An Introduction to Profitable Business Models for Recovering Hours Peddlers
If you’ve read my last post and have been following my business of freelancing series, then you either took the red pill or the blue pill after the last post. Full disclosure: I’m not sure which pill is which. But let’s assume you took whichever color corresponded to “I want to stop selling hours of labor and not become a managing director.”
You’re going to move toward profit and away from hourly billing.
That’s all well and good, but you’re going to need to know what to do instead. What should set your sights on as a new business model?
What is a Business Model, Anyway?
Wait, don’t stop reading. I’m not going to plunge you into the most boring unit in a first semester MBA program. Truth is, I’m not really even sure how to define business model in a canonical way.
If you go the dictionary route, you’ll see what I mean. “A plan for the successful operation of a business, identifying sources of revenue, the intended customer base, products, and details of financing,” is somehow both cogent and vague enough to border on useless.
It seems like the kind of thing best defined by examples, which abound. This non-exhaustive article alone lists 50 different types of business model.
So let me curate it for you by culling that list. And I’ll do so through the lens of a current or aspiring freelancer, trading hours of code-writing labor for money. Where might such a person go from here to get away from the profit-less hourly trap?
Keep in mind I’m going to cull the list of possible business models severely, both to limit the length of this post and to preserve your sanity. Because, while it’s possible for you to pivot from freelance app dev to farming or a retail bait shop, let’s assume that you’ll instead adopt something adjacent to selling app dev labor as a freelancer.
And, finally, for the sake of a consistent example theme, let’s assume that, during your freelancing travels, you get really good at something universal to all freelancers: project discovery. Most freelancers (to my eternal head-desk chagrin) view discovery as a free, loss leader activity to give away en route to doing labor for money.
But you get good enough at it that you think you can earn a living turning vague business pains into implementation strategies.
1. Project-Based Consulting
Let’s start with one that’s deceptively simple to understand, if not easy to do. You switch from app dev freelancer to consultant.
I know, I know. A lot of you doing freelance app dev (or working for an app dev agency) call yourself consultants. But you aren’t. Not really. Consultants sell advice, whereas you sell person-hours of labor.
The first business model switch that you could consider would involve switching to advice/strategy as a deliverable.
You understand that many clients without in-house engineering groups struggle mightily to commission custom software, even when they’re within the ballpark of what they actually think they need. “We need a website that pops!”
So you develop an offering where you consult with businesses that are about to commission software. You sit with them for 1 or 2 guided discovery sessions and create a project plan for them, based on a template. You then build an RFP for them, put it out, screen the responding companies, and direct the response selection process.
Your end deliverable is a detailed project plan and a vendor ready to execute it.
For this, you could charge a simple flat rate, like $20,000 for a 2 week vendor selection process (companies would love this, because the alternative is them wasting weeks or months dickering with cut rate firms before blindly picking the second cheapest bid.) Alternatively, you could dabble in value-pricing, and charge a percentage of the project estimate.
In either case, the business model is straightforward. You provide strategic guidance in exchange for a fixed rate, allowing you to become more efficient at your delivery over time, and build internal IP.
2. Retainer Consulting
Another, often complementary, business model is retainer consulting. And, no, I don’t mean a “retainer” in the sense that you’ve built someone a $3K WordPress site and then you’re on the hook for break/fix for a while.
Rather I mean true retainer consulting. The client pays a fee, whether they need you or not, to compensate you for making yourself available for their needs. This happens a lot with in-demand attorneys.
As the service provider, think of it this way.
If you had a client that offered you $20k per month for full time work, you wouldn’t turn down the business because some other firm might call you and offer you a few hours here or a few hours there to do odd jobs for them. If the odd job firm wants you available for those odd jobs, they compensate you for your availability, whether or not they take advantage of it. The bill is your hedge against opportunity cost.
So here’s what this might look like. After you set your client up with a custom app dev shop for a project, you offer a monthly retainer to listen in on standups or demos or whatever and to offer advice to the project manager and leadership for how to keep things on the rails.
This can be a standalone business model, but in my personal experience, I’ve always offered it as a complement to project-based consulting.
I’m going to draw a fairly fine line with this next one. And the reason for this is that the more disciplined, regimented, and repeatable you get with project-based consulting, the more it starts to look like what’s known as a productized service.
I can’t honestly tell you where, exactly, that boundary occurs.
The productized-service gets its name from the idea of making the delivery of a service so much like clockwork that the whole thing starts to resemble a product business, rather than a custom service business. Here are some of the hallmarks of a service starting to look like a product:
- It has flat pricing and occurs at a price point where consumers/businesses are as likely to swipe a credit card to buy it as to issue a purchase order.
- Delivery timeline is either completely fixed or highly predictable.
- You develop feature add-ons or upgrades to go along with the core delivery.
- The product (service) has a name or offering level names.
- Marketing and sales becomes clearer and more self-serve, generally because customers can browse the offering with flat price listed on your site (and perhaps even buy without a sales call).
So let’s take the consultative offering that I talked before, and think of it as more of a product than a service. On your site, you have a product-like landing page where you extol the virtues of your “EZ-RFP” offering (don’t ask me to name things like this for you, by the way).
The starter option sells for $9K and features 2 half-day discovery calls, RFP creation and submission, at least 5 guaranteed responses, a selection and a project plan. Or, clients can choose the concierge option that includes an all-day on site with travel and in-person discussions with respondents for $22.5K or $20K with 100% up-front payment.
