Founding a service business is a wild ride. Want to build big, but don't want to burn out? You'll need to know how to scale a service business sustainably.
In the early days of starting up a service business, it can take all your time and energy to keep your workflow running and books balanced. But as you become established, you start looking towards the next step: expanding your service operations.
Growing and scaling phases are key to the longevity of service businesses, but they present substantial challenges. Research indicates that 70% of startups fail because of premature or dysfunctional scaling.
Careful planning is necessary to ensure you expand your business in the right way, and at the right time. In this guide, we will help you identify when to start scaling and how to go about it.
Scaling a service business sustainably is taking deliberate actions to ensure business growth without compromising quality or increasing costs. Scaling is essential to all companies but is critical in startups and small-scale industries.
There are various ways to increase revenues while lowering or maintaining costs, ranging from adopting new technology to streamlining gaps in your operations.
Keeping stable costs doesn't necessarily mean you won't need to spend money in the process, but the expenses involved should either be one-offs, or easily offset by the immediate benefit they provide.
Growing and scaling a business sound similar, but they are not the same thing. While both involve expanding the business, there are differences in the way they're done and the impact on your profits.
Growth refers to the addition of resources as a result of increased revenue. For example, as you successfully complete contracts, you may expand your operations, hire more employees, or even move into a larger office. You may increase your marketing budget to gain new clients, and your new set-up enables you to take on more contracts and bring in more revenue.
In this example, we can see that as the business grows through this cycle, its costs increase as well as its revenue. While the actual profits should increase due to the increased throughput of work, the profit margin is likely to be in the same region as it was previously.
On the other hand, scaling uses strategies to grow the business more efficiently without adding many costs or resources. The focus is on improving solutions and producing a consistent service.
For example, improving your resource efficiency instead of hiring new staff can result in an increase in throughput without any additional costs. Or focusing on modern marketing channels such as social media and SEO marketing can attract clients without the heavy advertising budget.
As a result, scaling ensures revenue increases rapidly with fewer additional resources resulting in consistent growth and increased margin with time.
Want to dig into this topic a bit deeper? We've got more info on growing vs. scaling right here ➡️
Scaling is challenging for every business model, and it's important to do the groundwork before you start. Here is a guide to making your scaling efforts sustainable and successful.
Scaling enables you to serve more clients and could lead to greater profits, but if the timing is off it can result in stress and disappointment. So, is it the right time to start scaling your business? Here are three indications that your business is ready.
Knowing who you are – and who you are not – is a vital foundation on which to scale your business. As well as a feasible concept and effective infrastructure to deliver high-quality services, you need well-managed resources who have the right skills, attitude, and capacity to embrace upcoming opportunities.
Following from your brand identity is your ideal client. You need to know your target audience in order to ensure that your services and marketing are tailored correctly. This helps secure your long-term relevance in the market while you scale your business.
Often, once you have identified your ideal client and begin to present your business to them, you will find an influx of requests from more customers than your existing systems can handle. Rather than allowing quality to get compromised in such a way that it may cost you new business, take this as a sign to shift to consolidation mode, adjust your systems and work on scaling your capacity.
As a business owner, once you decide to expand your company's operations, the steps you take will determine whether your business grows or scales. Here are seven tips to keep you on the path to sustainable scaling.
To have a successful service-based business, you should offer the best customer experience possible to retain clients, develop a positive reputation, and gain those valuable "word of mouth" recommendations.
Retaining clients is more cost-effective than acquiring new ones, so focus on delivering on customers' wants. You can do this by listening to your customers and inviting feedback on your services or products. Research and create buyer personas to enable you to target high-value clients.
One of the best ways to scale a service business is to convert your services into a menu of defined products that clients can buy. The productized services have defined parameters and pricing, allowing customers to choose the best fit for their needs and budget.
At the same time, the process saves you time, as you don't need to customize your services for each new client and know the costs and profits involved. As your team also knows what's involved in executing each product, business can move along at double speed.
Productized services come in various forms depending on what different service-based businesses would like to offer their clients. For example, many offer business-to-business (B2B) services to help other companies, but the model also applies to business-to-customer (B2C) services to provide personalized solutions to various clients.
Offering many different products or services for various customers can be an obstacle to your company's scalability. It's the business equivalent of being a "Jack of all trades, master of none" – and can compromise the quality of your outputs and your customer experience.
To avoid this, establish yourself as an expert in a specific niche; focus on offering a few services that you do exceptionally well and are in high demand. You'll gain more business through referrals and recommendations from your existing clients, making your scaling process efficient and effective.
While growth means hiring more people to cover the increased demands, as a business owner looking to scale you need to control your overheads and hire strategically. You don't want to hire too aggressively and end up with more people needing to be paid – but at the same time, you don't want to be limited in taking on projects because you are understaffed.
The best approach is to hire a smaller number of employees with a higher capacity and flexibility, that are strategically selected to fit the predicted gaps in your team.
Resource management software can be a valuable tool for this kind of strategizing. For example, Runn's People Planner makes it easier to develop a smart hiring plan, based on the types of employees you need to hire, and when you need them to join the team. It can also help you decide how to train, retain, and optimize their services.
