Boutiques often think there is only one way to charge with limited revenue sources. On this episode, we interview Jamie Shanks, CEO at Sales for Life to discuss the 9 common ways to make money in the professional services industry.
TRANSCRIPT
Sean Magennis [00:00:15] Welcome to the Boutique with Collective 54, a podcast for
founders and leaders of boutique professional services firms. Our goal with this show is to
help you grow, scale and exit your firm bigger and faster. I’m Sean Magennis Collective 54
Advisory Board member and your host. On this episode, I will make the case that
boutiques constrain their growth by thinking too narrowly about monetization. They often
think there is only one way to charge and only a couple of revenue sources available to
them, when in fact, there are nine common ways and probably more to make money in the
professional services industry. I’ll try to prove this theory by interviewing Jamie Shanks,
CEO at Sales for Life. Sales for Life enables sales organizations and teams to produce
sales generated pipeline at scale. To accomplish this, they have evolved into a tech
enabled service with a product called the Scale Pipeline System. This system helps
customers grow their sales pipeline by 25 percent within 90 days, and you can find Jamie
and his team on sales for life, all one word, dot com. Jamie, great to see you. Welcome.
Jamie Shanks [00:01:44] Sean, thanks for having me.
Sean Magennis [00:01:45] Oh, it’s such a pleasure, and I’ve been so looking forward to
chatting with you. I love your energy and I love what you’re doing. So let’s start with an
overview. Can you briefly share with the audience an example of how you’ve developed a
new revenue stream?
Jamie Shanks [00:02:00] Yeah, actually, we not only generated a new revenue stream,
but spun it out as a secondary company called pipeline signals. Essentially, we had or
have a training business for the last eight years that has various sources of revenue
streams. What was happening upon finalizing certification with our customers? We needed
a reinforcement mechanism when we created a managed service that actually mined
signal intelligence on behalf of sellers and created that revenue stream as a spin out from
sales for life.
Sean Magennis [00:02:34] I love that, you know, it sounds easy, and I’m sure you know it
wasn’t as easy as you make it sound, but having that knowledge that you needed a
reinforcement turning that into a managed service, what a great example. So, Jamie, what
I’d like to do is get your thoughts on some of the best practices that we recommend in this
area. We’ve identified nine of the most used sources of revenue in professional services.
I’ll walk you through each one and then get your brief thoughts on each as we’ve got quite
a bit to get through. So the first one is hourly. Billings charging clients an hourly rate has
the benefit of being easy to implement. However, it limits how much revenue you can
generate. There’s a fixed number of hours. There’s an upper limit of how much you can
charge for each hour. What are your thoughts on this concept?
Jamie Shanks [00:03:25] And all the context I provide, I’m going to talk from a training
perspective in a managed service. Great. I completely avoid the hourly billing because I
only have whatever is six hundred or two thousand hours in a year, and I’m trying to create
leverage per those hours and trading time and materials. My my personal opinion I
avoided at all costs.
Sean Magennis [00:03:51] That’s Jamie in your context. Excellent. Number two is a
retainer. This is when a client pays you upfront to secure your services when needed. This
has the benefit of getting paid in advance and of a predictable cash flow. However, there
are only so many retainers a boutique can handle at one time. What is your opinion about
this concept?
Jamie Shanks [00:04:14] We had that separated. We actually had a retainer program
where we have what’s called a daily coaching hotline, and it granted our customers
unlimited access to coming into think of like Professor Class Time at university. Yes. The
challenge is then what? Again, it became a utilization rate exercise of constantly trying to
figure out what is the percentage chance the people will drop into that call? Will we
spreading ourselves too thin? We then had to break out if some people get individualized
call times versus a public enrollment of allowing multiple people on the same call. So we
eventually migrated that revenue stream into more of a fixed fee bid and utilized
subscription, so we no longer touch the retainer model.
