The benefits of digital products in professional services
Create Recurring Revenue
Most services businesses move from project to project with little reliable recurring revenue. A digital product can provide stability and predictability, unhooking revenue from linear time and effort either as a stand-alone product or as a subscription embedded within existing services.
Increase Profitability
A healthy digital product company has gross margins of 75-80% or more, compared to 50% or less for services companies. Product development does have higher upfront costs, so leaders must understand the path to ROI and revenue of an investment in a digital product.
Differentiation
A digital product can create synergies alongside current offerings, helping professional services companies win new business compared to competitors and remain sticky with existing clients over time.
Unlock New Customers
Most firms only serve a small percentage of potential customers. Digital products allow a professional services company to serve smaller customers profitably and expand their potential market.
Increase Company Valuation
The valuation multiplier for a subscription-based business is much higher than a services company, and that valuation is less dependent on a founder’s or leader’s presence in the business at exit. Over the last 8 years, when digital product companies have been sold, they have sold for five to nine times their annual revenue, compared to one times annual revenue for the average professional services company.
