlimited customization, we can fit any budget, so follow the link and create a free account today!
