Service-based businesses allow you the freedom to leverage your skills and earn a profit. You can hone in on your passions, such as public relations or writing, while helping others. However, there's much more to the practice than designing an attractive website, networking and tackling assignments.
A business is a business, and starting your own company is no easy feat. You want to make sure you know exactly what you're getting into before jumping in. Entrepreneurs who have started service-based businesses weighed in on the challenges and advantages, as well as the best practices for getting your company off the ground.
Why start a service business?
Service-based companies may be less conventional than others, but there are some major benefits of starting one.
Low-cost startup: Developing and selling a physical product takes time, money and energy. Even if you run an e-commerce business, you still have to deal with packaging, shipping and returns. In a service-based business, your product is you. There are little to no startup, overhead or production costs – all you need to do is build your reputation and get the word out.
"I started [my] business with very little startup investment," said Kathryn Snellen, owner of communications and PR firm Kathryn Elise Studio. "I created my own website, designed business cards, and already had a laptop and office equipment. For me, word-of-mouth recommendations through networking have been and continue to be my biggest lead for potential clients, and I have not had to invest in advertising or marketing for my business."
Flexibility: In many cases, a service business is much more adaptable than a product-based business. In addition to working whenever and wherever you want, you can easily adjust and tailor your service to suit an individual client's needs.
"If a client isn't happy with how a campaign or website is developing, you can make changes according to their feedback in real time," said Brian Whigham, managing director of digital marketing agency Venn Digital. "This is much more difficult to do for products, which may need testing, licensing and remanufacturing."
Fulfillment: When you're offering your own time and skills rather than a physical product, you are connecting with your clients and consumers on a more person level. Not only do you profit financially from leveraging your talent, you also earn a sense of fulfillment from helping others.
The challenges of the service industry
While there are plenty of advantages to a service-based business, there are also a few challenges unique to this type of venture.
Pricing: How do you strike the balance between offering competitive rates and charging what your time is actually worth?
Most service entrepreneurs, especially freelancers, undervalue themselves at first and charge too little to win customers. This is particularly common among entrepreneurs with a time-based pricing model.
"In the beginning, I often underestimated the amount of time and budget we'd need to serve clients well," said Becky Robinson, founder and CEO of author publicity firm Weaving Influence. To overcome this issue, she established a time-tracking system that allowed her and her team to understand what it actually takes to deliver the company's services to its customers.
If you're offering a few different types of services, Snellen recommended a price "menu" to break down your costs and core service packages, as well as setting an hourly rate. Depending on your specific industry and business, you may also want to consider a retainer pricing model.
Selling yourself: Most service-based entrepreneurs agree that selling themselves as their "product" is one of the most difficult things they had to learn when they started their business.
"With a product, a customer typically understands what he or she is receiving," said Pat Petitti, CEO and co-founder of business consultant marketplace Catalant. "You see it, feel it, and you can even try it out. Service-based solutions are quite different, and in our world, a customer may not understand the quality of the solution until months after it's delivered."
Snellen said the most effective way she has learned to market her business is by developing a strong online brand presence, particularly on visual social media platforms like Instagram, Facebook and YouTube.
"On social media, I share educational and inspirational tips about the industry, behind-the-scenes work with my clients and tidbits about the services I offer – always paired with compelling images and relevant hashtags," Snellen said. "This is a great way for me to grow my following, connect with my ideal clients, and create an organic portfolio of my work that reflects my personality and business."
Steep competition: One of the greatest upsides to a service business is that it's so easy to get started. However, this can also be one of its greatest disadvantages. Just about anyone with your skill set can offer the same types of services you do, so making yourself stand out among the competition might feel like a constant battle.
"There is a very low barrier to entry for service businesses," said Crystal Kendrick, president of professional services firm The Voice of Your Customer. "As a result, competitors pop up with every opportunity. [These] often include part-time entrepreneurs, employed persons seeking additional income, unemployed persons who work as contractors until permanent employment is confirmed, and volunteers seeking experience or engagement."
One way service entrepreneurs can set themselves apart is by offering a tangible product, such as an e-book or guide, to provide extra value and boost credibility. For example, Lisa Baker-King, children's author and certified Kolbe coach, found that publishing a book gave her a product that was consistent with her brand message, and she could also sell it at speaking events to further connect with her audience.
Tips for success
Think you're ready to launch? Here are a few tips to help you out when you present your new business to the world.
Get your finances in order. Just because a service business has lower overhead costs doesn't mean you won't have any at all. Baker-King urged potential entrepreneurs to consider their cash flow before starting up and ensure that they have enough to live on with all their anticipated expenses, especially if they're leaving a full-time job.
"Most business plans I see are 'survive' cash flow analyses," Baker-King said. "You want 'thrive' cash flow. You might have the best idea on the planet, but if you don't have money to invest to get off the ground, money coming in to fund the business and enough from ... savings or another income source to pay the family bills, then you might need to revisit your business plan."
Don't spread yourself too thin. Depending on the type of business you run, you might be able to develop your services without expanding physically. For example, if you are running a PR business, you can work with clients across the globe without having to meet with them. Other businesses, such as tutoring or professional organizing, often require you to travel to homes or local sites to practice your service.
It might be tempting to distribute your practice outside of your area, but you need to be realistic about your options rather than trying to overachieve. Many service-based entrepreneurs work from home, and it's difficult for them just to meet with clients within an hour radius.
"Customers may not be willing to pay for your travel from relatively remote spots," said Mark Robinson, co-founder of Kimble Applications.
Robinson added that many clients will try to influence you to expand to locations near them. This can be tempting, especially if it's a reliable client you enjoy working with. But you need to prioritize your company's overall needs and choose what makes the most sense for your business.
Accept outside help so you can grow. Because of the nature of some service businesses, some entrepreneurs feel like they can run it as a one-person operation. You might be capable of handling every business task yourself, such as invoicing, accounting and marketing, but outsourcing certain administrative tasks can free you up to really work on growing your business and providing the best work you can.
"Do the work you're great at and outsource the rest," said Emily LaRusch, founder of virtual receptionist service Back Office Betties. "If you aren't an accountant, don't waste time trying to crunch numbers. I spent three hours trying to reconcile one monthly bank statement only to give up, frustrated. I hired a bookkeeper, and she had three months reconciled in less than two hours."
Eventually, you may find that you'll need to expand your business and hire full-time staff members. Chad Bronstein, CEO of sales rep hiring service Time to Hire, was hesitant to hire at first, but he soon realized that he wasn't able to do everything himself as his business evolved.
"Building a team is important," Bronstein said. "I waited too long and was in a situation where I had to hire someone immediately. [I needed] better planning and more time. Try to replicate yourself – don't work in your business but on it."
Make sure your workers are dependable. You want to feel like you can rely on them through difficult times – which are often inevitable, especially in a new business. Treat them like members of a team, and they will likely perform as such.
"Surround yourself with people you can trust from day one, and don't be afraid to give them options and be generous if they are going to help you achieve your goals," said Robinson.
Additional reporting by Nicole Fallon. Some source interviews were conducted for a previous version of this article.