3 Key Lessons to Running a Service Business

For the past year and a half, I have been struggling to figure out how to apply a decade’s worth of invaluable experience working for other people into my own business model. Like most things, it’s often much more difficult than I expected. However, the good news is that the three most important lessons I’ve learned are pretty universal for anyone freelancing or trying to run a services business.

Be Realistic About Hours

Being realistic about hours doesn’t just apply to estimating the size and duration of jobs. The most important lesson when it comes to hours is that, as a freelancer or business owner, it is not realistic to assume that you are going to be able to consistently bill for 40 hours of work per week.

Unless you’ve got a long-term, hourly consulting arrangement, make sure that the hourly rate you are establishing for yourself and your business is based on a realistic assumption of hours. For most freelancers I know, 25 hours per week is a more realistic number.

Don’t ever forget that, as chief cook and bottle washer, you are responsible for networking, business development, sales proposals, customer support, marketing and advertising, and bookkeeping. Those activities all take time. And even if you are single with no kids, and very few outside commitments, assuming that you are going to get all of those things done around 40 hours of billable client work per week is unrealistic — and doesn’t factor in other life needs like dentist appointments, and emergency auto repairs, etc.  Lessons about time management are almost always the most difficult because most of us are overly optimistic about the things we can control.

So sit down, calculate out how much you need to make per hour, assuming that you are limited to 25 billable hours per week. Does that change the hourly rate you need to charge? Probably. You may not be able to retroactively raise your rates with all of your clients (though, if you can, I’d recommend doing it incrementally), but any new work you bid should be at rates that meet a 25 hour work week, rather than a 40 hour one.

Clarity of Scope Requires Process

One of my most painful lessons this past year is that, contrary to previous times in my life, I am not a process person, anymore. Sort of, anyway. I actually like developing process. But I’m naturally a contrarian, and so I just don’t like following them. This is a huge problem when it comes to running my own services business, because so much of being successful at it is having a defined, repeatable, easy-to-explain process for both myself and my clients.

Without a clearly defined process — including project definitions, sign-offs, milestones, roles and responsibilities, assumptions, etc. — it is impossible to properly define the scope of a project. And if you don’t do that, you are setting you and your client up for frustration.  This lesson will be hard to ignore the first time you have a job that runs painfully long, a client that feels you mismanaged their expectations, or you are so sick of looking at a project that you just want to throw your computer out the window.  Don’t let it come to this.

Consultative work is, by its very nature, almost always project work. And the definition of a project includes a definitive start and a definitive end. If you don’t sort out exactly what those mean, what approval needs to include, and what it’s going to cost to go back and re-open a closed issue, then you are not making sure that you, the project and your client are set up for success.

Know Your Value

Knowing your value is more than understanding what rate you can charge for your services in your given market — though, of course, that is important, too. One of the biggest surprises I have learned over the past 18 months is that the services I intended to sell are almost never the services that my clients find of the most value. As a result, my service offering has continued to change, as I move my business farther away from what I had originally envisioned, and closer to the true pain my clients’ experience.  This lesson has been invaluable, because it’s helped me better understand things that previously seemed like contradictions.

In the end, I have realized that the value I thought I was providing to my clients is actually no where near the value they really need from me. Happily, I was providing the real value as a by-product of the services I was trying to sell. Over time, though, it has become clear that my best value proposition is far more interesting and complex than I originally believed, and it’s really my key differentiator. And that’s where my value is.

The bottom line, of course, is that a services business is about people. It’s about the services I provide, and my clients who need them. Often I have clients coming to me assuming they need one thing, when in fact they need something else. As a service provider I have two choices: either continue to sell them something they don’t need, or to help them get what they do need — even if that’s not me.