Once you've recruited the right employees, you should empower them, provide good working conditions and encourage team collaboration to propel your organization upward. A detailed staffing plan can help you keep on top of each employee's utilization, performance, and training opportunities, leading to increased satisfaction and retention. This, in turn, feeds back to increased productivity and exemplary services for your clients.
One of the best tips for scaling a service-based business is to revisit your pricing strategy. It may be tempting to price yourself low to attract new clients, but carefully consider the potential implications of this on your cash flow and your trajectory.
Firstly, your pricing should reflect your growing expertise, and the high-quality people working on a project. Secondly, winning clients at low rates ties your company into that low-cost client base, which will steer you towards growth rather than scaling.
To set a reasonable price, evaluate your growth each year, review your competitors' pricing and the industry average, then determine an appropriate level to pitch at.
You may lose some clients in the process, but sustainable scalability depends on working with clients who are willing to pay your actual worth, even if that means fewer clients than you'd hoped. It's not an easy step, and you may need to set aside the mindset and emotions about money that are calling for you to undersell your services. Be bold and decisive!
Scaling service-based and product businesses need to produce more output with less input. Fortunately, technology can help evolve your company processes to achieve a scalable system.
The tools and apps that you need will depend on your company's size and maturity. For example, you may be able to manage a small team of consultants, designers, accountants, or other employees on spreadsheets and Google calendar. But as the team grows, you'll need more advanced software like Runn to manage your resources.
When searching for a system to help you scale your enterprise, ensure it is versatile and gives you value for your money. Runn allows you to carry out many resource management functions, including resource scheduling, capacity management, project planning, and forecasting, with more speed, so that you have more time available to work on your business.
A scaling service business needs to be efficient in its use of resources – whether in terms of staff, time, or finances. Improving cost efficiency doesn't necessarily mean cutting costs, but ensuring that the money your business is spending helps you achieve your goals, whilst maintaining a healthy profit margin.
Failing to focus on efficiency can lead your business into a phase of growth rather than scaling: as revenue comes in from more sales, it is drawn back into increasing operations costs.
One of the first places to check for your company's efficiency is in the revenue systems. Revenue leakage refers to revenue that doesn't make it into your business, either because of incomplete billing, incorrectly-applied discounts, scope creep, or unpaid invoices. These leaks can wear down your profits and slow your progress, so identify and plug any revenue leaks as you set your systems up for sustainable scaling.
To set you off on your scaling journey, let’s hear from some leaders and founders who have been there and done it:
"The biggest shift in scaling my agency came when I realized that bigger fish hung out in different ponds. I had relied on freelancer websites, referrals, and local chamber of commerce meetings for leads - until I realized that no decision-makers for the kinds of companies I wanted to work with were present in those spaces. Instead, we met the decision makers where they hung out online. So my piece of advice: stop fighting over scraps of work, and focus on building relationships with decision makers online. " - Jordan Scheltgen, Owner, Cave
"One piece of advice that I would give to the founder of a professional services business who wants to scale their company sustainably is not to overlook their marketing strategy. I realize this might sound biased coming from a digital marketing agency, so I will offer some other advice too! Be honest with clients from the outset, don’t over promise and under deliver. Finally, surround yourself with a hardworking team who share your ethos." - Lucy Hurst, Managing Director, Sherbet Donkey Media
"One tip that can help you gain traction and grow your business is to focus on the customer experience. Your customers are looking for something that will solve their problem and make them feel good about the company they're doing business with—and that goes beyond just having a great product or service. It means offering them a clear path to getting what they want and ensuring they know exactly how much time and money it will take to get there. And if anything goes wrong? Make sure you let them know right away, so they don't have to wait around wondering what's going on!" - Andrew Tsionas, Co-founder, Kaizenzo
"I have scaled my firm from a solo practice with a few hundred dollars in start-up cash to an annually six figure law firm in the past three years. The one piece of advice I would give to the founder of a professional services business who wants to scale their company sustainably and achieve long-term success is to find necessary mentors (to learn from), support staff (to delegate work to), and technology (to help easy work flow between clients and service providers). Additionally, as a trademark lawyer, I would emphasize branding, as that is one of the most powerful ways a company can become recognizable to consumers across regions."- Laila Ghauri, Esq., Founder, Antares Law Firm
As you expand your business and take operations to the next level, make a conscious decision whether you are aiming for growth or scaling. Growth may appear to produce results first, but you need scaling to sustain those results in the long run.
Before you start to scale, do the groundwork by ensuring your business is ready for the challenge. Using the foundations of your brand identity and target audience, adjust your product pricing, financial systems, and hiring strategy to support a scalable model with efficiency at the center. Finally, be ready to use management tools that can help optimize resource planning, and keep your business on the path to sustainable scaling.
Looking for workload management tools that could do wonders for your team's productivity? Check our ultimate list.
What is the best way to measure operational efficiency in a service-based business? Here are some operational efficiency metrics to get you started.