Productizing a service is powerful for sales and marketing. But it also makes your business a lot more valuable if you decide to sell it at some point. (But this is an AP topic for later in the series)
4. SaaS or PaaS
Alright, let’s head for more familiar waters. I’m sure you all know what SaaS and PaaS are. And I’m sure you also have a pretty solid fundamental grasp of the business model.
You build a thing, and then you sell subscriptions for people to use the thing. Your costs (very roughly speaking) are those associated with building and running the thing. On the other side of the ledger, your revenue is nearly unbounded. And when you have more revenue than build/run cost, hey, profit!
In our running example, maybe you get tired of the high-touch nature of your business. Even productized, it’s a lot of calls and onsite visits. Plus, it’s not easy to scale.
So you take your internal automation and processes and turn them into something you can sell. Maybe you’ve built a nice template for capturing the requirements, a system for munging them into coherent shape, some slick little AI for tuning them for optimized RFP responses, and automation to submit them to RFP venues. You take all that, tie a bow around it, and sell it to companies or consulting firms that had been your competitors.
Of course, there’s all sorts of ways to build software or platforms and offer them as services. The business model is both simple and largely the same, however you go.
I have to admit that my ideas above for creating a SaaS from a discovery process are a little thin. That’s what happens when you pick an example while writing, without giving it much thought in advance.
So let’s say that you decide to go a different, perhaps more plausible route. You get so good at negotiating RFP processes that you could do it in your sleep. You could also teach others to do it.
Why not do that?
Maybe you decide to switch your target customer from firms with no in-house IT to firms starting and growing a department. And you teach those firms how to navigate the RFP process themselves. Teach ’em to fish instead of giving them fish, and all that.
A training business like this will look very similar in nature to the productized service business. You might even argue that training is a subset of productized service. But I thought it worth calling out separately, since the mechanics and profit/loss concerns do vary a bit.
6. Info Products
There’s another business model you might consider. It’s way lower touch than training, and even lower touch than a SaaS. And it typically comes with a lower (overall) price point, though not necessarily.
An info product is something you build to allow your customers to self-serve when it comes to training. Usually it takes the form of a book, a video course, or some kind of interactive learning experience for users. I’d consider anything from a how-to PDF that you buy for a few dollars to a Pluralsight subscription to be forms of info products.
Info products offer the siren song of passive income. Record a series of videos where you teach people to do stuff, put them up on Gumroad, and watch the money roll in while you sleep in perpetuity. Great business model, right?
In theory, yes, but here be dragons. Content is never truly “ever-green” and rarely relevant for more than a few years. The promise of info products as a lifestyle enabler tends to far outstrip the reality, which makes the slope between aspiring info product entrepreneur and desperate huckster a surprisingly slippery one.
I may do a whole separate post about info products and why you should be careful with this business model. In the meantime, I’ll toss out the general (but not always/absolute) advice that you should create info products only as the bottom tier of your business’s offering ladder (more on this below), and not as a stand-alone business.
7. Affiliate Marketing/Advertising
Let’s close out the business models I’ll mention with the lowest touch, lowest individual earning business model. In fact, this model is usually more side hustle than career. I’m talking about earning money through ads and affiliates.
If you’re feeling a little fuzzy on what I mean, consider that the most common instantiation of this object is the Instagram influencer/Youtube star. They create audiences and then hawk things to those audiences for a living.
But engagement audience building is just one (fairly labor intensive, frankly) strategy. You can build audiences on other channels, like, say, a blog. And you can also attract them through search engines and other means.
The overall gist here, though, is that you build an audience and then you do various flavors of advertising to that audience.
Why would I mention this for the freelance app dev person? Isn’t it super irrelevant? Well, no, as it turns out.
Assuming you’re not just letting Toptal or Upwork bring you business, then you have at least some nascent sales process and some semblance of marketing going. And marketing, at its core, is audience building.
So as a business owner, you might find that you inadvertently become pretty good at building an audience. And if you find that to be the case, a pivot to (literally) capitalizing that audience isn’t as far-fetched as it might first sound. It’s also a super low key way to earn a living, when the closest thing you do customer support is answering blog comments (or just turning commenting off).
Build Yourself an Offering Ladder
Having bought into (out of?) the idea of selling hours of app dev labor, how do you pick one of these models? What should you do next?
Well, I can’t answer that exactly for any one of you, let alone for all of you reading. You’ll have to decide that based on a combination of what appeals, what your clients and prospects might want, and opportunistically, based on what you’re able to sell. Experiment, test the waters, and see what seems to work.
But I’ll close this particular post with what I consider important advice. Whatever you pick, build yourself options. Build yourself an offering ladder.
Rather than define this outright, I’ll give a hypothetical from our running example. Your website offers:
- A free whitepaper about how to conduct an RFP process, which prospects can have in exchange for an email address.
- For $1,000, submit a detailed set of requirements, and you’ll craft and publish RFP on their behalf.
- For $10K, you’ll do a half-day seminar for IT leaders on how to run an RFP process, and then coach them through one on a retainer.
- And finally, for $20K, you’ll travel onsite, work with them, and handle the whole process.
As you can see, customers have different ways to engage you, and these ways span both a range or prices and even business models. This has two key benefits:
- It allows for low stakes engagements where you build trust and later engage clients in more lucrative arrangements (assuming you’re competent).
- This portfolio of offerings lets you experiment and tune as you go to work gradually toward your most profitable situation, without gambling your entire business on an all-or-nothing pivot.
And, there you have it. Business models in nutshell. You’ll have to figure out what kinds of offerings you’ll want to pursue, of course, but it’s my hope that this gives you enough mental fuel to eventually achieve escape velocity from zero-profit hours selling.