Sean Magennis [00:05:07] OK, excellent because the next question is fixed bid. So this is
using a flat amount regardless of the amount of hours worked. It is profitable work for
boutiques if they can scope projects correctly. So if a firm struggles with estimating the
level of effort, it can be a money loser. So what do you think about this? How have you
dealt with that?
Jamie Shanks [00:05:28] This is essentially our go to market. Over time, we’ve discovered
our gross margins. Our gross margins are north of 80 percent. And so by understanding
that and also developing a service that is scalable, tech enabled services you described
upfront, it allows for predictable delivery. Our delivery really doesn’t change customer the
customer outside of a few hours here, a few hours there over the course of a year. Yes. So
all of our customers for sales for life in particular are on annualized subscription contracts
that are fixed fee bid. And it is up to us to live within the means of the people and process
that we’re deploying against that.
Sean Magennis [00:06:14] Brilliant. And staying disciplined and not going out of scope,
right?
Jamie Shanks [00:06:19] Correct. Fantastic and going to school. I think the important
piece here is not customizing. I mean, this is a lesson learned. Don’t play the game of let’s
throw everything into the deliverables and outcomes section of your statement of work.
Yes, design something that is a repeatable service. The one offs, you will get clobbered
because there will be scope creep that happens every time.
Sean Magennis [00:06:47] Absolutely. So well said, the fourth one is performance based
contracts. So this is where goals are established. And if the firm is successful, they get
paid. And if they fail to deliver, they don’t. Get paid, it does allow a boutique to capture
upside as they’re usually uncapped. The risk, of course, is if you don’t produce, you lose
your shirt. So what are your thoughts on performance based contracts?
Jamie Shanks [00:07:13] This is actually something we want to experiment in the future
with a company that we have an idea of launching, but its sales for life, we have not had
the retained earnings or there the risk profile willingness to take on those type of
customers now. I’ll give some caveat the customers and sales for life are global enterprise
global mid-market. They may not be as apt to to running a model like that because for
them, they’re pulling money out of our backs. It’s predictable. It’s being sold to a director or a VP of a business unit or a line. So we haven’t done it. I have interviewed and met many
CEOs that are experimenting or are doing it successfully. And it actually has been the
growth driver for their business. I unfortunately, have not tried it out of fear.
Sean Magennis [00:08:05] No, and that’s important to recognize, and it’s important to
have the means to carry that risk from a cash flow or from a cash reserve standpoint. The
fifth one is member dues, and it’s a business we know well and it’s a business you’re
getting to know well. So this is when a client pays the boutique, if they see a value in being
in a group or community with other clients, the annual dues grant access to people of a
similar nature and similar jobs dealing with similar issues. It’s profitable for boutiques as it
scales nicely. Small amounts of staff can manage large numbers of clients. The risk,
however, is you have. If you have unhappy clients, the word is going to spread quickly. So
what are your thoughts on member dues?
Jamie Shanks [00:08:49] This is essentially a form of what sales training companies do.
Yes, they originate typically in project based one time revenue. But our business after
eight years, it is a form of a member do. Essentially, it’s an annualized subscription. It
began where there was quarterly deposits up front. Then we became comfortable and
asking for annualized membership dues. That’s essentially what it is and then now with
three and five year contracts. But essentially, what they are getting is a series of
deliverables throughout the year, and it’s this is what I like about it. It’s value based
outcomes. So all that you’re basically saying to people is over the course of X, let’s call
that one year. Yes, I’m going to move you from ground ground floor to Mars. And on that
journey, don’t come to me every month about where we are on our way to the space
shuttle and then on the way to the Moon and the way onto the Mars. Let’s focus on what
we’re trying to accomplish over a year and keep paying your bills. So we are a form of a
member service and it’s the best way, especially again if you understand your gross
margins.
Sean Magennis [00:10:03] I love that example. Well, well, well said. The six is licensing
revenue. It’s a it’s an area I know well. I was in a licensing revenue business for 14 years.
