Scaling a service-based business presents unique challenges compared to product-driven enterprises. While companies in e-commerce, like Secretlab, Warby Parker, and Razer, have managed to hit nine-figure revenues in under ten years, achieving similar growth in service industries is far less common. Businesses like digital marketing agencies, law firms, interior design companies, beauty salons, and tutoring services tend to face hurdles when trying to grow quickly.
In this article, I will explore why scaling a service-based business is difficult and outline strategies that have worked for businesses that successfully scaled, drawing from my experience with top-performing clients.
Many people believe the difficulty stems from the labor-intensive nature of service-based companies. It is true that recruiting and training large teams of skilled professionals can be complex, but I have found that this is not the main issue. Instead, the biggest obstacle is often a lack of understanding regarding critical business metrics.
For instance, e-commerce clients I have worked with are usually ready to scale fast, with monthly marketing budgets of $10,000, $30,000, or even $50,000. On the other hand, service-based businesses are typically much more cautious, often limiting their spending to just $3,000 per month, and they may stay at this level for years. This conservative approach to budgeting makes rapid growth difficult to achieve.
E-Commerce Grows Faster: The Power of Instant Returns
E-commerce businesses tend to increase their advertising budgets quickly, not necessarily because they are more ambitious or have greater financial resources than service-based companies. The primary reason for their aggressive budget growth is that a $10,000 ad investment can often return $30,000 or even $50,000 in revenue within a short time frame.
We all know how online shopping works—you see an ad on Facebook, visit the website, and make an instant purchase. This leads to immediate revenue for the e-commerce business. Their sales cycle is extremely fast. If spending $10,000 results in $30,000, it makes sense to keep feeding that “machine” with more investment. This cycle of reinvesting profits is what enables companies like Secretlab to scale so quickly. These businesses understand that reinvesting their profits leads to higher returns, rather than allowing that money to sit idle.
Service-based businesses, however, face a different set of hurdles. If they put $3,000 into advertising, they might have to wait as long as three months to see any significant returns. This delayed feedback makes it far more difficult for them to grow at the same pace.
Shifting Mindsets: Viewing Advertising as an Investment, Not a Cost
E-commerce businesses tend to treat their advertising as a revenue-generating tool, while service-based businesses often see it as a cost. For an e-commerce company, a $10,000 ad budget leads directly to sales. In contrast, for a service-based business, that same investment generates leads, but additional steps are required before those leads turn into actual revenue. First, the leads must convert into appointments, those appointments need to become meetings, and finally, those meetings have to result in closed deals. By the time the process is complete, tracking how many leads turned into successful sales can be difficult, often due to inefficient tracking systems.
Service-based businesses are focused on investing in leads rather than in direct sales, unlike their e-commerce counterparts. This mindset causes many service-based companies to be hesitant about increasing their ad spending, which results in lost revenue opportunities. For e-commerce entrepreneurs, spending $50,000 on ads each month may seem like a significant expense, but they expect a return that surpasses their investment. In comparison, service-based businesses often view a $50,000 ad budget as an overwhelming financial burden.
The point of this discussion isn’t to suggest shifting to e-commerce, which has its own set of challenges. Rather, the aim is to show how service-based businesses can adopt strategies from e-commerce to improve their growth and maximize their social media marketing efforts.
I work with several service-based clients who spend as much as $50,000 monthly on digital ads. What differentiates these highly successful businesses is their thorough understanding of key performance metrics. They can easily provide data, such as appointment attendance rates over the past quarter or conversion rates over the last six months. Growing a service-based business to eight or nine figures is entirely possible, but it hinges on having a deep awareness of these important numbers.
For example, let’s say you invest $10,000 in advertising and bring in 100 leads. From those leads, 90 turn into appointments. Of those, 70 people actually attend the meetings, and 10 ultimately become paying clients. If each deal is valued at $2,000, your initial $10,000 investment generates $20,000 in revenue.
To break this down further: with a 15% close rate, each sales meeting is worth $300. Every appointment is valued at $250, and each lead holds a value of $200. Thus, spending $10,000 on ads and generating 100 leads translates into $20,000 worth of revenue. This level of insight helps you grasp how much value your ad spend brings and how it fuels your business growth.
In simple terms, if you monitor your cost per lead, you can confidently scale your advertising campaign as long as that cost remains at or below $200. The benefit here is that you don’t need to wait for profits before deciding to increase your budget. Regardless of how long your sales process may take, focusing on this key metric enables you to grow your campaign.
In conclusion, by assessing your cost per lead in comparison to historical performance and consistently tracking these figures, you can effectively scale your service-based business.
Service-based businesses often face difficulties in tracking their performance metrics. Unlike e-commerce businesses, which have easy access to comprehensive data because their sales process is entirely digital, service-based companies deal with more complexity. E-commerce platforms usually integrate effortlessly with advertising tools like Facebook Ads, providing clear insights into conversion rates and cost per conversion, which makes scaling more straightforward.
For service-based businesses, the sales process tends to happen offline, making it harder to track and analyze. You rely on your sales team to manually enter data into a CRM system, but this is where issues arise. Salespeople often resist administrative work, which can result in incomplete or inaccurate data. Without proper tracking, many service-based businesses see lead generation as a cost rather than a revenue-driving tool.
However, accurate tracking is possible with the right strategy. For example, we emphasize the importance of transparency with our sales team regarding the cost of leads. In exchange for receiving leads at no cost, we expect them to accurately track and update the CRM. This approach benefits both sides—if the company consistently loses money on leads due to poor tracking, we’d have to stop generating them, which hurts everyone.
By clearly explaining the broader business goals to the sales team, they become more invested in keeping track of leads and ensuring the CRM is up to date. Additionally, we’ve integrated our CRM with our advertising platforms, enabling us to closely monitor key metrics like cost per acquisition and conversion rates. When we treat our service-based business with the same level of precision as an e-commerce operation and implement proper tracking systems, scaling becomes not only achievable but sustainable.
Ted is the co-founder of Ice Cube Marketing, a digital marketing agency that is a Google Premier Partner and a Meta Partner serving SMEs since 2015.
