Turn Your Services Into Products

Products are generally paid for before they are used. For example, you buy toothpaste BEFORE you use it. You buy toilet paper BEFORE you use it. You buy gas BEFORE you use it in your car.

Services are generally paid for after the service is rendered. You pay a plumber AFTER he fixes the leak under your sink. You pay for your roof to be repaired or replaced AFTER the work has been done. Service providers have to wait to be paid until after they do the work.

As drycleaners, we are in the business of offering services. We are typically paid for our services after we complete the work and invoice our clients, or worse, once they decide to come pick their items up.

Some industries are effective at productizing their services. For example, when you want to fly on a commercial airline and get from one city to another, you will pay for the ticket before the service is rendered. We think of it as buying a plane ticket (a product) instead of paying to be transported from one place to another (a service).

Why is this important? In business, cash flow is like oxygen to your body. You can’t live without it. When you are trying to grow and scale up your business, you need cash flow to grow. The longer your cash flow cycle is, measured from the time you buy inventory (poly, hangers, etc) to the point you are paid, the more time your cash flow is tied up. For drycleaners, this can be as much as 45-60 days. If you are trying to grow rapidly, you need this amount of operating capital, since you are fronting the money for the growth.

Spend some time thinking about how you can productize your services, and get paid upfront. Sure, you could just require prepayment, but that requirement does not add value to your client. And if your clients see you asking for payment for a service without productizing that service, they might go looking for another company that does not require prepayment.

You can get paid upfront, reducing or eliminating the cash flow cycle, if you productize your service. One way is to offer memberships. Costco makes one-third of its profit from memberships. People are paying up front just for the right to enter a Costco store and buy items there. DLI sells memberships, and receives their money at the beginning of the month or year, then renders very valuable services throughout the timeframe. Can you create memberships?

You can also offer subscriptions, where your clients pay a set amount for a guaranteed set of deliverables. This is productizing your services. You are paid upfront, so you are almost eliminating the cash flow cycle, tying up less money you need to grow.

Check out our subscriptions at inthebagcleaners.com/time-saver-plans. These plans have become very popular with our clients, and as an owner, I love waking up seven days a week to have credit cards run for services we have not yet provided. On top of this, subscription deliverables are “use it or lose it.” After the first couple of months and the excitement wears off, clients use on average 60-62% of what their subscriptions allow (either in bags, pieces, or pounds).

You can also brand these products. Notice how we call our subscriptions “Time Saver Plans.” We are embedding the primary benefit in the name brand. We are saving our clients time. Once someone signs up for a subscription, they become very loyal to the business. When Covid-19 hit, and our company’s revenues tanked by almost 80%, only two of our hundreds of subscribers canceled their plans. Those two signed back up a few months later!

Have a great week,
Dave