This is where a licensing fee is paid by a client to a boutique for the use of intellectual
property. Many boutiques have methodologies and tools that client want unlimited access
to. They pay a license fee or a royalty for this right. And the risk to a boutique with this is
an inability to productize their service offering. So if every project is a snowflake, it doesn’t
work. So what are your thoughts on this concept?
Jamie Shanks [00:10:41] Yes. And so that’s what makes up our annualized subscription,
and I’ll talk about what we’d like to do in the future with a channel model. But essentially, if
you were to reverse engineer, our average sales price annualized sits between 80 and
100000 U.S. dollars per customer. If you were to break that down, a percentage of that
from an accounting perspective is counted as an annualized license that is then deployed
in one twelfth across a year when you use accrual accounting. Yeah. And then there’s a
service that’s also applied to that as well. And what we try to do is make the annualized
license worth 70 to 80 percent of the total fee. And then the services work on top of the
licenses has more enterprise value than the services themselves. The services again have
been productized. The onboarding process is the same for every customer, right? The
moment of the learning, it’s the same for every customer. The quarterly business reviews
with the customer the same. So in essence, they’re all like that from all. The customer
sees one licensing price. Some will ask for that breakdown because they need to account
for what percentage is a license. Now where we want to bring this in the future is being
able to develop a channel ecosystem in that channel ecosystem. Our customer then does
not become the end user. The customer of ours becomes the channel partner. They pay a
licensing fee and then they resell it to their cash, the end user, and it will come to one of
your other models. It’s a form of a royalty.
Sean Magennis [00:12:22] It’s right now that makes a lot of sense, and I think you’ve
keyed in on something I think our listeners need to know. That’s really important when
you’re looking at licensing revenue, the documentation, the playbooks making it very, very
standard that you can replicate is really critical for the success of this model.
Jamie Shanks [00:12:39] Yes. Yeah. And if you if you look at like a training business, we
would straddle the line between a shot. It has the it should have the margins of a software
company. Mm-Hmm. But the human element of services, I wish it had sat on for multiples.
That’s what it has. It’s very akin to it where you create the intellectual property and the IP.
One time you put it in a learning management system and you sell it a thousand times.
Yes, to a thousand companies. Yeah.
Sean Magennis [00:13:13] Oh, very nice. The seventh one is subscription, and these are
all sort of, you know, aligned in some way. So subscription is paid to boutique by a client to
gain access to an asset. For example, many boutiques have proprietary benchmark data
and clients who want access to this data pay a subscription. The risk is managing the
asset, keeping the quality of the data well. So, you know, if the data ages, it becomes
worthless. Clients, you know, disappear. What are your thoughts on the subscription
model for revenue generation?
Jamie Shanks [00:13:49] It’s basically all of our revenue, and we it took us a while to have
the strength and the tenacity to ask for the annualized subscription fee paid in advance of
the calendar year that it’s going to be deployed. Yes, and we try unless it’s the Microsofts
of the world that is always the case. Collect the money upfront. Yeah. And from from that
moment, I work within that, that gross margins itself. And we really worked hard to ensure
that DSO were based sales outstanding, if possible, under 30 days that we’re not experts
at it. But that means that you are taking a year and of revenue and deploying it in the same
month of an operating expense of one particular month. It’s an incredible way to accelerate
the growth of your business if you can sell 12 of those over the course of a year.
Absolutely.
Sean Magennis [00:14:53] Yeah, it’s brilliant. Well, well structured and a great example.
Number eight is events in this current environment. This may not be a particularly good
revenue generator, but this is where clients buy a ticket or tickets to be granted admission
to an event or a seminar or a three day that boutiques put on can be very profitable. And
typically, you can get sponsors to cover the cost of the event and the ticket sales then or
all profit. The risk, of course, is that if no one buys tickets and no one shows up, then it’s a
bust. What are your thoughts on the event concept?
