If I were had to scale Video Husky from $100k-$200k in ARR to over $1M+ again, here’s the framework I would use.
This post is split into four sections with a video version below (the written version is more concise, but details on slides provide a different perspective).
If you’d like help executing this playbook, I consult on a part-time basis here.
The Fundamental Scaling Mistake that Most Productized Agency Founders Make
The biggest mistake that agency founders make when trying to scale their productized services is thinking that the more customers the better.
As somebody with a marketing background who was used to selling ready made products on a one-off basis, this concept was hard to grasp, so I wanted to use Video Husky's customer data to prove why focusing solely on trying to bring in new clients without considering the larger implications of scaling before your company is ready is dangerous.
Video Husky's 1,724 customers
Over the entire course of Video Husky's life, ~1724 customers have paid us, but as seen above, not every customer is made equal.
The Pareto Principle is a real phenomenon and as you can see here, the top 20% of all our customers actually paid us more than double the rest of the customers combined.
Taking this one step further, you can see that 28% of all customers who have ever signed up with Video Husky actually ended up paying nothing due to our money back guarantee, an INSANE number no matter how you think about it with three big consequences.
1) Financial
The first of course is financial - over 1/4 customers that we serviced never actually paid us.
But if you consider there are marketing, sales, onboarding and operational expenses allocated to bringing on new customers, it's likely that Video Husky doesn't actually make money until at least $1k of payments have been made.
If that's true 53% of all clients who have ever worked with Video Husky have been unprofitable.
2) Operational
The second cost is operational stress and morale.
The bottom 20-40% of clients are not only the one who typically pay the least, they also cause the most headaches.
This means compromises have to be made to accommodate their needs which affect operational smoothness, but also that the management team has to allocate precious attention towards managing said clients emotions and expectations.
3) Opportunity Cost
Which leads to the biggest cost - opportunity cost.
The worst that can happen is when we start diverting resources and attention from our worst-fit clients to our best fit ones.
Essentially what starts as an attempt to save a $1k client can end up costing the company a $10k client who ACTUALLY values our service and allow us to scale.
The Negative Flywheel
If you're not careful, there's a good chance you can get stuck on the negative flywheel described below:
Bring on bad fit client
Bad fit client complains
Resources go from good fit to bad fit client
Both customers are unhappy with results
Both clients leave
Reduced morale and profitability
Less budget and morale to attract good new clients and retain staff
Desperation restarts the cycle
...then once you're in the cycle with high labor costs, it becomes very hard to break the cycle given you'll almost definitely need a few non-profitable months to reset the ship.
The Lesson Worth Learning
So given the above - the lesson worth learning here is not all clients are made equal.
If anything, the gap between your best clients and your worst ones are 10x more than what you likely perceive, even though on a daily basis the best customer is likely treated at most a little better, but likely most times are paid less attention given the crisis driven nature of having to work with your bad fit clients.
Knowing that then, means the key to scaling your productized agency isn't about bringing on more customers, but instead bringing on the right customers.
Why Correct Positioning is the Accelerant that Pushes the Flywheel for Growth for your Product
The Positive Flywheel
To bring on the right customers though, your company or product needs to have the right positioning.
Good positioning matters because it leads to a positive flywheel effect:
Higher LTV: Appeal to only best fit clients and pushes away the worst
Smoother Operations: Reduce stress for more joy
Increased Profitability: Charge more while streamlining expenses
Lower CAC: Use relevant client results and testimonials to attract ideal prospects
...all of which not only makes it easier to further attract good fit clients, but ensuring you're serving them better and more profitably.
Video Husky as an example
This process took us roughly 15 months (April 2020 to July 2021), but eventually got it to the point where we:
More than doubled LTV from $2.3k to ~$5.6k
Reduced monthly churn from ~28% to ~12%
Increase cashflow from ~$60k to ~$100k per month
Attracted 379 leads who submitted Typeform responses in July 2021
Booked 134 calls in July 2021
While when done right the results can be awesome, the reason why it's hard to do this is there are a TON of moving pieces which can not only be confusing but disheartening given results aren't instant.
To simplify things, I wanted to share a framework that can help you think about positioning your offer and product in a way that can hopefully get you similar results as what happened for Video Husky.
The 3-Phase Framework on Creating Offers that Entice the $10k+ Clients who Unlock 7-Figure Scale
The idea behind the framework is to explore the three things that matter most:
The Hero: Who are your potential Ideal Clients and what matters to them
The Journey: What obstacles block the path that prevent them from making progress
The Guide: How can you sustainably attract and serve those clients in a profitable manner
We'll explore each more precisely in the following sections.
