One of the biggest drawbacks of running a service based business is that you only get paid for billable hours. After spending hours looking for clients and doing preliminary work, you only get paid for what you do. Whether you bill at $20, $50 or $200 an hour, your income is limited to the amount of hours you work. If you are smart, you can find a way to turn your services into products and make more money without having to work 80 hours a week.

If you offer a set of services that you feel you aren’t getting paid enough for but can’t justify raising your hourly rate, productizing may be your best option. You can offer your services as a package, with clear objectives and promises attached. The package could include a combination of several services you provide to make it look more appealing.

This is a strategy that many web-designers use. They offer a package that may include a specified number of pages, logo design, domain name registration and SEO marketing. Customers read these packages and feel like they are getting a great deal. But from your perspective, you may be making $75 an hour instead of $25. Your hourly rate will increase even further as you become more efficient.

The key to productizing services is to learn to work efficiently. Here are some tips:

1. Create a template. Make sure that your service can be easily duplicated. If you can automate the process,you will be able to produce your services much more quickly.
2. Make sure that your staff is well-trained. The faster they work, the more orders they can fulfill.
3. Look for new tools to improve efficiency. Always be up to date on the tools of the trade. New technology can make a process a lot faster. This is especially true for     high-tech companies and web developers. New software and CMS packages can let you do work in a few hours that used to take days.

Many entrepreneurs offer free products to help increase their customer base and encourage consumers to buy a premium product. Called “freemium,” these free products may sound like a good marketing strategy, but it may not be entirely effective.

Here are some reasons why freemium may not be the best marketing tool:

1. Freemium makes customers hesitant to purchase the product initially. Many companies that offer freemium find that less than 2.5% of their customers buy a premium version. This model can discourage customers from buying the product upfront.
2. Freemium can hurt a business brand. Most of a business’s users are probably going to be using the freemium version. When people ask them what they think of a product, they will give the opinion of someone using the lowest quality version of a product. These reviews may ruin a business’s opportunity to find paid users.
3. Free users can cost a company a lot of money. Some freemium products require you to store data on hundreds or thousands of customers. You may also have to pay for their bandwidth if they are frequent users. Your customers may actually become a cash drain rather than a revenue source.
4. Business-to-business clients often don’t respond to freemium. Businesses have larger budgets and are usually more interested in getting a return on their investment than getting a product for free. Most of them would probably rather buy a quality product than waste their time using one that doesn’t have all the features they need.
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For new startups, cash flow is king. And the way a company chooses to bill its customers will directly impact revenue streams needed to adequately maintain cash flow and business operations. For businesses that naturally lend themselves to a recurring billing model, the question is, what’s the optimal billing period?

Whether you decide to bill on a longer or a shorter period depends heavily on your product and business model. Here’s a quick run-down on two common billing approaches:

Annual Payment Plans

• Provides a full year of revenue upfront, easing cash flow concerns.
• Guarantees customer retention for at least one year.
• No costs associated with monthly invoicing or collection issues.

Monthly Payment Plans

• Offers less risk to customers who may be skeptical of an upfront commitment.
• Provides a lower barrier to entry, which should increase user acquisition numbers.
• Makes the sales process shorter and more cost effective.

Because startups are new and unproven from the market’s perspective, business managers will need to evaluate how skeptical the market will be of the product or service being offered. If a company is introducing a brand new concept, it may be in its best interest to offer less risk to customers upfront through monthly payment plan options. Using this billing method, cash flow will need to be addressed on the front-end to ensure that business operations can be successfully managed.

Outsourcing is one of the least-discussed weapons of successful businesses. Whether it’s literally outsourcing a job to another country or simply delegating it to someone else in America, business owners who clear the unimportant from their plates are free to focus on what really matters. As a result, their businesses enjoy steady growth instead of being suffocated by unpleasant chores and busywork. Here’s how you can do the same:

Embrace the Outsourcing Mentality

A jack of all trades is a master of none. It’s an old saying, and one that many entrepreneurs would do well to remember. Unfortunately, there is often a resistance to outsourcing in the business world. The prevailing attitude seems to be “why should I pay someone else to do what I can easily do myself?” It sounds logical, but it actually isn’t.

The reason it makes sense to outsource tasks as a business owner is the same reason you probably don’t change the oil in your car. Someone else can do it better, more quickly or for less money. Outsourcing is your friend, not something to resent or avoid. As an entrepreneur, you should actively and zealously look for ways to get things done through others. The only exceptions are your core competencies - the thing(s) your business does better than anyone else.

Hire an Assistant

Outsourcing doesn’t necessarily mean hiring foreign workers (although it certainly can take this form.) You can get started with outsourcing by just hiring an assistant. It can be an in-person assistant who works with you in your office, or a virtual assistant who completes tasks from abroad.

Before starting your search, nail down some specific chores you’d like to unload on them. Anything low-value, repetitive or personally unsatisfying will do: invoice processing, task scheduling, follow-up, etc. For best results, create written procedures that specify exactly how to do the tasks you’re outsourcing. Fine-tune and refine these procedures over time.

A few days ago, we changed our pricing so that we could provide better care and additional features to thousands of Chargify customers. Although the change in pricing was the result of careful analysis of the way people have used Chargify over the past year, we didn’t communicate this change properly. In fact, our communication was non-existent, which was a major mistake (you can read more about what I learned from this on my blog and hear from our CEO).

After listening to your passionate feedback on the price change, responding to hundreds of your emails and tickets, and speaking to many of you on the phone, it became clear that we had to make some adjustments while standing firm about not offering free plans.