Jamie Shanks [00:15:32] I have a couple examples on the event, so as part of my
business, a quarter million dollars of revenue for five years up until COVID, with speaking
engagements and workshops. So this also comes to your first question. Yes, which was
around hourly. When I began speaking on stage, I made many mistakes and that was
thinking that the hour that I was on the stage should be charged for that particular hour,
only to come to realize that when your car leaves the driveway to get to the airport, live in
Dubai for two days and then come home, you need to equate for this. And then you also
need to wait for the value creation, not the hour spent, because you also spend a lot of
time building the presentation and so forth. So my speaking fees went from five hundred to
a thousand dollars incorrect thinking of like the hour of that deployment to on average
between 20 and 40 thousand dollars really under what I was going to go. COVID changed
that when COVID happened, the world tried to revert all of US speakers to ensure that our
Zoom calls were a cost per hour and that how much the calls were cost per hour. So what
happened is those who that was 10 percent of our revenue and reduce the size of sales
for life. Right. If you look at that, those that had speaking and workshops as like 80 percent
of the revenue just crippled crush because the customer was saying, Well, I’ll pay you five
hundred dollars to do the same thing virtually, I don’t know. Again, you tried to drive it back
to the value creation piece. Now you could obviously discount saying, Well, I’m not going
to spend two days in Dubai market out of pocket. So, you know, speaking of fees on virtual
have typically landed four in my world for three to five three to five to maybe ten thousand
dollars. Mm hmm. Maybe that kind of helps answer the first part, which is how do events
change and you get away from that hourly? Yes. Also then ran our own conference. We
put together a conference six years ago. Assess a quarter million dollars to put this thing
all together, and one of the things that I’ve learned is that the gate fees or the to calling
these events ticket fees three or five hundred dollars is not the way to make money, nor is
even the sponsors the best practice from my understanding, my limited experience. My
wife’s in that industry has been that the people that you bring in the future equated
revenue of those people measured over the next one to three years should be your return
on investment thinking and the gate fee and the ticket fee and the sponsorship fee. Will
hopefully bring you to a brief break even. Yes. And your cost of customer acquisition
hopefully became zero unless you equate the time and energy it took to build the
conference itself.
Sean Magennis [00:18:49] So and thats brilliant. I love that thinking, and that means that
your strategy for events has to be extraordinarily well conceived, very well thought
through. Because if you’re reliant, then on those individuals, either as prospects or as a
land and expand if you have them as existing clients, is this an opportunity to up sell or
cross-sell? There needs to be a very specific engagement strategy from what I’m hearing
from you to unlock the value long term from the investment in events.
Jamie Shanks [00:19:20] Correct. And I think the events world is now permanently
disrupted. Yes. And if you were trying to put on a $100000 event, let’s use a round
numbers to try to recoup in $100000 in gate ticket fees and sponsors might be a tall ask.
Now you have to deploy a sales team to even get those. That level of people in the door?
Correct? Think about it. Think about it from the perspective that if we can at least break
even, what would five of those hundred people who became customers? What would that
mean to our business? Yeah. What is the lifetime value of five new accounts?
Sean Magennis [00:20:02] Absolutely.
Jamie Shanks [00:20:03] That’s probably the best way to look at it.
Sean Magennis [00:20:05] I love it. That is so clear, and thank you for being so candid in
Airplane because a lot of people are thinking, Do I go back to events? Is it going to be a
hybrid model and how can we truly extract an hour away from it? The final one is royalties,
so this is when a boutique does not monetize the client, but instead they monetize other
boutiques. It’s often used by boutiques of training products like you and your bag. They
allow other firms to use their training material. They collect a royalty every time they do.
The risk with this is that somebody steals your IP, you know, and and dresses it up and
creates their own. So a boutique who chooses this strategy really needs to understand
paywalls, royalty agreements and IP protection. What are your thoughts on this?
