Selling and consulting services: business models, and scalability


However, it is an article that might give you interesting ideas even if you propose physical products.

Abstract: Some companies or consulting services can be found at some point to have a roof as they can earn. As work harder and give it to do, there seems to be a limit to the possible profit.

Sometimes this limit is given by the market. And the difficulty of finding new customers.

If the limit is given by the market, you can try to resolve it with good marketing. By providing such new campaigns lead generation .

But other times the profit they can get to the roof has far more devious motives.

In a phrase: there is a problem of scalability of the business. Become an operationally difficult to do more than they do now, getting gain.

Maybe because your time is limited and you can not follow more things. Or why you can not find good new employees or employees to whom to entrust projects to follow … it is as if the organization had reached a limit and, even when it does more, this extra work does not bring significant profit.

The issue of scalability of the business model for service companies is one of those where I reflect more often.

Here we report some considerations. What I hope will be useful to you.

Consider the case where a service is growing, taking new staff and new employees.

In theory, more staff should mean more profit for the holder.

Sometimes, however, the staff turnover is growing and growing as well, but, taken all costs, the bottom line for the owner remains the same as before.

What has happened? has happened that the additional profit is not taken by staff to cover the costs of a larger organization. And so in the end profit remains the same. More sales yes, but the same final gain.

How to guard against a similar problem?

The point is this. If you sell services that offer a high margin, then you have a good chance that more staff means more money for you.

But if the margin of the projects is reduced, then it is likely that more staff will not mean more profit.

Let’s take a simple example …

Imagine that you have right now gains 10 thousand euros per month according to consulting projects.

Are you thinking of taking 5 employees to monitor projects for you.

Each of these employees will cost 3 thousand euros a month, and brings revenue to 5 thousand euros per month.

With 5 employees, your time is no longer dedicated to follow the projects, but to follow the organization of these 5 people.

Result, sales more than doubled: from EUR 10 thousand to 25 thousand steps per month.

Profit: the same. 10 thousand euros. (5 thousand – 3 thousand) employees x 5 = x 5 = 2 thousand 10 thousand.

What is the basic problem? reduced the profit per employee.
If a person can follow new projects worth up to 5 thousand euros, you have a problem.

Assume now that you will be able to standardize projects in order to make them easier for an employee (not an expert like you) and is able to structure their marketing and sales in order to increase the perceived value.

In this way, the single employee might follow projects for a value of 8 thousand euros.
In this case, so that you can earn more. Passeresti 10 thousand to 25 thousand euros per month profit: (8-3) x 5.

Then check to do before taking new staff is that the profitability of the projects is as high as possible.

A higher return on projects to get jobs with better and with a higher retail price (achieved through better marketing).

Assume now the case that you do not want to take new employees.

You have a bond with your time that does not allow you to follow new projects.