Here’s what we’re doing to move forward:

Insight into why we changed our pricing (definitely not greed!), and an apology from our CEO for the missteps we made.
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Hi all,

We’re still hearing the feedback and we’ll write up a “postmortem” soon regarding how we (mis)handled this. A number of people have asked for something like that and I think we can learn from it and convey some lessons from which others may learn from our mistakes, too.

I just want everyone to know that it’s definitely not because of “greed” that we made this change. “Greed” to me would mean that we’re already making tons of profit and we just want more! That is not the case.

I updated an earlier blog post earlier today to add a tiny bit about this, but the reality is that our old pricing was going to bankrupt us - if not for the fantastic backing of Grasshopper Group.

To be clear, Chargify is NOT in financial danger - Grasshopper Group ensures that.

But Grasshopper Group has a reasonable expectation for Chargify to reach profitability sooner than later. With the old pricing, and the fact that the bulk of our merchants would be on it and the majority of them paying us $0 for quite some time, the future profitability was much too far in the future. It’s costing a lot of money each month to provide what Chargify is inside and out.

More and more, the answer to the question in the Title of this blog entry is “Yes!”

Here are 4 examples of interesting things that Chargify merchants are doing…

1. Simple, Flat-Rate Billing

Let’s say you have a business that charges for access to data in a database you’ve compiled from many sources. Your customers are professionals who save a lot of time by accessing the data you’ve compiled. You want to charge them $25/mo, $50/mo, or $100/mo, depending on what level of access they want.

To do this, you will set up 3 Products in Chargify:

• Plan A: $25 per billing period. Period = 1 month.
• Plan B: $50 per billing period. Period = 1 month.
• Plan C: $100 per billing period. Period = 1 month.

2. Flat-Rate Billing, Monthly & Yearly, 15-day Free Trial on Monthly Plans

Starting with example #1, let’s add a yearly plan that gives the buyer a better deal if they pay for the whole year, and let’s add a 15-day free trial to all the monthly plans.

Venture capitalist Paul Graham expressed an under-appreciated nugget of wisdom in his article on mistakes that kill startups.  Unlike “winning an Olympic gold medal, where the problem is well defined”, building a successful company is actually “more like science, where you need to follow the trail wherever it leads.”

Therefore, Graham concludes that the worst person to run a startup is someone who “has some great idea they know everyone is going to love, and that’s what they’re going to build, no matter what.” But while plenty has been written about successful startups in general, little has been said about companies that thrived by changing their strategies instead of clinging to those they started with.

Below, Chargify examines six companies whose flexibility took them to new heights.

PayPal

PayPal, believe it or not, was not founded to be the online payment service that it is today. In her book Founders at Work, Jessica Livingston interviews PayPal founder Max Levchin. During the interview, Levchin reveals that PayPal was originally envisioned as a cryptography company, and then later as a means of transmitting money via PDAs. Only after several years of trial and error (and overcoming user fraud that almost destroyed the company) did PayPal find its sweet spot as the default online payment system of millions.

A frequent complaint about web startups is that despite being cool or popular, they lack a clear business model. One textbook example was YouTube. The service had millions of adoring users, but financially speaking, YouTube ran at a loss until Google bought them out in 2006 for $1.65 billion. For a time, the default business model for high-traffic but unprofitable websites was displaying ads. But since effective advertising depends on more than just mass exposure (like targeting) it is not always an effective business model.

A better answer for many has been the “freemium” model, where a company offers its core product or service for free and charges for advanced or special features. Rumors have cropped up in recent years that web giants like Twitter and Facebook, for example, are considering freemium strategies. Below, we’ll profile seven companies that have already mastered the freemium model, and how they did it.

Skype

Web-based telephony company Skype provides an excellent example.

The team here at Chargify has been hard at work on a bunch of new features. We just flipped the switch on two of these: Prorated Upgrades/Downgrades and Metered Components.

Metered Components

Metered Components give Sellers the ability to charge for a product on a per-usage basis. For example, a cell phone provider could charge $1 for each text message that was sent, or a Web Hosting company could charge for storage by the number of gigabytes used. Creating metered components is quick and easy. Simply give the component a name, specify the unit used to measure it, and give it a per unit price. Usage of metered components is tallied throughout the billing cycle and the charge is seamlessly integrated as a line item on the Customer’s next invoice.

For more information on how to create Metered Components, and how to record usage via the API, see:

This is a guest-post from Sean Harper, co-founder of TransFS.  He is a zealot about making sure business owners get a fair shake from their financial services providers.

1. Know what your requirements are and find a processor that has lots of experience with those requirements.
The worst credit card processing outcomes occur when the business owner doesn’t screen the processors that don’t have experience fulfilling that requirement. Fortunately, there are lots of processors that are experienced dealing with SaaS and web services companies and providing the gateway (auth.net or otherwise) that they need.

Lincoln Murphy of Sixteen Ventures presents an in-depth look at the Freemium model in SaaS companies.

What is Freemium, you ask?

Well, Freemium is defined by wikipedia as “a business model that works by offering basic Web services, or a basic downloadable digital product, for free, while charging a premium for advanced or special features.”

In his book he defines Freemium as “A marketing tactic where a Software-as-a-Service (SaaS) vendor has both a free and paid version of their product.”

Some of the areas Lincoln Murphy’s book addresses are:

• Freemium is Not a Business Model
• An Understanding of Free
• Freemium Success Requires Internal Reflection