Jamie Shanks [00:20:52] Well, if you look at my industry, those that have scaled and I’ve
had this conversation with Greg many times, and he’s made it very clear. If you look at the
few great global sales training companies, they have one thing in common they have built
a channel ecosystem. Sandler in my industry decided to do it through a franchising model.
Most do it through a ten ninety nine contractor channel model. But it is this the singular
commonality to scale and intellectual property is that in my industry, typically the OEM, the
designer of the –
Sean Magennis [00:21:29] which is you,
Jamie Shanks [00:21:30] which is me, would take on average 30 to 40 percent of the
deal. And the boutique that actually sells, wins and then delivers the service is somewhere
in the 60 to 70 percent range, and that’s a common model. We experimented with it and I
learned the lesson of trying to become pregnant. We got halfway there, had a few hits and
misses. It will be a focus of ours over the next five to 10 years. And it is the obvious path to
scale that we will focus on.
Sean Magennis [00:22:08] Great. Thank you for that, Jamie. So there you have it. Nine
ways to monetize professional services, some amazing insights and really practical, real
time examples from Jamie. So going to market with a single revenue source, in our view,
is a mistake. The important lesson here is to have multiple revenue sources. Therefore,
the question our listeners should be asking themselves is what is the right mix for you? If
you have one, try to get two, if you have to try to get three and so on. The opportunity is
often right under the nose of an owner. You just need to know where to look. OK. This
takes us to the end of the episode. Let’s try to help listeners apply this. We end each show
with a tool. There’s going to be a simple 10 question checklist and a yes no answer to it.
We keep it very simple. So, Jamie, I’m going to ask you these questions and just simply
say yes or no, and I’ll run through them quickly.
Sean Magennis [00:23:15] The first one is, will the client pay you more than $500 an
hour?
Jamie Shanks [00:23:22] Yes.
Sean Magennis [00:23:23] Will a client pay you in advance to secure your services on
demand?
Jamie Shanks [00:23:28] Yes.
Sean Magennis [00:23:29] Number three, can you scope your projects with precision?
Jamie Shanks [00:23:34] Yes.
Sean Magennis [00:23:35] Number four, can you prove direct attribution of results in your
project?
Jamie Shanks [00:23:41] Yes, I mean, sales were quite easy, actually.
Sean Magennis [00:23:44] Number five, will your clients pay you for the privilege of
speaking to your other clients?
Jamie Shanks [00:23:50] Never tried.
Sean Magennis [00:23:52] Number six, will your clients pay you for the right to use your
intellectual property?
Jamie Shanks [00:23:58] Yes.
Sean Magennis [00:23:59] Number seven, do you have proprietary data that clients would
like to subscribe to?
Jamie Shanks [00:24:04] Yes.
Sean Magennis [00:24:05] Number eight, do you put on events and our clients willing to
buy tickets to attend?
Jamie Shanks [00:24:11] Had in the past.
Sean Magennis [00:24:13] Number nine are other boutiques willing to pay you a royalty to
distribute your intellectual property?
Jamie Shanks [00:24:19] Hopefully in my future.
Sean Magennis [00:24:21] And number ten, does your business model include at least
three sources of revenue?
Jamie Shanks [00:24:27] Yes.
Sean Magennis [00:24:28] Jamie. Fantastic. So in summary, there are many different
sources of revenue available to boutiques. Develop a clever monetization strategy. Think
about a mix of revenue, not just one source. Jamie, a huge thank you for your expertize
today, and I look forward to seeing you again. And for our listeners, if you enjoyed the
show and want to learn more. Pick up a copy of the book The Boutique How to Start,
Scale and Sell the professional services firm written by Collective 54 founder Greg
Alexander.
And for more expert support, check out Collective 54 the first mastermind
community for founders and leaders of boutique professional services firms.
Collective 54will help you grow, scale and exit your firm bigger and faster.
Go to Collective54.com to learn more.
Thank you for listening.