The Hero: Who are your potential Ideal Clients and what matters to them
Essentially what we need to find out is:
Which customer segment most values your service
Where is their ultimate goal
What is the trigger point that forces them to take action (e.g. purchasing your product)
We can achieve this by doing two things.
Ranking your customers to find the best
The first is by ranking all your customers based on:
Lifetime payment amount
Happiness/Joy working with them
Workload
Opportunity for more revenue
Do they refer new clients
Once you've done that, then identify shared traits between customers and group them together.
This is what it looked like for Video Husky.
Based on the above - you should be able to identify 2-4 customer segments who are worth serving more than others.
Line up 5-10 interviews with the best customers per segment by emailing them and offering to pay $50-$100 per call so they take it seriously. It can be a straight transfer, gift card or discount. (bonus points if you line up 1-2 churned customers within that segment to provide an opposite POV!)
This exercise was heavily inspired by "The Pumpkin Plan" by Mike Micaholwicz so if you're interested you can read more there.
Conducting Interviews
Once you've set up the interviews, you'll be asking them this set of questions.
This interview process is inspired by the JTBD methodology. If you're interested in learning more "Demand Side Sales" and "When Coffee and Kale compete" are excellent reads.
For the "Hero" part of this framework, the questions that matter are:
Start by asking about their business and personal goals:
In the long term (3+ years)
Where do you hope to be professionally and personally?
What are you most scared of personally and professionally?
In the short term (weeks and months)
What are you most annoyed or frustrated about?
What are your goals or what are you most excited about?
How does (THE SERVICE YOU PROVIDE) relate to your goals?
Take us back to the moment before you started working with us:
How did you previously solve the problem and what was wrong with it?
When was the first time you started thinking about doing X differently?
What did you want more of?
What did you want less of?
I go more in-depth about this in the video presentation, but the idea here is simply to understand:
Where they want to go
How does the problem you solve for relate to that goal
What did they previously use as a solution before they met your company
When did they consider trying something else
This is important because understanding this tells us:
How well suited we are to helping them get there
What benefits are most necessary most for our building our product/solution
What triggers buying behavior so we can market to prospects at that stage
The Journey: What obstacles block the path that prevent them from making
In this section we want to understand:
What alternatives did they consider?
What message resonated most with them?
Why is your solution optimal for them?
How much would they actually be willing to pay for it.
We can achieve this with the second half of the interview where we ask the following questions:
Now take us to the moment that you started actively thinking about buying?
What triggered you to make the effort?
Where did you start looking for that information?
Who do you trust to learn about this from?
When you were considering who to work with:
What alternatives did you consider?
In terms of OUR COMPANY:
How did you hear about us?
What made us stand out?
When you started working with us:
What was the magic moment that you realized this was a winning relationship?
Why haven’t you considered moving away to other options?
At what price point do you think our product doesn’t make sense?
Market Landscape
While all the questions are important, the key one to find out is whether you have any direct competitors.
I elaborate more on this in the presentation, but people don't buy companies/products, they buy categories.
In the same way that when you think about electric cars, you automatically think about Tesla - the moment that your company isn't #1 within a product category, your customer won't think of you when they're ready to buy.
So when you're conducting your interviews, you're mainly looking for segments where there are no direct competitors, but if all segments can name off direct competitors, then find a way to rebrand your productized service to a smaller subsegment so that instead of being "outsourced Video Editing for Content Creators" you can be "Outsourced Video Editing for Twitch Streamers" (A subsegment of content creators)..
Messaging
Questions two and three here allow us to find out where our customers come from and what message resonates with them.
Essentially we'll want to double down on the things that work, so if there's a pattern, then you know you're on the right trail.
Solution
While each of these questions seem independent, they're all crucial in ensuring you have a scalable product.
The "magic moment" is when your customer knows their lives have been forever changed since working with you.
At Video Husky, this was typically after the third video they have us edit because that's when we can get it right first time.
Your job is then to ensure onboarding right up until that moment is buttery smooth because the gap between a customers' purchase and that moment is when they're most likely to churn.
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Finding out why they haven't moved to competitors might seem weird, but only by asking that can you find out what's the "One Thing" that your customers most care about.
At VH, while I thought it might be our processes, software etc. turns out a lot of customers actually didn't like our processes, they were just glad we helped them find a talented editor ASAP.
Once I found that out, we increased pay and paid more attention to editor satisfaction to attract and retain more editors.
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Finally, asking at what price point is your product ridiculous is helpful because it tells us if there's room to increase our prices.
The reality is for a productized service, you want something like 70% gross margins to ensure it's truly scalable. So while there are ways to cut expenses to get there, increasing prices (assuming there is value to be had) typically is the way to go.
The Guide: How can you sustainably attract and serve those clients in a profitable manner
At this point, you'll have finished conducting the 15-25 interviews, and you should be able to pick one customer segment on which you'll focus all your efforts on.
This is important because by focusing only on that segment, you'll be able to cut the costs associated with serving other segments, but also promote your message more effectively to them through case studies and testimonials (which you'll be collecting throughout your interviews!)
Promotion
The two things that ultimately matter when promoting your service are the message and the traffic source
The Message
Getting your one-liner value prop message right is important because it communicates to your ideal prospects that you actually understand their problems.
Given that, your message should like something like this:
"We help (customer segment) do/get (valued currency) in (X timeline) so you can have/achieve (Dream result) without (worst fear)."
In this case valued currency, dream result and worst fear are all discovered in the first half of interview process. Watch presentation for more details
In Video Husky's case, it ended up being this:
The Traffic Source
When it comes to traffic sources - always start warm, which is why you asked your ideal customers who they trusted/listened to.
Do your best to partner with said trusted sources because you can then leverage their credibility instantly for higher quality attention from your best leads.
This is something we struggled with a lot at Video Husky given my own preference for Facebook ads - but when we compared referral customers to regular ones, it was obvious they not only stayed longer with us, they were also consistently rated as better to work with by our editors.
At the same time, if you've already tapped out all your warm traffic sources, then place ads/posts where your ideal prospects hang out.
For Video Husky, this was typically Facebook ads as you can see with the below examples, but the could also be in Groups/Forums etc. after you've built up the requisite credibility within the group.
Funnel
From there, it should be relatively straightforward to send your traffic to a landing page which then allows them to book a call with you after filling out a short qualifying quiz (based on whether they are a "good fit" client).
The key thing that matters here is getting the landing page right by including the following information:
Specific, benefit driven headline
Who it's for
Video Sales Letter
Testimonial
How it works
Then finally, the easiest booking software to use for all of this is Calendly - although in the long run you might consider using Typeform to qualify leads and Close.io as a CRM.
Perspective
Once you have all of the above set up, then the final step is to ensure you have a way of keeping perspective over everything given there are a lot of moving pieces.
Metrics
The easiest way to do this is by tracking your metrics on a weekly and monthly basis.
For weekly:
Leads submitted
Calls booked
Calls taken
Sales
New customers who achieved "Magic Moment"
Customers who haven't received value (no edits in 2 weeks)
For monthly:
Churned customers
Churn rate
Total customers
CAC
LTV
MRR
Cash on hand
Target setting
Once you're regularly tracking the above metrics, then it's worth setting a target.
However the key thing to remember here is that more customers isn't necessarily better, it's about working with the right customers so that always trumps any targets that are set.
Assuming that's the caveat we're operating with, then the easiest way of setting a target is by reverse engineering your sales pipeline.
Want 5 net new clients
Likely will 5 churn customers
Therefore will want 10 new clients
Which requires 30 sales calls
So gotta have 60 bookings
And around 180 Typeform leads
Again I want to emphasize that the fit of customer is more important than attracting more prospects but with that said, it becomes helpful to see the big picture with something like this.
The 90-Day Execution Plan to Sustainably Attract Your Ideal Prospects per Month
Now that we understand the framework, the important part is putting this into action.
Depending on how quickly you move, figuring this out could take as little as three months if you follow the plan set below:
Week 1
Rank customers and identify best segments
Week 2-4
Set up and conduct 15-25 interviews
Week 5-8
Settle on one customer segment to focus on
Reconfigure offer for 70% margins and guided onboarding
Create right messaging and identify warm and cold channels
Set up landing page and funnel
Week 9-13
Launch
Track metrics and adjust accordingly
Conclusion
That sums up exactly how I would scale a productized service today - if you have any questions, feel free to ask them below and I’ll get back to you.
If you’d like help applying this framework to your company, I work with founders to scale, systematize and exit their productized service agencies. Go here to learn more.